Wednesday, 28 December 2011


Readers will know that this blog is the one place where you can actually get a monthly play by play of the Greek primary deficit, and when stuck for anything else to write (after my Basel III blogasm the other day) I will dig that out for some light entertainment.

By the looks of it, the Government has started to turn things around near the end of the year, after a disastrous start in which the primary deficit seemed completely out of control. Since June, the primary deficit has flatlined and since September it has stayed below 2010 levels. September and November were particularly good months. That said, three months do not a reverse snafu make and December could well be a different story, as indeed the whole of 2012.

All of my usual caveats apply: a large proportion of savings are unsustainable, either because they are one-off tax revenues or because they are based on deep cuts to public investment. Sooner or later the potholes will need filling and the tax admin IT systems will need mercy-killing; and of course there's only so much you can tax when an increasing number of would-be taxpayers are under the poverty line.

Moreover, I'm still unable to explain why last year's deficit figures have been revised upwards by about 834m as of November. This revision accounts for about half of the gains that the government appears to have made against 2010 figures. Moving the goalposts is a time-honoured tradition but I don't expect it's fooling anyone anymore.

As for next year, much hinges on what kind of measures the government goes for. Remember, the order of preference should be:

Benefit cuts > Public consumption cuts > Direct Tax Hikes> Public Investment Cuts > Indirect Tax Hikes

I can't see how a government with no mandate (three non-mandates do not make a mandate) will manage to pull off further benefits cuts, or indeed how further taxes are going to be viable given their history of missing revenue targets. Public investment is down to virtually zero, so that's not an option. So next year is going to be the year the moist-eyed public consumption puppy really gets it.

For the more visual characters among you, the charts below show the evolution of the primary deficit during the past three years.

So to conclude, I don't know how long this is going to last, but let's cheer this latest batch of figures. Long-term, the solvency of the Greek sovereign is not in question in the same way as the half-life of a snowflake in hell is beyond dispute.

But lest we forget, PRIMARY SURPLUS = SOVEREIGNTY so the closer we get to it the better. Yay.

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