Financial Times: Greece racks up surplus by keeping foot on investment brake

High budget surpluses are already curtailing potential economic growth, economists fear

From the Financial Times:

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Greece’s leftwing Syriza government expects that 2018 will have brought another record budget surplus as it strives to please investors — but economists wonder whether the country is achieving more discipline than is good for it.

Figures published in December for the first 11 months of 2018 showed that Greece would outperform the year’s target for the primary budget surplus — that is, before paying interest and principal due on public debt — by a much wider margin than previously forecast.

The primary surplus soared to €7.6bn in the first 11 months of 2018, equal to almost 4 per cent of gross domestic product, beating the finance ministry’s official forecast by as much as €2.8bn.

Euclid Tsakalotos, the finance minister, said in December at a roadshow with US investors that outperforming budget targets boosted Greece’s credibility. “It demonstrates that when the government sets specific targets it can be very successful [in achieving them],” he said.

He conceded, however, that “it’s not the best strategy to overperform every year. That would have [negative] consequences for the economy”.

Economists fret that the exceptionally high surpluses achieved in 2017 and 2018 are already curtailing potential growth. Much of the outperformance has come from deep cuts in public investment, which would normally be a critical driver for economic growth.