Guardian: Greece's public finances are in a dire state, and cooking the books won't help

23/4/2014

Primary budget facts and details in the small print can no longer be hidden by creative accounting and a sleight of hand

It was dodgy accounting that got Greece into a mess in the first place. Now, more dodgy accounting is being used to dress up the dire state of the nation's public finances.

When the government in Athens announced last week that it was running a surplus in its primary budget – a measure of financial health that strips out interest payments – it could only do so by recording more than €3bn (£2.5bn) in arrears owed to hospitals and the social security fund as assets. Without this creative accounting, there would have been a primary deficit.

Surprisingly, Brussels seems to be aiding and abetting this sleight of hand. The European commission confirmed the primary surplus and praised Greece's government for its willingness to take the tough decisions that have put the country's economy back on the right path.

But the small print shows this: Greece's overall budget deficit in 2013 was €23bn, of which just €7.2bn was interest payments. That makes for a primary deficit of almost €16bn. Only if you exclude the cost of one-off support to the banking sector, worth 9.5% of national output, and transfers from the rest of the eurozone equivalent to 1.5% of GDP (from profits on Greek government bonds), does it become a primary surplus of 0.8% of GDP.

The fact that this methodology is used solely for Greece speaks volumes. The country's finances are being portrayed as a success story, yet the reality is that its economy has shrunk by 23%, domestic demand has shrivelled in the face of wage cuts and austerity, and a national debt worth 170% of GDP will eventually require an amnesty or a third bailout. Some success.
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