Primary surplus chokes market

21 April 2017
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The state’s fiscal performance last year has exceeded even the most ambitious targets, as the primary budget surplus as defined by the Greek bailout program, came to 4.19 percent of gross domestic product, government spokesman Dimitris Tzanakopoulos announced on Friday. It came to 7.369 billion euros against a target for 879 million euros, or just 0.5 percent of GDP.

A little earlier, the president of the Hellenic Statistical Authority (ELSTAT), Thanos Thanopoulos, announced the primary surplus according to Eurostat rules, saying that it came to 3.9 percent of GDP or 6.937 billion euros. The two calculations differ in methodology, but it is the surplus attained according to the bailout rules that matters for assessing the course of the program.

This was also the first time since 1995 that Greece achieved a general government surplus – equal to 0.7 percent of GDP – which includes the cost of paying interest to the country’s creditors.

There is a downside to the news, however, as the figures point to overtaxation imposed last year combined with excessive containment of expenditure. The amount of 6-6.5 billion euros collected in excess of the budgeted surplus has put a chokehold on the economy, contributing to a great extent to the stagnation recorded on the GDP level in 2016.

On the one hand, the impressive result could be a valuable weapon for the government in its negotiations with creditors to argue that it is on the right track to fiscal streamlining and can achieve or even exceed the agreed targets.

On the other hand, however, the overperformance of the budget may weaken the argument in favor lightening the country’s debt load. It is no coincidence that German Finance Minister Wolfgang Schaeuble noted in Washington that over the last couple of years, Greek government deficit forecasts are more realistic than those of the International Monetary Fund.

ELSTAT data showed on Friday that the general government debt came to 314.8 billion euros, or 179 percent of GDP in 2016, up from 177.4 percent in 2015.

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