Thursday, May 21, 2015

One Country Is Truly "Repaying" Sovereign Debt --- Greece!

Even though one continually hears comments like "Greece will never be able to repay its debt", it ought to be common knowledge by now that sovereigns hardly ever repay their debt in nominal terms. There may be exceptions here or there (like the US which actually reduced its debt during the late Clinton years owing to extraordinary budget surpluses) but my own country, Austria, is more typical: Austria has increased its debt in nominal terms uninterruptedly for 51 years by now!

Sovereign debt gets 'refinanced'. Actually, it is more than that: it gets refinanced and increased to the extent of budget deficits and/or major other expenses which do not run through the budget (like bank bail-out's).

There is now one notable exception to the above rule and that is --- Greece! From year-end 2014 until March 31, 2015, i. e. during only 3 months, Greece has nominally reduced its debt from 324 BEUR to 313 BEUR. That is a nominal reduction of 11 BEUR! (details can be found on page 26 of this report by the Ministry of Finance).

Reducing sovereign debt in nominal terms in the midst of a depression and more or less financial chaos comes close to a miracle. The funds for that certainly didn't come out of the government's operations bcause the primary surplus was not even enough to pay interest. So they must have come from somewhere else.

Some of it is probably explained by the ECB's extending loans to Greek banks which, in turn, lent money to the state (via buying T-bills or whatever else) but that can only be part of the story.

No other figure than the above 11 BEUR explains better the unbelievable achievement which the Greek government has made in scraping up all funds available anywhere in the country. One day, when the Greek Finance Ministry again opens its doors to 'advisers' from the Institutions, we may find out how the Greek government accomplished this miracle. It will undoubtedly be a testament to 'Greek ingenuity'.

I am reminded of a conversation with the CEO of a large, publicly traded American corporation. His P+L revealed that sales had gone down and profits had gone up. I asked him what I should make of that. His answer:

"Well, it certainly is a process which cannot go on forever!"


  1. The 10.9 bn € are the money left from the recap of banks. Previous Greek gov had those money to begin -according to a plan - the ECCL (enhanced conditions credit line).
    The current gov return the money- to EFSF i think-

    As a result debt indeed reduced !


    1. The same comment was made on twitter so I guess both of you are right.

      Μιχάλης Πετράκος ‏@michalisp 17h17 hours ago
      @kleingut this is mainly due to the return of 10.9 beuro to the EFSF …, a one-off incident

  2. Mr. Kastner,

    I also read this yesterday and it doesn't make sense can you ellaborate in more detail how this happened? And in lamens terms?


  3. One sentence in this post keeps sticking in my mind: ".... details can be found on page 26 of this report by the Ministry of Finance..."

    Is there still one reason left to believe that it is reliable, trustworthy, what is written, rejected or decided there?
    I think this would be the biggest blunder ever: that EU, or banks, or (retired or still active) bankers, are so naive that they believe the numbers or archives of a Greek ministry of finances are trustworthy, true, or valuable.

    B.t.w.: the Greek ministry of finances has two different links to its website. Conclusion: there are two different, but similar looking websites, both with a sign of the Hellenic Government.
    That has underlined my suspicion.

    There does not seem to be any declaration about the why.
    Maybe the one is for FinMin's own person, and the other one, the really official one, to deny all what he has published on the personal one.
    Saying: "Fairy tales! Fairy tales! Fairy tales!" when there will be questions.
    He will blame others to have created it: the website and the fairy tales on it.

    1. Ms. Antoinette, is the old website. It is explained so in the new website. They probably keep it alive for archival purposes.

      The new website in the

  4. Dear Mr. Kastner,

    I would like to add to my earlier comment. On the shelf if you view products you can distringuish the products that clearly state made in greece or in some other countries. But there are many products which do not distringuish anything other than made in EU and the address of a the distributor. Even multi nationals. You will be very surprised that a good portion of those products are manufactured in Greece.