John Hemming's Web Log John's Reference Website
Sunday, May 24, 2015
  Greece and Spain
Elections are happening in Spain in which a party with a similar view to the Greek Syriza  (Podemos - We can) is putting forward an "anti-austerity" platform.

The difficulty in government is that policies have to work.   The Greeks appear to have put a major hold on payments to suppliers prioritising employees and other objectives.  Inevitably suppliers have put a hold on supplying the Greek government with the consequent damage to public services.  On a cash basis they may have a primary surplus, but with a purchase ledger of EUR 4.4bn and spending EUR 2bn less than budgeted something has to give.

Claiming that they have a primary surplus when it has mainly come from not paying suppliers is obviously misleading.  None of the Eurozone finance ministries are stupid enough to believe what the Greeks are claiming.

Then again when you have this idiot as finance minister it is not surprising they have problems.  Quoting from the linked article:

"Greece’s general government had, in 2013, a primary deficit of 12.7% of GDP if we add to it the cost of recapitalising the banks (again during 2013). Let’s accept that this cost should not count as part of the government’s outlays (even though it is not clear why it should not). "

It is obvious that a one-off cost should not be treated as a continuing revenue cost.  If that is "not clear" then he should not be finance minister.

The fundamental problem is that a government has to manage its finances in a sustainable way.   Additional government spending does increase the GDP, but not necessarily sufficiently to reduce the borrowing required to fund the additional GDP.

It does appear that the Greeks are now in the final stages of the process of default.  It is insufficient to dislike the conclusions as to what policy changes are required.  There has to be a clear plan for any alternative proposals to produce something that "works".  In the case of governments any financial shortfall has to be borrowed from someone.  People with money are not inclined to throw good money after bad.  The people who are most likely to suffer from the government getting it wrong are the poorer people in society.  Hence governments need to get it right.


 
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