Something that hugely surprised me.
The IMF seems to think that Greece will run a primary surplus in 2012. This rather changes things, if true.
To explain: sure, we all expect Greece to be running a huge budget deficit next year.
However, we\’re now, with that country, in the territory of owing your bank manager a billion, not a thousand: it\’s become his problem, not yours.
We all agree that there\’s absolutely no way at all that Greece is ever going to pay off all of this debt. Something\’s got to happen at some point.
And the thing that restricts Greece from simply defaulting is that they need to borrow to keep plugging that deficit. If they simply tell everyone to bugger off then they can\’t borrow to cover the gap beteen their taxation and spending in hte future and there will be riots and revolution.
However, that assumes that they are running a primary deficit: that current tax revenues are lower than current spending, leaving out of our calculations any interest payments on the debt. If, instead, they\’re running a primary surplus, that is, they\’re getting in enough tax to pay for current spending, it being only the interest being paid which tips them over into deficit, then all the power is with Greece.
For they can simply default on all the debt and still keep the government running and not have riot and revolution.
So, if the IMF is correct, that they will be running a primary surplus next year, Greece then has the freedom (tighly constrained by other factors, but it is there in a way that it wouldn\’t be without such a surplus) to simply say \”So long suckers!\” and tell everyone else to beg for their interest and their bonds.
Another way of putting it is that with a primary surplus it actually becomes rational for Greece to default: with or without agreement from anyone else.
I dunno whether the IMF is right here or not but it certainly makes it all interesting.