Dimitris Rapidis

The lonely passenger

Recent data from Greece’s central government has showed a primary surplus for the first seven months of this year. This is the first time this development appears in debt-ridden Greece since 2010 and the first rescue package of the Greek economy. The government lies on that argument for the negotiations with troika in order to avoid an additional package. But is this surplus efficiently reclaimed?

The Greek government is lately and extensively highlighting the primary surplus of its budget as strategic argument against the predictions that the country might inevitably seek for additional rescue package. The Minister of Finance Mr. Stournaras is expecting that this surplus can show the ability of the central government to produce gains that can cover spending rate, leaving a relevant amount for serving the country’s interest payments. This argument is used as a major credential for Greece’s creditworthiness and, hence, the recovered ability of the country to re-enter in the international markets. Such a development, it is said, would smooth dependence from troika and liberate to a certain degree the government’s policy.

Nonetheless, the problem of the degree of Greece’s creditworthiness is the viability and capability of repaying its obligations against its lenders, which in this case are inextricably interwoven with the source of this surplus and the balance between income and spending. In other words, is this surplus concerning the decrease of public spending through the restructure of the public sector and its competence in providing better services than before or it is stemming from payment withholdings, horizontal cuts, and massive layoffs? In addition to that, is this surplus related to the amplification of fiscal base and corresponded to a more socially fair and economically balanced behavior of the respective tax collection mechanisms or is it more attributed to a incessant and socially unfair tax increases that finally end up with the increase of poverty and unemployment rates and waves of contestation and unrest against the government?

Welcome back

All these questions are essential in order to understand the origins and effects of this surplus and its reflections in the Greek society and the real economy. Towards this, as long as the primary budget surplus is not reflected to the criteria of quality restructure and growth demand, I dare to point out that it cannot convince the international markets, let alone the fact that it does not increase any credibility for the country abroad without the presence of troika in the negotiation table. Unfortunately, the primary surplus is nothing more than an administrative achievement, being literally based on massive spending cuts on social security, salaries, and pensions, on layoffs, and certainly on consecutive and unfair increase of taxes. To put is this way, it is nothing more than just numbers.

Options Ahead

Greece has so much debt to ever be able to pay it back. But even in this situation, having a primary surplus, it is given a great chance for the country and the government to negotiate hard with troika and the lenders. Not just to use whatever leverage stems from the surplus, but to press in order to use it as an argument for establishing a growth clause. If there is any possibility for Greece to receive an additional package, this package should change the entire mindset of austerity and be centered towards investments, not more loans.

From another perspective, Greece has now the option to use this surplus for its own economy, and not just for crediting itself as “the good student”, by unilaterally defaulting. It is a strategy that has been implemented hundreds of times in history, with Greece also having followed this path many times since its independence in the 19th century. Yet, defaulting is entrenched with many risks, but for the time being, and with options narrowing, I would firmly reconsider this option as fairly attractive. For such an indebted state like Greece, moving from primary deficit to primary surplus slightly increases the room for policy choices.

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