Thursday, September 26, 2019

Lucky Mitsotakis

According to the State Budget Execution Bulletin, the Greek state (not to be confused with the wider grouping of the Greek general government) registered a primary surplus of 2.906 MEUR for the period January-August 2019 (8 months). The budget estimate for the period had been a negative 272 MEUR. Thus, the Greek state overperformed to the tune of 3.178 MEUR (that's over 3 BEUR!).

Given that the Greek state had annual interest expenses between 5-6 BEUR in recent years, it looks very likely that the state will be able to pay all interest expense out of its own revenues in 2019. In other words, an overall budget surplus.

At the same time, the Greek state has accumulated cash reserves to the tune of 25-30 BEUR out of the last tranche of the latest program and from new borrowings. Since Greece does not have major debt maturities in the next few years, these cash reserves guarantee that Greece will not have a sovereign debt problem for a number of years.

This is an extremely solid financial situation! Fanatic supporters of the new Prime Minister might be tempted the credit Kyriakos Mitsotakis with this result. Well, not even a magician could have achieved such results in less than 3 months.

I could go on and on explaining why SYRIZA was a terrible government for Greece but I have to say this: no other government than a Tsipras-led government could have accomplished that Greece today is viewed as a stable (politically and economically) member of the Eurozone and of the EU. Tsipras accomplished that by performing an incredible somersault. Essentially, he agreed to every screw that the EU put upon him. Perhaps it helped that he started enjoying being viewed as the darling of international elites, which undoubtedly he has become. Unwittingly, he made it possible for his successor to embark on a growth strategy for Greece.

If any government other than a Tsipras-led government had attempted to do the same thing as Tsipras has done, Tsipras would have mobilized the masses on the streets and the result would have been terrible for Greece.

Thus, Tsipras has become sort of a tragic figure. He has done everything no one else could have accomplished and yet, someone else will get the praise for it. And that someone else is Kyriakos Mitsotakis. Lucky Mitsotakis, one could call him.

It is not often that a new political leader inherits a situation where most of the dirty and painful work has been done by his predecessor. The situation is a bit comparable to Germany in 2005 when chancellor Gerhard Schröder was voted out of office for having legislated too many tough reforms (Agenda 2010). Angela Merkel succeeded him as chancellor and, for several years, she could collect the praise for results of reforms undertaken by her predecessor who paid for that with his career.

One should be so lucky as Mitsotakis! He inherited a state budget which is operationally cash-positive and huge cash reserves. Mitsotakis will not have to spend any of his time negotiating new rescue loans for the simple reason that he doesn't need any new cash. Since 2010, Greek governments had to spend much of their time negotiating rescue loans, thus leaving less time for more productive things like making growth plans for the future.

Mitsotakis now has plenty of time to focus on growth plans and growth measures for the future. He was lucky to inherit a perfect trampoline. He will be judged by how high he can jump with it.