Friday 3 September 2010

ELGA: The Latest Addition to Greek Public Debt

The news announced on September 1st 2010 that the government is assuming responsibility for the Hellenic Agricultural Insurance Organisation’s (ELGA) debt of EUR 3.8 bln was yet another indication that Greece’s public debt will swell far higher than its deficit this year.

As part of its fiscal restructuring plan, the government is either choosing to or being forced to take on the debt of a number of semi-governmental organisations (DEKO), such as the Hellenic Railroad Organisation. By my count, which is certainly incomplete, Greece will have “added” the following debt in 2010:

·         EUR 3.8 bln ELGA      
·         EUR 6 bln healthcare settlement

·         EUR 10 bln OSE debt assumption

·         EUR 2 bln other public organisations, guaranteed by the government

·         EUR 15 bln government deficit (this is my assumption: the government needs EUR 25-26 bln in revenue to make up the Memorandum targets this year, but has delayed payments to a number of beneficiaries, so the net revenue estimates probably do not portray the true situation).

Total Debt Assumption: EUR 36.8 bln in 2010

I am not certain if the EUR 6 bln in the healthcare settlement is already on the debt books or not. By the same token, it is impossible to know if the ELGA debt was already counted on Greece’s central government debt balance, or within its wider public sector debt. Judging by the language used

The most recent estimate available for central government debt is provided by the Greek public debt management agency, which provides a 31.03.10 figure for central government debt of EUR 310.4 bln.

It is difficult to understand whether the healthcare settlement is included in this or not: the healthcare announcement was made on 16.06.2010, so presumably it is not. Similarly, the OSE announcement (26.06.10) and the ELGA announcement (01.09.10) would also not be included in the EUR 310.4 bln estimate.

There is currently another EUR 1.2 bln in unpaid healthcare debt this year, while certain payments due for military procurement, public sector construction, public sector staff salaries, and certain pension funds are also rising and have apparently not been made.

If Greece’s debt on 31.03.2010 was EUR 310 bln, by the end of 2010, we can assume that total debt will have risen to EUR 347.2 bln.  

Taking into account a forecast GDP decline of 5% (my estimate), Greece’s GDP will be EUR 225 bln, and its debt:GDP ratio will be 154%.

Of course, tax collection may improve, expenditure may fall further, absorption of EU funds, and privatisations may occur, reducing the overall debt load. But this is difficult to imagine given the current economic conditions. Exacerbating the situation is the fact that much ministerial activity appears to have stalled over the issue of impending regional and local election, while the prospect of rapid absorption of EU funds has been tossed about for months now, but has not occurred.   

It is impossible to know how much other “hidden public debt” is in the system. The IMF recently announced that a Greek default was “unnecessary, undesirably, and unlikely”.  While I hope they are right, I can’t help but question the data and assumptions they are using, since we are being treated to constantly changing numbers and lack the basic composition of Greece’s public debt.  


  1. The fiscal situation in Greece is DISGRACEFUL, ABYSMAL AND UNREPAYABLE.
    If the current Government is allowed to run its current course, not only will they bankrupt the nation, they will impoverish the entire population.

    Things really need to be changed asap!.

  2. You're right Lou. Unfortunately, it's not just the fiscal situation - it's the entire public sector system, and much of the private sector as well. The debt is the short-term problem, and a major one, but it's really a symptom of a far greater pathology.

  3. To me, Philip, it seems that everything will be done--by the IMF in order to avoid a default or even haircuts--somehow the Greek problem is "too big to fail" if seen as a whole of what it implies for the world's economy interrelation, unless Greece becomes isolated and other countries immune to any domino effect. I am not sure if this plan--(unnecessary, undesirable, unlikely--I read the report--)is just postponing the imminent crisis for the future, and therefore taking more risks for all of us. I would prefer a gradual "haircut" strategy with spending on a right direction with the suitable reforms. A more "keynesian" approach -with a green perspective--where Greece could have a comparative advantage. But, this seems impossible. Greek pathology cannot keep pace with almost any rational recovery plan, but this one is unsuitable anyway.

  4. Γεια σου Φίλιππε :-) The logic behind the memorandum is (a) force some useful reforms in public spending and revenue, and (b) buy time for public finance to re-set so the country can return to international debt markets.

    I'm still not clear to the extent to which the IMF and the Eurozone have fully taken into account the specific magnitude of the total public debt. I also wonder whether they are so fully invested in this programme that they are not considering any alternatives.

    The longer we wait to implement a "haircut", the longer the full recovery will take, and the higher share of debt will be held not by private sector banks, but by sovereign institutions and partners.

    This "haircut" has already started, unfortunately on the millions of pensioners and civil servants, irrespective of what they have paid, their personal financial situation or anything else.

    If we stick with the Memorandum, the fiscal adjustment will take at least 10 years, and then it's still not entirely certain we can handle the accumulated interest. If we default now, we will be shut out of debt markets for at least 5-8 years, and then it's not certain the government can pay public sector wages, pensions, etc.

    Either way, something more is needed.

  5. Happy to talk with you and learn! That's the definition of the word "impasse"-adiexodo . I cannot but agree...
    The "something more" would be immense investment and reforms having in mind to urgently and pressingly fortify knowledgeably diagnosed Greek strengths and abolish all known weaknesses. This cannot be done without money...well above what is needed to pay pensions etc etc and the dept. It cannot also be left to private enterprise as, apart from the sector having survival problems in Greece, emergency educational reforms are needed--much more spending on education quality and many other fields as well. So, a bigger, wider in scope plan should be in action--
    the question also is, ( I don't know the answer) if Greece defaults anyway in a few years, wont the international consequences be greater, just form the fact that an IMF policy failed? So--we face the dilemma either fail now or not fail at all! We are betting on success without knowing. I read recently about "Knightean uncertainty" --isn't this the case? You cannot quantify the odds so it differs than risk.
    So, I think maybe the money is not enough to prevent failure...and the scope is not wide enough in it's perspective.

  6. Filippe, definitely. In 2014, when the "Bail-out" funds have to be repaid, I estimate that Greece will not be able to do this and simultaneously return to the markets for debt refinancing. The problem will be bigger, because the interest rates will be higher, and will have compounded. I think there is a very strong case that we are in a debt trap.

  7. question follows whether the IMF and EU realize this or not.