12th April 2012
Yesterday the Greek Prime Minister Lucas Papademos made a welcome move as he announced that elections will be held on May 6th. As a supporter of democracy I think that this is long overdue and that elections would have been preferable to the current technocracy which runs Greece. Important decisions lie ahead and such decisions should be taken by a government with a democratic mandate. If the delay was due to an attempt to maintain the status quo it appears to have failed as in early polling the main parties are doing poorly. As they have let Greece down I guess that is hardly a surprise.
What is Greece's financial situation?
The Ministry of Finance has published provisional state deficit figures for the year so far up to March. As ever it tries bombast and an element of misrepresentation to confuse the unwary.
"the State Budget deficit amounted to 7,302 million Euros, a significant improvement relative to the target deficit of 8,596 million Euros set in the 2012 Supplementary Budget."
However the more wary will read further down the report and spot this.
"State Budget expenditures up to March 2012 were 3.597 million Euros higher than in the same period a year ago,"
So for the position to have actually improved then tax revenues would have to be towards 5 billion Euros higher than in 2011. As the report misses out a comparison I have looked in the data and can help them by pointing out that at 12.81 billion Euros they are only 1.08 billion Euros better than last year's 11.73 billion. So the overall deficit is some 2.52 billion Euros higher than last year as the phrase "significant improvement" makes its way into my financial lexicon for these times.
Indeed if we look at the rise in tax revenues these too are a disappointment as they include these new tax efforts.
"the special levy on real estate collected through electricity bills introduced in October 2011 and improved personal income tax outturns"
We see several factors at play here but what is the main driving force is the shrinking of the Greek economy or as the report puts it "the contraction in economic activity". Actually the improvement in tax performance is not all it is cracked up to be as of around 8 billion Euros in income tax theoretically owed only around 600 million has actually been collected. We return to the theme that the Greek saga would have had a happier outcome if taxes had simply been collected more often.
What caused the expenditure rise?
We see this.
"significantly higher net interest payments (3.703 million Euros)"
As we note that these increased payments were higher than the deficit we see that this represents an utter failure for the strategy imposed by the Euro zone. Their own strategy of dealing with debt by creating more debt has masked an underlying improvement in Greece's finances. In other words the strategy in essence means that she has to run hard to stand still. Unfortunately the recent debt haircut will help little with this as some much debt had to be taken on again to sweeten the deal and to bail out Greece's banks as Daft Punk put it "One more time". But probably not the last time….
A Fundamental Problem
The easiest part of expenditure to cut is usually the best part and we see this is the report.
"Public Investment spending was also restricted substantially relative to the target (950 million Euros) during the first quarter, amounting to just 488 million Euros."
So we see this cut back from last year's already reduced 677 million Euros and I fear for Greek infrastructure. I will leave readers with their own thoughts on a target apparently based on an increase in investment,apart from pointing out that it was easy to beat!
Greece is nearer to being able to default and devalue
Regular readers will be aware that it is my recommendation that Greece should both default and devalue her currency. For those that follow the theory that a primary budget surplus is required then we see this.
"During the same period, the State Budget primary deficit amounted to 365 million Euros"
This is a considerable improvement of the 1.55 billion Euro primary deficit of the same period last year. Actually there is much more to a successful devaluation than this measure which is a theoretical construct but quite a few eyes will turn to it and wonder.
It also reminds us of the extraordinary amount of debt and interest payments that Greece is currently carrying.
What about the economy?
We can see from the tax revenue figures that the economy has continued to shrink but we can see more from the latest data.
If we look at the latest numbers we see this.
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