Home > Uncategorized > Fact checking Charles Wyplosz: more than a little wrong about the Greek government deficit

Fact checking Charles Wyplosz: more than a little wrong about the Greek government deficit

Why is everybody loosing track of the data when it’s about Greece…?

In a recent, interesting blogpost on Voxeu, Charles Wyplosz states about policy options for the Greek government:

In the short run, after a first default, even a partial one, the Greek government will have to balance its books because no one will lend anything any more. ‘Balancing the books’ can mean different things, however.

  • One option is to run an overall balanced budget, thus continuing to service the debt after the initial wave of defaults.

Recent forecasts for 2015 are for a deficit of 3.5% of GDP, an improbably huge improvement over last year’s 12.3% deficit.

This is totally odds with the data. Wyplosz is wrong about the years and mistakes a recent estimate with a recent preidction. According to the dataset of the April 2015 World Economic Outlook these are the data for Greece:

Greece1

Clearly, the government deficit is, according to the IMF, quite a bit smaller than indicated by Wyplosz (and also quite a bit smaller than the Irish or the Spanish deficit…). It is however true that Eurostat does mention a 12,3% deficit – but for 2013, not for 2014. And it does mention a 3,5% deficit – but for 2014, not for 2015. For starters, the change between 2013 and 2014 is not improbable, as the 2013 data contain quite a lot of transfers to banks, look at these data from Elstat. Which makes the task of balancing the books after a default considerably easier. Surely as the ‘strucutral’ Greek deficit is, according to the IMF, positive. I.e.: a surplus. This in stark contrast to the situation in Ireland and Spain. Everybody makes mistakes – Wyplosz can be excused (though he should have checked the data: especially the remark about a recent prediction shows that he didn’t). But mistakes matter. Balancing the books after a deficit of 3,5% while a prediction of a deficit of about -1% has been made is, unlike the scenario sketched by Wyplosz, not improbable.

It has been said before: a success of Greece is more threatening to the Troika than a default. I can understand that. But I do not understand why people like Wyplosz, in a situation as tense as in the Eurozone, does not check his data more thoroughly and spreads exactly the kind of panic which enhances the changes of default.

And oh – Wyplosz writes: ‘continuing to serve the debt’. When this means that at least a part of the legacy debts are paid after a default while nobody wants to lend to Greece anymore, a balanced budget won’t be enough. In cases like that you need a sizeable government surplus.

  1. April 28, 2015 at 1:03 am

    I am no expert, yet it looks like Greece should be able to operate in a balanced budget after a default due to outrage over foreign imposed austerity. Internal austerity discussions will be better informed when debt and interest payments are no longer being made. Choice as to which debts to pay if any can be made after recovery of independence and sovereignty.

    Arguments for budgetary balance are actually more sociological than economic. Deficits allow government employees to operate in realms that democratic choice might be more likely to reject if voters were paying the bill up front. Also deficit spending assumes the present knows what the future should do and want.

    Additionally, Krugman type arguments for growth inducing prime the pump deficits involve increased inflation which reduces the real value of the principle — something of a 1950’s trick. This somewhat devious approach pinches the real value of elderly savings rather than future spending of the young. Either way, deficits short circuit democracy.

  2. April 28, 2015 at 1:59 am

    Out the outset of his article, Wyplosz also cites Rogoff’s paper about Greece being the world’s biggest serial debtor as integral to his argument. Yet he doesn’t mention Greece’s propensity again.

    Rogoff’s paper is oft-cited and oft-repeated, but almost no one has investigated (not even Rogoff, who simply tallied up the years in default). Someone should investigate it, and they’d be surprised by the nature of the loans and defaults (3 of them were made to actors other than the official Greek govt, but charged to the Greeks until eventually paid off over a half century later. They were charged in the early 1820s as Allied help to Greek revolutionaries, several years before the country was formed in 1832. The Great Powers also gave a chunk to Turkey as reparations for lost territories, and this amount was charged to the Greek gov’t, though disowned immediately–and eventually repaid. And finally another big loan in the 1830s was a bribe to a Bavarian Prince to take over the monarchy of Greece). The loans were finally repaid after 70 years of default in 1898. Greece then defaulted again during the Great Depression. 1932 was the last default prior to 2012. Greece even went through WW2 and the Civil War without defaulting.

    I imagine that there are other more obvious cases of “the world’s biggest defaulters” if we are indeed going back to the 1800s, as Rogoff did.

  3. hanns
    April 29, 2015 at 9:06 am

    It is completely ridicolous to assume Greece would continue to serve its debt after a default caused by excessive Eurogroup blackmailing. Debt would simply have to be written off by the others and goodbye.

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