Tuesday, November 21, 2017

Of Cats And Mice

Deng Xiaoping famously said that it doesn't matter if a cat is black or white so long as it catches mice.  Given China's extraordinary economic performance since, I'd say he was the best cat manager in human history.

In late 2014 Greeks elected their first ever Leftist government and then re-elected them in September 2015 in a snap election.  Despite early warnings of total fiscal derailment (arguably well founded, given some of the "interesting" characters then in ministry posts) results were not what many feared.  In fact, the opposite.  VERY opposite.

The Greek Government budget is benefiting from an extraordinarily tight fiscal policy, completely in line with the most conservative edicts.  Tight control of core expenses and expansion of the tax base (Greeks were/are notorious tax cheats).

In the following chart you can easily see the tax base expansion (green bars). Core expenses (blue bars) include: salaries, pensions, social and health services and operational costs.

They exclude public works, inter-government transfers, defense materiel, loan guarantees and other such non-core expenses.  They are basically either constant over the years or one-time items, and they don't alter the overall picture.

The net of the two, which I call adjusted primary budget surplus (before interest), is shown in orange: up  a massive 32% in three years.

(Note: I have just added the 2018 budget projections.  The positive pattern continues - this time with another cut in expenses, mainly due to lower pensions). 

 This government is turning into the best "mouser" ever, when it comes to fulfilling budgetary promises made to Greece's lenders.  Which explains why EU/ECB officials (and very grudgingly IMF) are lately so enamored with the "leftist" Greek government.



  1. China.

    You're making the Greek mistake again.

    Greece boomed because it borrowed and spent, and looked prosperous.

    China has borrowed and spent, and looks prosperous.

    Greece has a non performing loan problem.

    China has a non performing loan problem

    The big error of economics. Exclude the factors you don't want to talk about, like state debts off the books.

  2. Au contraire... This is a blog about DEBT, after all!

    The Greek "boom" as you put it was completely illusory, a Debt Bubble, and that's why it imploded so fast.

    China, at least for the first 20 years following the Deng Revolution, created wealth by opening up to the rest of the world and following many free market concepts. Yes, it now has a loan situation to deal with. BUT it has its own currency and its debt is largely domestic - a situation that Japan went through 30 years ago, and didn't destroy itself.

    Greece is a completely different case, loan wise: at LEAST 20% of all bad loans are owed by people who can, but won't pay them - the so called strategic defaulters who are hiding for years behind legal and illegal covers. Thia is now coming at an end as auctions are about to begin. I strongly believe that you will see significant improvement in NPLs in the next few months.

    You see, I KNOW there is cash to service these loans: there was no deposit "haircut" in Greek banks, instead the money fled abroad and/or under mattresses/safe deposit boxes.