Tuesday, April 15, 2014

Anybody Confused About Greece's Primary Surplus 2013?

I have read about Greece's sensational primary surplus for 2013 so many times that I simply took it for granted. This article in the respectable German blog Querschuesse prompted me to look into the details of the primary surplus. The article is based on the Ministry of Finance's General Government Data Bulletin December 2013 and its State Budget Execution Bulletin December 2013. Finally, I have also reviewed this article from the MacroPolis blog.

As can be expected, there is always a confusion of terms and terminology. There is not one single primary balance. It all depends... on how one defines what.

My understanding is that the figures originate in the Ministry of Finance and are subsequently verified by ELSTAT. From there they go to Eurostat where differences of opinion are sorted out with ELSTAT. When all is said and done, Eurostat incorporates the figures into the European System of National and Regional Accounts (ESA95). Quite independent of that is what the Greek government agrees with the Troika as to what the primary balance is. All clear so far?

There is not just one balance. Instead, there is the balance of the State Budget (SB) and the balance of General Government (GG). The GG is the aggregate of the SB, Local Governments, Social Security Funds and Extrabudgetary Funds. As a layman with budget figures, I would guess that what counts is the bottom line and the bottom line seems to be the General Government (GG). And the real bottom line is ESA95 for the General Government. Still with me?

What then is the primary balance of the GG balance? I would argue that it is primary revenues minus primary expenses (i. e. excluding interest expense, adjustments for arrears, one-time effects, etc.). That primary balance of the GG was minus 450 MEUR in 2013 compared with minus 707 MEUR the year before. Yes, an improvement. No, not a sensational improvement. And now come the adjustments.

The first adjustment is for 'other expenditures'. Typically, these are a-periodic items like settlements of past arrears or advance payments. They were minus 5.770 MEUR in 2013 compared with minus 334 MEUR in 2012. This would suggest that substantially more arrears were settled in 2013 than in the year before.

Note, however, that after making the adjustment for other expenditures, the new balance is minus 6.220 MEUR for 2013 compared with minus 1.041 MEUR the year before. All of a sudden we have a substantial deterioration!

The last adjustment is the interest expense which was 6.599 MEUR in 2013 compared with 12.864 MEUR the year before. Put differently, interest expense was cut in half in 2013.

Making this final admustment leads to an ESA95 of minus 12.019 MEUR for 2013 compared with minus 13.905 MEUR the year before. A very modest improvement, particularly when considering that the interest expense was cut in half. Querschuesse takes an even more radical approach by concluding: when adding to the ESA95 the cost of bank recapitalizations and making adjustments for arrears and taxes not refunded, the overall deficit comes to about minus 33 BEUR.

I suppose the moment of truth will come when Eurostat releases the official figures for all EU-countries on April 23. In the meantime, I have to resign myself to the fact that in all the tables of the Ministry of Finance and among all the different primary balances reported there, I could only find one primary surplus. That was the surplus of 603 MEUR in the State Budget, that is primary state revenues minus primary state expenses. There one has to keep in mind that the state can play around with its expenses: if payments are deferred into the next year, the current year's expenses are lower.

Cynics may question what the point of all this is when the Greek government and the Troika have already agreed on what the primary deficit was; whatever that was...


  1. In page 2/9 herr Klaus about -450 mil deficit


    there is a footnote: " /2 (...) For the period Jan-December 2013 the primary balance after the consolidation of the intra-governmental interest is decreased by 484 mil Euro."

    The real point, the revenues do not have a healthy increase due to the increase eg of industrial production,(the plan of igniting businesship still vogue) but also the fact that the there is not an evaluation, who is going to pay the much more taxes compared to a better period of (fake) affluence (2007). The taxes on production in an economy with no export industry is a fail, simply. The honest and the middle class still have the major burden but many are already bankrupt!
    querschuesse has made good comments but there are some technical issues. if he count excise duties ( 2012-13-14 first 2 months of each year ) and revenues lost from increased taxes he will probably understand that also eu/imf have mistaken in understanding the momentum in what they should give more attention.

    in which document( and page) to you see that?

    "the new balance is minus 6.220 MEUR for 2013 compared with minus 1.041 MEUR the year before"


  2. http://www.minfin.gr/content-api/f/binaryChannel/minfin/datastore/b4/a0/fb/b4a0fb42398dfddc52c2ec40ab71e900c76ae1b4/application/pdf/Monthly+Bulletin+December+2013.pdf

    -450+695-6465=-6220 (2013)
    -707+476-810=-1041 (2012)

    In the bulletin the adjustment is called "cash correction"

  3. https://docs.google.com/file/d/0BwE9Mqvq4ZEoVC1od0VLamR6dXc/edit?pli=1

    i don't know if i m right but seems a bit logical! Follow the colour!

    The real issue is the "memorandum items" page 1 in each pdf which has an effect in fiscal data 2010-2013




  4. I find the whole issue of "primary surplus" to be a political game that has NOTHING to do with the economy and everything to do with fooling voters. Like any accounting practice, the statistic that one calculates has to have a definition and a purpose. The definition seems never to have been given, and the purpose is to try to fool the markets and the people of Greece.

    The reality is that the national debt is increasing, the capacity of the state to manage the economy is no better than 4 years ago, and the EU and Greece have no plausible plan for dealing with the national debt.

    IN other words, all of this talk about primary surplus is a waste of time, and intended to create a "success" story where it is actually a failure story. Is there no end to the primacy of political machinations over economic and social realities? The whole eurozone crisis is the result of this in the first place, since it was constructed in full knowledge of its extreme vulnerability to exogenous shocks and the weakness of southern economies. Europe's politicians seem determined to repeat the same mistakes again and again, or is it pure self-interest and corruption?

  5. Complete reply to Prof. Varoufakis by Miranda Xafa (ex-IMF and currently member of Drassi).


    In short:

    Prof. Varoufakis confuses the fact that Eurostat registers the obbligations of the goverment, at the time they are created (accrual basis) and not at the time they are effectively disbursed (cash basis). The debt of the goverment are thus registered in the year that were created. By delaying payments (to private sector and others), the state gains on interests that would normally have to pay, but reduces the liquidity of the economy.

    About the white holes:

    The pension funds paid 4,2 bln, that were pending from previous years, using financing from the central goverment. These amounts had been already registered in the funds deficit (and central goverment) in the previous years, when these obbligations were created. In 2013, when they were paid off, the financing that the pension funds received, was registered as income, improving their balance by 4.2 bln, while at the same time it worsened by the same extent the state budget, while having neutral impact on the general goverment's balance.


    I would add, that for many years now, the state covers the majority of the pension expenses through the budget, not the pension funds on their own.