Amid record levels of unemployment and increasing poverty the better than expected primary budget surplus posted by Greece in 2013 is one of the few ‘success stories’ of Memorandum policies. However, influential analysts are saying that the surplus should give Greece’s lenders cause for concern as it will actually increase the likelihood of a default.
For the period from January to November in 2013 Greece’s state budget registered a primary surplus of 2.7 billion euros according to the country’s finance ministry. Earlier in December deputy finance minister Christos Staikouras said, “”After several years, the country will this year achieve a primary surplus earlier than expected, a surplus which in structural terms is the highest in Europe.”
Mr Staikouras added that this means that the general government budget’s primary surplus will exceed 800 million euros by the end of 2013 as calculated by the bailout agreement and that Greece’s creditors are in agreement with the finance ministry’s forecast. Indeed speaking in November at the German newspaper Süddeutsche Zeitung’s conference in Berlin, Angela Merkel praised Greece’s efforts, saying of the surplus, “”many in the troika did not believe that it could be achieved, but despite everything, it was achieved”.
However influential analysts are saying that the primary surplus is actually a cause for concern for Greece’s European lenders as it inevitably increases the country’s incentive to default. According to a recent article posted on the blog of the US based think tank Council of Foreign Relations, publishers amongst others of the review Foreign Affairs:
“A primary budget surplus is a surplus of revenue over expenditure which ignores interest payments due on outstanding debt. Its relevance is that the government can fund the country’s ongoing expenditure without needing to borrow more money; the need for borrowing arises only from the need to pay interest to holders of existing debt. But the Greek government (as we have pointed out in previous posts) has far less incentive to pay, and far more negotiating leverage with, its creditors once it no longer needs to borrow from them to keep the country running.
This makes it more likely, rather than less, that Greece will default sometime next year. Countries that have been in similar positions have done precisely this – defaulted just as their primary balance turned positive.
The upshot is that 2014 is shaping up to be a contentious one for Greece and its official-sector lenders, who are now Greece’s primary creditors. If so, yields on other stressed Eurozone country bonds (Portugal, Cyprus, Spain, and Italy) will bear the brunt of the collateral damage.”
Sources: thepressproject.net, cfr.org