It’s not that Greece has forecast a budget surplus that matters but that it has forecast a return to growth and stability going forward. That’s the story in the AFR and although this is all you can see at the link, this is pretty informative as it is:
The government has presented a draft budget for next year forecasting a tenuous return to growth, offering the first real hope that Greece could emerge from a six-year recession.
Well fancy that. They cut spending with a cleaver and the next thing you know they are forecasting a return to economic growth. No riots, no blood in the streets, just a quiet reversal of fortune.
I, of course, mention it because this is such a prime example of how useless Keynesian economic theory is that it is a scandal we haven’t had a mass book burning of all our macro texts. Where besides here are you going to find anyone to explain to you why cutting non-productive public spending in the midst of recession is good for growth.
Now the story does go on to say that the economy has shrunk by a quarter since 2007. But it’s not the economy that has shrunk but the measured level of GDP. Since most of that shrinkage was in public sector waste, the economy did not shrink at all but actually expanded. With each cut in non-value-adding expenditure the actual effect has been positive. Our macroeconomic data, structured around a Keynesian framework as they are, provide not only zero information about the state of the economy, they may even provide negative information, telling you that things are getting bad when they are in fact on the mend.
The unemployment rate is now going to fall from 27% to 26% which is horrific all round no matter how you look at it. But what they had was unsustainable since most of the jobs lost did not pay for themselves from their own productivity. Now jobs will have to pay their own way. It’s not as pleasant as coasting on the value adding activity of others but it is the only way to create long term growth and stability.
Keynesian economics is such junk science.