01-27-2015, 11:34 PM
First of all, I quite often encounter people who claim that Greece never really did austerity. I guess this is based on national stereotypes, or something, because the numbers are actually awesome. Here’s non-interest spending as projected in the original agreement versus actual spending since 2010. Because the troika kept increasing its demands, Greek spending has ended up far lower – austerity has been far more intense – than anything envisaged at the beginning.
The Greek Standby Arrangement by Paul Krugman - NYTimes.com
One reason cited [1] for why Syriza will be able to talk tough with the Troika, presuming it wins today, and can form a government, is that it has a healthy [circa 5%] primary budget surplus. That’s the difference between revenues and spending, once we ignore the cost of servicing debt. The hypothesised threat is that the new Greek government renounces the debt and has no more need to borrow from capital markets, taking more in taxes than it spends. However, this is not the whole story. Cut adrift from the Troika, the Greek government does not have the funds to stand behind its own banks. They would be left insolvent by a Greek default [economically, they are already, really]. A run on Greek banks, either prompted by default or the threat of it, could not be stemmed by a credible guarantee of deposits.
Greece’s fragile primary budget surplus is not much of a bargaining chip | longandvariable
Nobel Prize-winning economist Joseph Stiglitz told CNBC on Monday that the euro zone should stay together but if it breaks apart, it would be better for Germany to leave than for Greece. "While it was an experiment to bring them together, nothing has divided Europe as much as the euro," Stiglitz said in a "Squawk Box" interview.