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Wednesday, April 15, 2015

Eliminate Primary Surplus Requirement?

Official figures were reported today: 2014 deficit was 3,5% of GDP and primary surplus was 0,1% of GDP. This would suggest that Greece's debt service was 3,1% of GDP.

3,1% of GDP is a VERY low figure for debt service. I understand it is lower than Italy's and Portugal's (allegedly even lower than Germany's) and about the same level as Spain's.

What matters more, though, is debt service as % of government revenues. I cannot find the nominal figures but I recall that Greece's debt service was 5,7 BEUR in 2014 (cash debt service; not accrued debt service!). Total government revenues were 88 BEUR in 2013 according to ELSTAT. I cannot find figures for 2014 but I presume they were about the same. This would mean that the Greek government had to allocate about 6% of its revenues to debt service. That could be one of the lower figures in the Eurozone.

Allocating 6% of government revenues to debt service is really not all that much of an austerity challenge. Perhaps with some good (as opposed to propagandist) negotiation, Greece might even cut that percentage in half.

But let's look at the extreme case as an alternative. Let's assume the EZ would say to Greece: "We will - for a period of, say, 5 years - assume your entire debt service. I. e. we will make you new loans at preferential conditions in the amount of principal/interest you have to make. Put differently, we leave you the entire primary surplus under the condition that we will not lend you an additional Eurocent. Should you not achieve a primary surplus, that will be your own problem".

That would be one way to put the 'Greek debt problem' to rest for, say, 5 years. Greece would literally be forced to live 'within its means' (excluding debt service), as FinMin Varoufakis has promised that Greece can. If it turns out that Greece can indeed live within its means for 5 years, an overall debt restructuring with meaningful debt relief could be made then as a 'reward'.

The above would deprive the Greek government of its victimhood argument and it would give the EZ the pleasure of not having to worry about Greece for 5 years. Nevertheless, the ECB would also have to play a role in this. The ECB, too, would have to find a solution where it says "This is how much we will do for your banking sector and not a Eurocent more".

To require a primary surplus of only 0% would be a giant leap for EZ negotiators but given all the present catastrophic alternatives, it might turn out to have been just a small step.


  1. Two things here:1) How arrears transform the 3.1% and (2) Tax revenues as a % of GDP, (which is the level for Greece)?


    1. Below is the realease which gives you all the details. Regarding the arrears I have no specifics but I believe that they were reduced during 2014.

  2. I saw a much more humorous suggestion to the Greek debt problem in another blog: Buy the Greek government for their actual value and sell them for the value they claim to have. That should leave you enough profit to pay off the loans.

  3. " Greece would literally be forced to live 'within its means' (excluding debt service), as FinMin Varoufakis has promised that Greece can. "

    In case you don't know (which you obviously don't), the last time Greece got a EU tranche, was summer 2014. Ever since, Greece is living and even paying debt tranches without foreign loans. This, because Samaras didn't manage to close the negotiations before the elections, so he didn't get the tranche he was supposed to get. Tsipras didn't get any tranche either.

    1. You probably haven't looked at the ELSTAT statistics which I linked above because then you would have seen that 2014 was, indeed, the first year in many years where Greece could live within its means before interest.

      You make it sound like it was a distinction to survive 10 months without alimentation from abroad. Well, the real distinction would be to not only be able to pay for one's operating expenses but for interest, too.

      If Greece could survive 10 months without alimentation from abroad, it only proves that Greece had the money. Why did Greece have the money? First, because, until November 2014, Greece was awash in cash with a primary surplus for 11 months of 3,9 BEUR. And, secondly, Greece had raised several BEUR in capital markets in 2014 which new liquidity had not been included in the calculations of the adjustment program. Thus, Greece did get the money it needed but it didn't get it from the Troika but, instead, from capital markets.

      Incidentally, as late as January 29, 2015, FinMin Varoufakis told the NYT that "we don't want the 7 billion". Ok, wish fulfilled.