26th July 2012

The last few days have seen a change of mood in the analysis of Greece's position in the Euro. Over the weekend the German newspaper Der Spiegel published an article suggesting that the International Monetary Fund is considering cutting Greece adrift. Of course newspapers speculate all the time and most, sometimes all of it, is spurious, but this one appears to have hit something of a raw nerve. Whether by luck or judgement it has exposed doubts in people who previously were willing to describe utter failure as being "on track".

The timing

This week the troika (IMF,European Central Bank and European Commission) has its representatives in Greece examining the books and her economy and it is not a pretty sight. I will discuss Greece's public finances in a moment but her economy was summed up by President Samaras who stated that he now felt her economy could shrink by 7% this year and that she was in a "Great Depression". This will not have come as a surprise to readers of this blog as the latest data showed it shrinking at an annual rate of 6.5%. However the official view up to now has mostly been of the "an improvement is just around the corner" variety. If you wish to compare reality with past official views you merely need to contrast the reality of Greece's likely 7% economic contraction with the 2% economic growth that the original IMF bailout forecast in May 2010. Only 9% out…..

Greece's Public Finances

There has been something of a change in these numbers which can confuse the unwary. Let me show you the latest data which covers the first six months of 2012.

the State Budget deficit amounted to 12,477 million Euros, a significant improvement relative to the target deficit of 14,878 million Euros set in the 2012 Supplementary Budget.

So far so good although the more eagle-eyed may be wondering already why a Supplementary Budget was necessary if things were going so well! If we look at the same time period in 2010 and 2011 on a like for like basis we see that suddenly the situation looks very different.

the execution of the State Budget for the six months January – June 2011, on a fiscal basis, the deficit amounts to 12,781 million Euros compared to the target of 10,374 million Euros set in the 2011 Budget. During the same period in 2010, the State Budget deficit amounted to 9,997 million Euros

So as you can see adding some perspective gives us a completely different picture. The deficit expanded by some 2784 million Euros in 2011 and the Herculean efforts in 2012 have trimmed that expansion by the grand sum of 304 million Euros. So in the "bailout era" it has risen by 2480 million Euros. No wonder the IMF is having doubts.

Oh and the change I mentioned was that past reports as you can see above gave you figures for the previous year whereas the present ones do not. Just forgetful I guess.

Continue Reading…

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