Wednesday, 15 September 2010


The Government has published today its newest Statement of Intent regarding our standby agreement with the IMF, and the IMF has released its latest review of our stabilisation programme.

At first glance, the two documents (which appear to have been written by the same person) reiterate much of what is already known. Read between the lines, however, and it's not so good anymore. My play-by-play is as follows:

  • tax receipts have collapsed because the economy is imploding much faster than we had expected, but we're holding back spending even further so it's all good (hint: it isn't). We still expect growth to match the -4% forecast we've agreed with the IMF (ed: it won't).
  • we're having a bit of trouble controlling anything outside of central government (nothing to do with the upcoming municipal and prefectural elections) and are making up for this by keeping central government expenditures down:
"Through June, the large margin under the targets created in the state budget has offset the overruns to date in subnational entities. "
  • we've been able to hold back central government spending so much partly because we're putting off payments to our own funds or citizens, a state of affairs often called default.
"However, there has been some undesirable buildup in accounts payable/arrears in hospitals and social security funds."
  • Inflation is out of control, partly "because the government frontloaded a number of large indirect tax increases, which have been passed on as a step up in the price level." We couldn't possibly have foreseen that, even though "[t]he high pass through of indirect tax increases to final prices is indicative of a lack of competition and the prevalence of oligopolistic market structures" which we've known about all along. Actually we don't mind because inflation is also eating away at our mountain of debt - so it's definitely all right. This is what the IMF mean when they say: "Staff and authorities agreed that nominal growth will be somewhat higher than originally anticipated." This puts us on track for debt to GDP of 144% in 2013 rather than the 149% originally forecast. YAY.
  •  Thankfully we can always count on the contribution of pimps, drug dealers and tax cheats to consumer demand: "The authorities saw the risks to the growth outlook as being on the upside. They noted that the informal economy and unrevealed pockets of wealth act as a buffer and underpin private consumption data." It won't be the first time that our shadow growth sector comes to the rescue.

  • We're sorting out our budgeting process. Now all levels of government and all government agencies will be handed actual budgets on a top-down basis (WOW), along with contingency margins (ed: which they will use 9 times out of 10). Our budgets will be part of a UK-style Comprehensive Spending Review, which will do almost nothing to keep us from screwing our grandkids over in the same way that it did for the British. Yay.

  • We now have a much better idea of how many people we employ in the public sector: just under one in five persons in employment. We'll commission a review of the function of public administration to see what we're going to do with them. Even though public admin only accounts for half of the public sector payroll.

  • We've implemented price caps on medicines, forced hospital suppliers to give us a massive discount and accept payment in Greek bonds, all to to keep our health sector from folding. Predictably we are now facing dangerous and humiliating shortages of absolutely every sort

  • We've passed a highly controversial law, codenamed 'Kallikrates', to reform local authorities. Its main function to date appears to be to merge insolvent authorities with solvent ones, the intelligent solution to insolvency so successfully pioneered in the banking sector.

  • We've passed a massively controversial (and much needed) law to reform our terminally ill pensions system. We're pretty sure it will work (the IMF forecasts a saving of 8% to 10% of GDP by 2050) even though "The National Actuarial Authority will complete an assessment of the effects of the reform on the main pension funds by end-December 2010, and of the largest auxiliary pension funds by end-March 2011." If it turns out the system still isn't solvent (ed: it will), we'll just pass another law to amend it, even though passing the first one nearly toppled our government.

  • We will continue our trend for selling ever smaller amounts of ever shorter-term bonds ever more frequently, because nobody will buy them otherwise.

  • Our banking system is in good shape - all but one bank passed the incredibly rigged CEBS Stress Tests, which, by omitting any haircuts on assets held to maturity (like most Greek bonds out there), made our banking system look less doomed than it actually is. "Liquidity conditions have remained strained" is a tactful way of saying that our banking system is losing billions of Euros of deposits per month and would not survive one second without funding from the ECB.

  • We've commissioned a strategic review of options for our banking sector by "independent consultants." Money well spent, as our government have clarified that they want a large part of the sector to remain public and that's that. The IMF helpfully point out that the Greek state has a controlling interest in over 11% of the Greek banking system by assets. Someone ought to tell them we don't take hints very well.
    Dear friends. Do not be fooled. There is only one thing that matters in all of this sorry saga. Earlier this week the Basel Committee announced that the implementation of Basel III will be phased in over four years, and parts of it will wait until 2019. 2014-15 now becomes the likeliest date of the Greek default, if nothing else goes wrong in the world. Welcome to the end of the world.


  1. Great post as always. I nearly fell off my chair when scanning through bloomberg.com this morning. I quote:
    "The government managed to cut the deficit by more than 30 percent in the first eight months, though revenue only gained 3.3 percent, shy of the 13.7 percent target for the plan. “We are a little bit behind in terms of revenue collection, but that is more than compensated by the fact that expenditures have been declining faster,” Papaconstantinou said..."

    A little bit behind? 3.3 vs. 13.7? A little?

  2. Well spotted!

    I imagine that only Gary Glitter uses the word "shy" in a more inappropriate way.


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