Pavlos's Thoughts

Here’s an update as to what is happening with Greece. First, some numbers from the 2011 Greek budget:

• Total revenue: €128 billion

• Real revenues from taxes etc. €55 billion
• Aid from the EU €3 billion
• Borrowing from the market, including rollover €70 billion

• Real expenses such as pensions, health etc. €63 billion
• Debt rollover and interest payments €65 billion

And another pair of interesting numbers

• Interest rate charged by the market for German bonds, 2 year maturity: 2%
• And for Greek bonds: Around 25%, rising

So, what does all this mean?

Real deficit

In summary the Greek state is like a business that takes in €55 bn in sales but pays €63 bn in salaries and what have you, so it makes a real loss of €8 bn, or 14%. To recover, the state needs to increase revenue by extracting more taxes or running profitable businesses, or it must cut the amount that it pays to the Greek people, or some combination thereof. If it doesn’t the Greek state will run bankrupt anyway, abruptly cut expenses to €55 bn, and go on living in a hand-to-mouth way.

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You may have heard that there were huge protests in Greece over the financial measures, basically pay cuts, that the government put in place to get its finances under control. A minority of the protesters were violent. Someone set fire to a bank, there were staff inside, and three people died.

This must seem like tragic madness to outsiders, and even to many who live in Greece. When societies fail, it’s easy to conclude that people are irrational, that therefore there’s no prospect for improvement, and that imposing a basic plan or order upon them might be a good idea. Let me try and allay these notions.

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