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Saturday, September 21, 2013

Tsipras 1 - Troika 0

The widely read German blog NachDenkSeiten is a very progressive blog. Some would probably describe it as 'very leftist'. Be that as it may, they publish very thought provoking articles. And they recently published an interview which Alexis Tsipras allegedly gave the Kyriakatiki Elevtherotypia on September 8, and they commented on it. Tsipras is quoted, among others, as follows (in the middle of the interview):

"Our interest obligations, based on the Troika program as of today, amount to 83 BEUR until 2020. They are supposed to be paid 61 BEUR out of our primary surplus and 22 BEUR out of privatizations. Isn't there any serious person in this world who would notice that this is pure phantasy? There has never been a case in history where a country coming out of a depression managed to have high budget surpluses and growth at the same time!"

I don't know whether the numbers which Tsipras quotes are correct but if they are, the score on this one is clearly: Tsipras 1 - Troika 0.

Before Tsipras-followers get carried away, let me bluntly say that all of this stuff about Greece's having been destroyed by excessive debt service demanded by the Troika is a lot of baloney. It is similar baloney when people express shock about Greece's indebtedness rising despite all those brutal Troika measures. Debt always rises in nominal terms when the borrower has a negative cash flow, and Greece still has a negative cash flow. And when, in addition to that, GDP declines, then debt expressed as percentage of GDP explodes. Anyone who has trouble understanding this should revisit Mathematics 101.

Greece todate has not used a single cent out of its own resources to service its debt. Whatever was paid by Greece as interest and/or principal was first lent to Greece, thereby increasing debt. Greece's debt/GDP ratio may by mind-blowing but it really doesn't matter when one doesn't service debt out of one's own resources.

Having said this in a blunt way, I now have to turn the page and turn to the situation where Greece will have a primary surplus. When that happens, everything changes in the rule book. From then on, choices are available and decisions have to be taken. Decisions such as: Will we spend the next Euro on debt service or on education? Will we pay interest or will we invest in the economy?

If what Tsipras says is true, it would suggest that the Troika is expecting Greece to spend every surplus Euro (and more!) on debt service. If that is indeed the Troika's plan, then one would have to join sides with Tsipras and look for sane people in the world. Sane people would suggest that it is absolutely pointless to drain a borrower of cash (by way of interest or dividends) when that cash could be used to investment which generates even more future cash.

I can only repeat my earlier warning: beware of the primary surplus. And perhaps Greece should open not only one but even two escrow accounts.


  1. About "debt always rises in nominal terms when the borrower has a negative cash flow" in case of Ireland their "cash flow" is negative?
    They have the best trade surplus in eu, however their debt increased around 18% last 2 years.
    There is not a correlation?


    1. I was talking about 'sovereign debt', i. e. debt of the state. With Ireland I am not familiar but if their sovereign debt increased nominally by 18% over the last 2 years, they must have had budget deficits (i. e. a negative cash flow). Unless the debt increase is due to the fact that the state assumed someone else debt such as privat sector debt.

      A trade surplus or current account surplus is not directly related to sovereign debt.


      They have budget deficits, you 're right.

      But why their GGDebt increased so much to 125.1%?


    3. Again, I know nothing about Ireland. Your first link was too long for me to read and the second one a bit confusing.

      It seems that the budget deficit for Jan-Mar 2013 was 5,4 BEUR (which, at 14% of GDP, strikes me as extremely high; one would have to understand what goes into this figure).

      It seems that GGDebt increased by 11,6 BEUR during this period, more than twice as much as the budget deficit. So, Ireland borrowed much more money than it needed to cover the budget deficit and one would have to look into that and explain why.

      They do report the Net GDebt at Q1/2013 but they don't show how much it increased during the quarter, so that's no big help either.

      That's all I can tell you offhand.

  2. "German blog NachDenkSeiten is a very progressive blog"

    hahahaha selten so gelacht. Die Betreiber sind SPDler. Wüßte nicht, was an deren Positionen "progressiv" sein soll.