Deficit reduction, Greek style
Six months on from the shock of finding out the country's deficit was twice the size previously reported, the Greek government has today published the results of its deficit reduction actions. These make interesting reading, and provide a new case study to add to the various Canadian and Swedish examples touted around by pro-Coalition think tanks.
The Greek government is by no means out of the mire - but it is slashing its deficit faster than promised and by two simple expedients. It is collecting a lot more tax and spending a lot less money, immediately.
And from the evidence presented today, it's not only the structural reforms of salary cuts and pension reforms to the public sector that have delivered immediate bottom line benefits: the government simply stopped consuming.
The Greek central government managed to raise its tax take by 7% and slash its spending by 12% compared to the first six months of 2009. As a result it has slashed its first half deficit by 39%.
This, of course, will be hard to sustain if the scale of austerity now tanks real economic growth. And hard to repeat here: with very little effort (and a metaphorical big stick) the Greek finance ministry has forced all those doctors and dentists whose annual incomes were supposed to be 30k Euros to get real and pay up. The New Economics Foundation estimates there's a maximum of £50bn to be raised here from a total crackdown on tax evasion, but it would need more than just applying the existing law to the small fry.
The most eyecatching part of the Greek figures out today is the 52% fall in government consumption. This is staggering and has been achieved by an immediate reduction in two spending lines the Coalition government in Britain is unwilling to touch in the short term: health and social security.
One final point is, the May 10th bailout is also having a benign impact: instead of increasing by 5%, Greek borrowing costs actually fell by 13%. It's early days but this is the first case study of rapid deficit reduction: we've already seen the consequences in terms of social unrest; but the pain has only started.