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Christina Vasilaki: Primary Surplus with Public Debt Explosion

According to the Troika estimates, the primary surplus of Greece in 2013 was € 1.5 bn. (0.8% of GDP), as announced by the representative of the European Commission, Simon O’Connor, on Wednesday, 23 April 2014.

This figure does not take into account the support measures adopted by the country, in order to recapitalise its four major systemic banks, which amounted to 10.8% of GDP, in line with what has been agreed upon in the Economic Adjustment Programme for Greece. Moreover, the figure does not aggregate the profits of member-states’ profits due to the yields of Greek bonds, which account for 1.5% of GDP.

Considering the above, however, and according to the Statistical Office of the European Union (EUROSTAT), Greece recorded a total budget deficit in the previous year worth € 23.1 bn., or else 12.7% of GDP. This represents the second largest deficit in the EU (Slovenia being the only country ahead of Greece with a deficit of 14.7%).

With regard to the official EUROSTAT data, the public debt in 2013 amounted to € 318.7 bn. (in absolute terms), reaching 175.1% of GDP. Additionally, the same data indicate that the Greek debt recorded the third largest increase among the EU member-states during the fourth quarter of 2013.

In its communication, EUROSTAT also reports that GDP has shrunk once again, from € 222.1 bn. in 2010 and € 193.3 bn. in 2012 to € 182 bn. in 2013. Conversely, government expenditures recorded a rise (€ 58.5 bn. compared with € 53.4 bn. in 2012), whereas state revenues fell to € 45.8 bn. (from € 44.4 bn. in 2012).

Greece is “well ahead of the 2013 target” which is “a reflection of the remarkable progress” that the country has made, Simon O’Connor said from Brussels; nevertheless, he avoided to speak clearly or to provide an exact date for the beginning of negotiations over an easing of the Greek debt burden. “It may begin in the summer and may continue over autumn, but I can’t be more precise at this stage”, he added characteristically.

In November 2012, the partners of Greece in the Eurozone had declared that they would “consider further measures and assistance” to Greece, as soon as the government achieved primary surplus, in order for the target of debt sustainability to be met.

According to the Greek Finance Minister, Yannis Stournaras, “first we will start the discussion and then we shall see when it ends. What matters is that we achieved a primary surplus, which proves that we are doing well. This is what’s important”, he said, commenting on the announcement of EUROSTAT and answering a question about whether time is counting down to the Greek debt relief.

On his part, when asked about whether the debt of 175.1% of GDP is sustainable or not, Simon O’Connor declared that it is expected to drop significantly, in accordance with contemporary projections for the coming five to ten years.

“We (the European Commission) are of the view that Greece’s debt is sustainable, provided of course that full (adjustment) programme implementation continues over the coming years and efforts are maintained for full consolidation of public finances”, said Simon O’Connor, while pointing out that, “Indeed, the debt of Greece is sustainable”.

In general terms, fiscal deficit in 2013 decreased in absolute terms compared with 2012, both in the Eurozone and the EU as a whole, whereas public debt rose in both zones. Between 2012 and 2013, the fiscal deficit as a percentage of GDP dropped from 3.7% to 3.0% in the Eurozone, and from 3.9% to 3.3% in the EU-28. In the Eurozone, the public debt to GDP ratio increased from 90.7% at the end of 2012 to 92.6% in late 2013, while the EU as a whole experienced an increase as well, from 85.2% to 87.1%.