The Dictionary of Debt (III): Public Debt, Public Deficit, Eurobond, Extending Loan Maturity

Debt (Public):

The total loan obligations of the state. It may refer to the debt of the central government (the ministries and the decentralised governance bodies), or the general government (central government plus hospitals, pension funds, public companies, and local authorities). Depending on its origin, debt is divided into internal and external. As for debt maturity, there is short-term debt (up to a year), mid-term debt (up to 10 years), and longterm debt (over 10 years). Public or sovereign debt attracts speculation by big private capital, banks and credit institutions, and vulture funds. In 2011 the Greek public debt reached €352 bln, or 161.7% of GDP. In 2010 it was €329 bln, or 145% of GDP, while in 2009 it was €299.5 bln, or 129% of GDP. In the period 1991–2011 the Greek government paid debt repayments €513 bln, while in 2003–2011 it had repaid a further €151 bln in short term debt only. Even in 2009, with the deficit at €17.1 bln, new borrowing surpassed €85.2 bln. For 2012, servicing of the government debt will surpass €70 bln.


Deficit (Public):

The amount of money, as a percentage of GDP, that the government ‘goes under’ each year. It occurs when revenues of  the government are less than its expenditure. The gap (deficit) is financed through borrowing, meaning short or long term loans (see Bonds). The government’s revenue comes mainly from taxes and its participation in public companies. Its expenditure covers spending for wages, pensions, education, health, military, public investment programmes etc, but also the repayment of debt (interest payments and the principal).

Given the statistics of the time, the Greek deficit in 2010 was 10.5% of GDP, including the 6.6% of GDP going for debt repayments, and 3.9% for all other public expenditure (wages, health, education, social security etc). The deficit in 2011 is estimated to be 19.6 billion euro, or 9% of GDP, and the 2012 target is 11.4 billion euros, or 5.4% of GDP. This expected divergence will bring on the usual threats and blackmails of further austerity packages.

We know however that the size of the budget deficit can change or be presented in a variety of ways, to serve the interests of those in power. The deficit is often technically enlarged according to the policy that most suits them. For example, when they want to impose anti-people policies they can mask revenues to justify further borrowing or spending cuts. On the other hand, they can present certain revenues (e.g. from road taxes) when it suits them best. The dramatic adjustment of the deficit with the help the European statistical authority Eurostat provided the government after its election the motive to bring on the attack against Greece, as it decimated the countries international credibility. A few years earlier the other government party, New Democracy, had attempted a similar trick.


A bond proposed as a solution to the current crisis, covering all countries of the eurozone and not issued by each member state independently, but by the entire eurozone. This proposal was first formulated by the president of the Eurogroup (the Eurozone’s finance ministers), J.C. Junker, and the Finance Minister of the Berlusconi government, Julio Tremonti. Some maintain that the best solution is to issue a 20 year Eurobond with a 3% interest rate. The cost of Eurobond borrowing should be equal for all member countries, as it will supposedly be guaranteed by powerful countries such as Germany. It doesn’t deal with the reasons for debt creation, only with its financing.

Extending Loan Maturity:

Prolonging the time in which a debt can be repaid. Usually the IMF, after the three year threshold loan period is over, proceeds to new lending to its borrower countries, equal to half the value of the original loan. And this is the amount that the IMF will most likely lend to Greece in the new agreement, with the conditionality that all public wealth is sold off, and catastrophic austerity is imposed.

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