The 2013 Greek budget: submitting it was the easy part
Two days after the Greek Prime Minister made the surprise announcement that the negotiations with the troika are completed; his finance minister submitted on Wednesday to Parliament the draft budget for 2013.
The Greek coalition government, with very little room to meet its pre-election pledges of re-negotiation of the terms and changes to the subscribed policy mix, presented a budget that goes even against the recent rhetoric of the IMF that heavily frontloaded fiscal consolidations have a damaging effect on economic activity and hamper any efforts of recovery.
The approximately 9.5 billion euros – 4.5% of GDP – of austerity measures that the government plans to implement next year are reflected on the revised macroeconomic framework where the recession in 2013 is now seen at 4.5%, more in line with the recent IMF research findings that 1% of fiscal consolidation translates into 0.9% to 1.7% of economic output. The 183 billion euros of GDP projected in 2013 brings Greece’s economic output back to 2004 levels.
The budget sees average unemployment next year at 22.8%. Considering it stands at 25.1% as of July this year and is expected to accelerate further in the second half of the year, the 2013 unemployment projection seems optimistic.
Equally optimistic is the forecast for the decline in private consumption that the government sees at -7%, compared to -7.7% in 2012. Considering that the majority of the measures are coming from cuts in pensions, public sector wages and their benefits for Christmas, Easter and summer – consumer groups that have a high marginal propensity to consume – a slowing down of the rate of decline of private consumption is unlikely.
The draft budget also represents an open admission of the challenges that austerity is posing on the revenue side of the budget: 2012 state revenues will be 3.7 billion euros off target and the projection for 2013 is for a further decline to 46.3 billion euros.
Compensation of public administration employees is reduced by a further 10% at 16 billion euros, pensions expenditure sees a further decline of 9%, and interest payments albeit reduced to 10.2 billion euros, still represent a sizable 5.6% of next year’s GDP.
If execution goes as planned, the budget will next year have a primary surplus of 748 million euros, or 0.4% of GDP, and an overall deficit of 5.2% of GDP or 9.4 billion euros.
The debt burden next year is seen at a staggering 189% of GDP, which further highlights the need for an official sector involvement in a decisive restructuring of maturities, loan repayments and interest payments if Greece’s public debt is to get back to a sustainable path.
Overall, the Greek coalition government submitted a budget that translates into a severe reduction in standards of living, taking the cumulative economic contraction during the ‘troika era’ to 21%.
And to think that submitting the budget was the easy part.
(As published in ekathimerini)