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If Greece has currently (2010) a primary deficit of 4,5% than why would "a default at this time would lead to the cessation of pension and other social payments" and not a net cut of ~5% in all public expenses?

Because the 5% is 5% of GDP, not 5% of government expenses (which are something closer to 35% of GDP - so spending would need to be slashed by 15% across the board.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Sat Apr 16th, 2011 at 11:43:04 AM EST
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My bad, I was repeating a previous calculation with the wrong numbers. The primary deficit this year is predicted according to the Greek ministry of finance's 2011 budget (a work of speculative fiction in many respects, but anyway) to be around 2 billion Euros (actually 1,7 but that has been already corrected. That is less than 5% of current expenditures, something like 3,5%.

The road of excess leads to the palace of wisdom - William Blake
by talos (mihalis at gmail dot com) on Sat Apr 16th, 2011 at 01:31:34 PM EST
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For the Greek gov't to rebalance its primary deficit from negative five percent of GDP, then the Greek gov't would need to withdraw spending to the tune of five percentage points of GDP times the tax rate and divided by the money savings rate of the people from whom it is withdrawn. So more like 15 % of Greek GDP, or around half of the government's budget.

Keynesian multipliers are just as dramatic in reverse as they are when you're doing it right...

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Apr 16th, 2011 at 06:24:18 PM EST
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