Greece doesn't have a 'hole' in its budget

It's dangerous to describe vital fiscal stimulus as a 'budget hole'

Spending huge sums of money isn’t always easy.

When that money is public money, spending it has to come with accountability. That means bureaucratic hurdles, which slow things down. I’ve mentioned before that Greece has difficulty spending its investment budget, but the country could do without a return to the Monty Brewster procurement model.

This difficulty could partly explain why the government hasn’t yet provided as much support to the economy as it should — another thing I wrote about recently.

But I also worry that go-slow approach is informed by an understandable, but misplaced, sense of fiscal prudence. That’s why it’s frustrating to see a headline in Kathimerini about the health crisis poking a “hole” in the budget (the linked tweet is in English, but the original Greek makes the same reference).

The 6.4 billion-euro figure is the shortfall from a target that became irrelevant the moment the pandemic and public health requirements forced the closure of businesses. This year’s budget targets won’t be met, they shouldn’t be met and nor should we fret over them.

Framing the deficit as a “budget hole” is dangerous. Greece’s experience has made it understandably fearful of deficits, but the government needs to be bold right now.

The only way in which it would make sense to talk about a “budget hole” would be if the country had no means of funding the deficit without recourse to another bailout. That’s not the case. The government is currently sitting on more than 30 billion euros of cash reserves that are there to ensure it can survive a rainy day just like this.

More importantly, the government doesn’t even need to tap those reserves because it should be issuing bonds. Right now it can borrow at record low rates, but conditions won’t necessarily always be this favourable. I worry we may come to rue the debt management agency’s current caution.

What we should worry about instead is whether the fiscal stimulus the government is providing is enough. Looked at in this light, 6.4 billion euros, or 3.4 percent of last year’s gross domestic product, is a paltry number when set against the economic catastrophe that could follow if this crisis isn’t met with the firepower it deserves.


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