Blog post

Greece: update on public finances

At the end of last week the Greek Finance Ministry published the preliminary budget execution bulletin for February. The State primary budget balance

Publishing date
16 March 2015
Silvia Merler

At the end of last week the Greek Finance Ministry published the preliminary budget execution bulletin for February. The State primary budget balance has returned almost in line with the target, but mostly due to expenditure cuts. Revenues continue to underperform.

These bulletins give monthly data on a cash basis, which makes them well suited to assessing the situation of public finances from a short term financing perspective. Moreover, it shows the cumulative execution of the budget and it allows us to compare actual outcomes with expected ones.

As previously shown, the budget execution for December 2014 and January 2015 was significantly below expectations. For the 12-months period of January-December 2014 the outcome for the primary balance had been 1.9bn against an expected 4.9 billion, mainly due to the underperformance of State budget net revenues, which undershot the target by about 3.9 bn. Underperformance continued in January 2015, when the primary balance was 443 million against 1.4bn expected, with revenues still 935 million short of the target.


According to the Ministry of Finance, the underperformance in January 2015 was mainly due to the extension of a VAT payment deadline until the end of February 2015 and to the underperformance of the expected revenues from the settlement of arrears. Therefore, data for February released last week are key.

At first sight, the situation has improved. The State primary balance budget for the period January-February 2015 was 1.2bn compared to the 1.4bn expected, only 168 million short of the target. Compared to the 900 million shortfall recorded in January, this is a significant improvement.


However, a closer look at the revenues and expenditure show that the improvement in the primary balance has been achieved almost entirely by reducing expenditures. Revenues for the period January-February 2015 came in at 7.8bn compared to 8.8bn expected, 963 million still short of the target. However expenditures, which in January 2015 were almost perfectly on target, were significantly reduced in February. For the period of January-February 2015, state budget expenditures came in at 7.98bn against 8.8bn expected,  844 million below target, thus explaining the improvement in the primary balance(see Figure 2).

The reduction has come mostly from primary expenditures and this pattern is probably continuing also in March, as the General Accounting Office has reportedly blocked any state expenditure not related to salaries and pensions (this and other measures to avoid a cash crunch have been discussed here). This strategy might work for re-balancing the primary budget in the short term, but it will be difficult to sustain unless revenues revert closer to target.

About the authors

  • Silvia Merler

    Silvia Merler, an Italian citizen, is the Head of ESG and Policy Research at Algebris Investments.

    She joined Bruegel as Affiliate fellow at Bruegel in August 2013. Her main research interests include international macro and financial economics, central banking and EU institutions and policy making.

    Before joining Bruegel, she worked as Economic Analyst in DG Economic and Financial Affairs of the European Commission (ECFIN). There she focused on macro-financial stability as well as financial assistance and stability mechanisms, in particular on the European Stability Mechanism (ESM), providing supportive analysis for the policy negotiations.


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