Sunday, 13 May 2012


Another month, another Budget Execution Bulletin. As readers know I track these figures on a monthly basis and bring them straight to you because, well, no one else cares to do it. Which is sad really considering a primary surplus is the holy grail of our fiscal adjustment programme and the price of our independence as a nation.

Here, without further embellishment, are the latest data, going up to a provisional announcement in April. As of April 2012, our primary deficit continued to fall. February was a great month, and March was also good, while January was our worst since austerity began and April itself showed no improvement over last year. Overall, we're running a primary deficit to date of EUR1.7bn, consistently lower from February onwards than the 2011 figures. It's not a bad outcome.

You can replicate this analysis yourselves, using the data I have uploaded here.

I've run two different regression analyses on the data (one projecting the monthly primary deficit and one projecting the 12m rolling primary deficit), and both tell me that if we manage to continue to reduce the primary deficit in a linear fashion (which we won't), we should be on course to run that elusive primary surplus in October. OK, so that's not going to happen but we're still on course I guess. Remember, a primary surplus will not in itself make Greek finances sustainable. The surplus, along with real GDP growth and inflation, have to be eating into our debt pile faster than interest rates are growing it. That might take quite a bit longer than getting a primary surplus. On the other hand, if you're of opinion that Greek debt cannot be made sustainable without either a) default or b) an earth-shattering final negotiation of debt such that our creditors will never want to speak to us again, then a primary surplus is quite enough to ensure sustainability. A primary surplus, as I never tire of saying, will buy us our sovereignty back.

Incidentally: a question often asked in Greece (complete with an uneducated answer usually) is: how much of our borrowing is due to interest payments? There's no easy answer to this as one has to specify the timeframe over which the question is to be answered. Even then, it's not a simple matter of dividing the primary deficit for that period by the total deficit for the same period, because borrowing is not done at a constant pace, nor is it done to pay for past spending. It happens in big discreet chunks and is meant to pay for future spending. But the problem is, we don't really know what future spending will turn out to be; we only know the budgeted figures and the monthly forecasts are likely to be incredibly inaccurate. Besides, it's never clear how far into the future each new tranche of money is meant to last, or when you can stop counting the effects of the previous tranche. The longer we can go on each payment the better, presumably.

I would argue that the broader policy question assumes that the percentage we're looking for is always positive until we turn a primary surplus. And sure enough, we have had many of those on a monthly basis but they don't mean anything if they are cancelled out by deficits in other months. So what I prefer to use, as above, is the 12-month rolling totals, i.e. the total deficit (primary and otherwise) created over the 12 months up to the date in question. So the 12-month rolling deficit for April 2012 will be the sum of monthly primary deficits from May 2011 to April 2012 (inclusive). If you follow this calculation, then about 15% of our new borrowing over the last 12 months has gone towards primary expenditure and another 85% towards servicing debt - again, with the caveat that this backward looking accounting for new debt is wrong anyway.

Some will interpret the low percentage above as a sign that the new debt is only taken on to pay for old debt as opposed to primary spending. Not only is this incorrect (15% still goes to primary spending), it also misses the point. If 100% of new debt were directed to servicing debt, would we be worse off? No - it would mean we're running a balanced primary budget. Which is the whole point of this exercise. And should the ratio turn negative, it means we're actually paying down debt - the debt pile is shrinking. 


  1. Very interesting comments. Let me add my points in your thinking.
    I tend to be optimistic about 2012 (or I at least hope that things will turn out OK) as in 2011 according with to the official data (see www.minfin.gr Jan-March general government data) Greece's primary deficit was 3.5 bil. euro. Also in the 1st Q (jan-march 2012) the primary surplus was 2.3 bil. euros, roughly 5 times higher than of 2011 1st Q (518 million euros).
    OK this was a good start.
    In April the data show that the state's budget have a deficit of 1.68 bil. euros. If you can look at the figures for 2011 which was 3.55 bil. euros, I can say that we are on a good track, especially when compared with 2012 targets (-3.2 billions for jan-april and -1.09 billions for the whole 2012).
    I believe that perhaps data from general government can improve things a little. Also bear in mind that cuts in pensions and in public workers payment (my own including) will continue for the whole year, while they only were partially enforced in 2011.
    From the above, I hope that we will be able to sustain a balanced sheet for 2012 (if not run a small surplus).
    I appreciate your comments on the above...


  2. "I track these figures on a monthly basis and bring them straight to you because, well, no one else cares to do it."

    and many thanks for that!

  3. Very interesting thanks. It will be very interesting to see how this data pans out for the next few months, as I suspect the two (three??) elections may change things somewhat.

    You are quite correct that this data is very important though.


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