Is the Grexit back on the agenda?

After several tumultuous years of political and economic instability, Greece is finally getting back on track, at least according to publicity from the incumbent government over their budget surplus. It seems they are close to balancing public accounts as the budget deficit turned into a primary surplus and revenues, for once, exceeded expenditures, albeit before interest expenses had been factored into the equation. Unfortunately, interest expenses are still a thorn in Greece’s side and will continue to be so for many years. Or possibly not… 

We should applaud the Greek Government for their persistence in the face of adversity. After years of tough political negotiations and social unrest, the country’s finances are, finally, nearing a balanced state. There is still a mountain of debt to erode away, but stemming the seemingly terminable spending more of than it can generate was a top priority set by Greece’s creditors – the troika. 

Of course, there is a flip-side to this success story when such achievements are viewed through the Greek population’s lens. The average woman and man on the street see an unemployment rate still near record highs of 27%, making it virtually impossible to find a job. Among the youth, this elevated rate changes to an unprecedented figure above 50% – one in two under 25’s without paid employ. Also, consider that the economy went through an extremely harsh period with GDP declining as much as 7.1% in 2011 and 6.4% in 2012 as a direct consequence of the austerity policies applied. During the last 9 years the Greek economy has declined at an average annual rate of 0.6%, which I would say puts the current recession at a similar level to that of the Great Depression of 1929. 

Despite this, public finances have improved and so it seems that the economic picture is on the up. Well hang on a minute. Many people don’t realise that the present economic scenario is not necessarily beneficial for creditors and general stability. Bear with me. If you believe that Greece is now more unlikely to default on debt obligations, you are likely completely wrong. It may seem contradictory, but as Greece enters into a primary debt surplus, there is the possibility it could stop actually paying its creditors, particularly if political instability rises once again, which isn’t improbable given that the current government hardly survived the latest no-confidence vote. 

Yes, a primary budget surplus means the government is no longer reliant on creditors to survive its day-to-day activities. And as long as expenditures are more than covered by revenues, the Greek government can continue paying pensioners, soldiers and public sector workers. And yes, there is less of a need for outside credit. However, there remains the need to pay for interest expenses as a result of the vast quantities borrowed in the past. 

In contrast to its vulnerability over the past few years, Greece now has the negotiating power and new financial muscle growth to discontinue answering to the whims of its creditors. The austerity packages of recent years may now be near an end. She is now in a position to potentially renegotiate some of the more onerous bail out terms. Considering the harsh and insensitive measures imposed by the IMF and EU, and with the current government collation once more close to dissolution, I wonder what the end result will… Like it or not, one thing is certain: risk is likely to increase once more in the country and as a potential theme for 2014, spread throughout Southern Europe. The Grexit story is here again.