From the comments, on the Greek primary surplus

Tom Warner writes:

…the budget balance fell off a cliff in December. State budget revenues were only 2.4% below adjustment program target in Jan-Nov, but were 14% below target in December and 20% below target in January. That’s a huge shortfall – if a 20% revenue shortfall were to persist for the whole of 2015, that would be more than €11b euros of missing revenues and more than 6% of GDP.

So the issue now isn’t whether Greece can hit some pie-in-the-sky target, it’s whether it can get back to where it was in Jan-Nov of last year. Syriza’s going to have to get the state finances in order very quickly or they’re going to go boom.

Here is Tom Warner’s blog.


The first link is just a bit off - but really, who wants to read the thoughts of some person on the Internet when instead, one can be led directly to the glitteringly self-recommending (and apparently female free) MR comments section.

I'm a double-inverse trisexual, so you take your transphobia elsewhere, buddy.

I find the focus on the government budget to be misplaced given the trade deficit that Greece has, and that has driven the Greek government spending.

So what if the Greek government runs a $25 billion surplus and pays non-Greek lenders that money if the nation as a whole is importing $100 billion more than it exports, and the Greek government is taxing heavily to keep the unemployed from starving and to pay foreign debt from the past trade deficits monetized in government debt.

Greece needs creative destruction of consumers so that the only consumers remaining are those adding to the GDP what they consume so the trade balance is zero. Greece is not going to make cars or planes, or even software that generates sufficient revenue. Can Greece extract twice as much money out of German vacationers given the availability of FSU beaches?

Ideally Greece would be like Ireland so often been - millions of young people emigrating.

Lool, that's your solution? just emigrate... Guess what, people who could have done so probably already did.

Greek emigration has already been large and growing in recent years, partly motivated by brutal payroll, income and value added taxes. Trouble is, the best and brightest are the first to go (those with more ambition and human capital) while people accustomed to live on government transfer payments stick around.

The thing is that Greece's current account deficit has narrowed significantly the past few years and is now in fact balanced for the first time in decades. Unfortunately, most of the adjustment has been due to import compression, which itself is due mostly to the precipitous fall in domestic demand and less so because of expenditure switching. Export performance, though improving, is disappointing.The other periphery countries (Spain, Portugal, Ireland, etc.) have had a much more substantial rebound in their exports. The fall in real wage costs seems to go only a small way to encouraging expansion of the tradable sector in Greece. Low growth elsewhere certainly dampens the impetus for investing in exporting capacity in Greece and limits the willingness to expand production for existing capacity. But also the low productivity of Greek workers and the general problems having to do with bad public administration or "infrastructure" broadly understood. Physical infrastructure, however, is now pretty good, given all the public works of the last twenty or so years (the metro, the new airport(s), the new highways, etc.), but still this is not enough. In terms of emigration, my impression is that most of Greece's most talented young people have been mobile for a long time. This is obvious in terms of education (I am a Greek-American student at UC Berkeley, and I find even myself surprised at how many Greek Grad students in tough subjects like CS there are), but also in jobs. This has been accelerating in recent years; many Greeks have been brushing up on their German or learning it to move; I know a handful of Greeks who have recently moved to France and the UK to work there. One problem with this, however, is the perverse composition effect Alan Reynolds talks about. The people left behind are generally the low productivity ones. The tragedy is that Greece cannot utilize its smartest youths and has not been for years--even before the crisis, it was clear that aspiring and bright young Greeks would have to go abroad.

Tom Warner reminds us that hell is always in the details. When Paul Krugman talks about the primary budget surplus of Greece, is it just the case of a ghost? Or perhaps this shade of primary surpluses are as numerous as those famous shade of gray.

Thanks, Tyler.

Jean-Louis: The Greek primary surplus is definitely gone, if it ever existed. It was running at around 1% of GDP through November, but that's using advance Greek data which is often downgraded before the final publication by Eurostat.

It's not really possible to calculate a primary balance for such a short period as December-January, as both revenues and expenditures are lumpy. The figures I'm quoting for the scale of misses are for state budget revenues relative to budget target and come from here:

For December, I exclude the €1.9b part of the revenue miss that was due to the Eurosystem not paying refunds of interest as planned (those were conditional on Greece sticking to the program).

Mulp: I think you're reading old news. Greece has been running trade and current account surpluses:

Syriza just promised its voters they were going to end austerity, I would expect they'll have to burn the budget to even seem credible.

Yes, but they can only spend as much as they collect or borrow or receive permission to print, and their creditors are more or less the same people who give that permission. Missing a revenue target by 20% is not the sort of thing creditors typically want to support. I understand nearly all of this shortfall happened before Syriza came to power.

Obviously Tsipras has to be promising to fix it - there would be no point talking otherwise. He has been talking about raising taxes on the wealthy. The question is whether European leaders are willing to pretend to believe him.


I do not think that this is a matter of whether the EU creditors "pretend to believe him" on raising tax rates on the wealthy. Given where his party is coming from, it is highly credible that he might be able to get such an increase through the Greek parliament to become law. The question is whether they will actually be able to collect those taxes.

Clearly there is a current major budgetary shortfall. How this will all play out is very unclear.

Yep that's what I meant, to get a deal European leaders need to be willing to pretend to believe Tsipras will actually collect the taxes. I'm as convinced as ever that this is heading into a default and banking crisis sooner not later. I don't completely rule out a deal, if Tsipras decides he wants one badly enough, but I think if he does it will fall apart within a year and the same way anyway: with Greeks left to decide while their banks are closed between Grexit and more austerity to make up for how badly Tsipras mucked things up. I still think electing him was an act of mad frustration and all he can really do is make a theater of throwing himself against the walls that surround him. Because even after all this the Greeks are still much more afraid of leaving the euro than of any conditions Germany might demand to help them stay in it.

One thing about Krugman is that he never really defines "austerity." Countries can run huge deficits and still be running a policy of "austerity." In the case of Greece, they are still spending a *huge* amount relative to the size of their economy, but they have an "austerity" policy as well.

Well Mark, since you asked Paul to define austerity why dont you define "huge amount relative to the size of their economy "... Do you think Greece is some huge outlier relative to other European countries? Not really...

Krugman has repeatedly defined Greek austerity as "spending cuts" even though the ratio of spending to GDP rose from 44.6% in early 2006 to 59.2% in early 2014. Stiglitz has done the same -- without data.
If Krugman and Stiglitz instead argued that recent increases in VAT, payroll and income tax cuts have been highly counterproductive, I for one would agree. If Keynes were alive, he'd agree too But Krugman seems habitually unalbe to suggest that any tax rate could ever be too high. So he is reduced to describing big increases in government spending (albeit relative to falling private GDP) as savage cuts. This is not credible nor helpful.

Is the spending also dropping in absolute or per capita terms. Or is the increase relative to GDP purely driven by the denominator?

I think Greece endured severe austerity. The overall consolidated public deficit was around €36b in 2009, and was probably less than €6b last year. About €6 of that consolidation was interest cost reduction, the other €24b was austerity.

But I would call it voluntary austerity on Greece's part, as it chose to stay in the euro knowing austerity was the price. It's hard for me to accept the interpretation that the rest of Europe "imposed" austerity on Greece by refusing to commit to giving it as much for as long as it would take to grow into a credit-boom-inflated GDP level. It's worth noting that Greece had run up its spending from €109b in 2007 to €128b in 2009. There's a lesson in there about just how badly it can go wrong when you try to rescue ill-timed leverage with more leverage.

Tom Warner's blog is very good.

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