Bloomberg columnist Megan McArdle isn’t so rosy about Greece’s surplus helping the economy and said it could actually pave the way for the country to default on its loans.
She noted that not paying back what it owes – some $325 billion to international creditors – may be a salvation and lead to a write-down of the debt.
“Greece has a primary surplus for the first time in, well, a very long time. The budget, mind you, is still in deficit, after social security payments, interest on the debt, and payments to local government. Nonetheless, this is a major achievement. Greece may still be borrowing to fund its debt payments, but at least it’s not also borrowing to fund new spending. The government has slashed spending by 8 billion euros, or 20 percent, for the first seven months of the year while tax revenue has risen about 11 percent, to 30.8 billion euros. A gap of 1.9 billion euros remains between outflow and inflow, but this represents a substantial improvement over recent years,” she wrote.
She added: “As long as the country still needed to borrow money to fund current operations, default was effectively impossible; refusing to pay creditors would simply mean even more austerity, as the remaining trickle of money suddenly stopped. But depending on whether revenue growth continues, and the state of their social security system, there’s at least a chance that in the near future, Greece will be able to make itself better off by stiffing its creditors.”
Germany is the biggest contributor to the bailouts and Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble have rejected the idea of a so-called haircut out of hand, insisting it won’t happen, although some German media expect it will and that Merkel is just trying to hide the inevitability until after elections next month. McArdle put it thusly: “Given the unpopularity of austerity reforms in Greece, unless the Germans come back to the table, I’d expect to hear talk of default coming from the Aegean sometime soon”.
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