Greece is in the news due to its imminent insolvency (can something be “imminent” and yet drag on for many years?). There is talk of money that Greece is supposed to pay creditors but also talk about bailout funds that the IMF and other countries are supposed to be giving to the Greek government. But what is the cashflow in this heavily indebted country? Is the Greek government still spending more than they collect in tax revenue, in which case presumably there must be a net inflow of cash? (let’s assume that Greeks themselves are smart enough not to lend money to their own government) Or is the Greek government no longer engaging in deficit spending and therefore they are paying down their sovereign debt, but just not as fast as creditors were promised?
9 thoughts on “Stupid question about Greece: Is there net cash flowing in or flowing out?”
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According to one website that is the “central question” in the negotiations. Sort of. The article went on to state that interest costs are excluded from the question. Presumably if deficit spending had stopped, the European Central Bank/Germany would be glad to make the book entries necessary to keep its crony financiers happy.
Greece is currently running a comparatively small budget deficit (about 3.7%) and was projected to run a surplus during the next few years.
http://www.economist.com/node/21604509
http://www.economist.com/blogs/economist-explains/2015/06/economist-explains-5
The big issue concerning Greece is future growth. Its creditors just don’t believe that the Greek economy can grow fast enough to cover future payments to the IMF and the EU.
Part of the problem is that the “Greeks themselves are smart enough not to lend money (or pay taxes for that matter) to their own government.”
The Greek economy is not very productive. Its productivity per hour worked is not much higher than Poland but it has a much higher standard of living (https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_hour_worked). Something has to give.
There are many places in the US that are not in much better shape than Greece, and the future problems they will cause will be far more difficult to fix than Greece’s (they will default, suffer, change, improve, in just a few years).
When I visited Greece a few years ago, it was obvious that they were living above their means. There were no signs of the type of industry or economic activity that is needed to support a 1st world lifestyle (and yet they were living a 1st world lifestyle) – no auto plants or steel mills, no high tech startups or software houses. Their educational system was 2nd rate. Nothing really besides agriculture and a large tourism sector (large but not large enough to support the whole country). Even tourism became less appealing once they were on the Euro and the prices in Athens were not much cheaper than in Paris or Rome (but the quality of the restaurants, hotels, etc. was not on par). They were like Wile E. Coyote – suspended in the air after running off the side of the cliff – as soon as anyone noticed that there was no ground beneath their feet they were going to come crashing to earth.
It’s very easy to adjust to a wealthier lifestyle. It’s not so easy to adjust to austerity. Even now there are still terrible distortions. The NY Times the other day profiled a “typical” Greek – a woman who had been an economist for some government agency and was laid off at 52. So she elected to take early retirement and start collecting Greek social security. This woman had probably never done anything productive to begin with and now she was going to start drawing pension payments for the next 30 years or so. And Greece has one of the lowest birthrates in the world. Who is going to pay for this (and the answer isn’t the taxpayers of Germany)?
Greece can not print Euros or USD but has to pay them to the lenders now: “Greece owes the IMF $1.7 billion this month and the European Central Bank $7.6 billion over the next two months. But it needs more loans to pay the old ones” My guess is that Greece’s debt will be restructured once more.
http://news.investors.com/ibd-editorials/061515-757369-greeces-fiscal-follies-are-about-to-come-to-an-abrupt-end.htm
“There are many places in the US that are not in much better shape than Greece”
And we regularly transfer money to these areas from the richer parts of the US. And nobody even pays much attention to this, let alone freak out about how these areas are running a deficit or being bailed out. Nor do we consider it a reasonable possibility that these areas might leave the union.
Tho some of us do get annoyed that these areas keep sending tea party types to congress.
I think that the above comments prove my point: Nobody can say whether money is flowing in or flowing out.
If you trust macroeconomic figures, otlanzero answered the question: Greece has run a deficit over the past few years, so money has been flowing in. Currently the deficit is not very large by the standards of European government budgets.
Money have definitely been flowing in since per article Greece accumulates nearly $1 trillion of external debt. Since nobody had taken hit on previous bad credit to Greece and instead debt was restructured lenders reasonably thought that less assures profit is still better than no assured profits and this seems to be the point. EU would definitely not want country in distress in their borders.
This BBC news articular [1] *tries* to answer your question, using graph too.
All that I see here is this:
1) Greece is in depth just like any other country, and
2) Greece agreed to pay 1.6bn in by June 30, and
3) EU agreed to loan Greece 7.2bn, but
4) EU is holding back 7.2bn loan because Greece has not reformed how it will spend it.
In summary, Greece is being dictated on how to spend loaned money before it can get more loan to keep it going. What no one seems to realize is that beside weak tourism, and weak agriculture, Greece has no other source of income or growth. Furthermore, the birth rate is shrinking.
[1] http://www.bbc.com/news/business-33195732