The Santorum Strategy: Why the Right Wins Even When It Loses

An excellent analysis by George Lakoff

The Santorum Strategy is not just about Santorum. It is about pounding the most radical conservative ideas into the public mind by constant repetition during the Republican presidential campaign, whether by Santorum himself, by Gingrich or Ron Paul, by an intimidated Romney, or by the Republican House majority. The Republican presidential campaign is about a lot more than the campaign for the presidency. It is about guaranteeing a radical conservative future for America.

I am old enough to remember how liberals (me included) made fun of Ronald Reagan as a not-too-bright mediocre actor who could not possibly be elected president. I remember liberals making fun of George W.Bush as so ignorant and ill-spoken that Americans couldn’t possibly take him seriously. Both turned out to be clever politicians who changed America much for the worse. And among the things they and their fellow conservatives managed to do was change public discourse, and with it, change how a great many Americans thought.

The Republican presidential campaign has to be seen in this light.

Liberals tend to underestimate the importance of public discourse and it’s effect on the brains of our citizens. All thought is physical. You think with your brain. You have no alternative. Brain circuitry strengthens with repeated activation. And language, far from being neutral, activates complex brain circuitry that is rooted in conservative and liberal moral systems. Conservative language, even when argued against, activates and strengthens conservative brain circuitry. This is extremely important for so-called “independents,” who actually have both conservative and liberal moral systems in their brains and can shift back and forth. The more they hear conservative language over the next eight months, the more their conservative brain circuitry will be strengthened.

This point is being missed by Democrats and by the media, and yet it is the most vital issue for our future in what is now being discussed. No matter who gets the Republican nomination for president, the Santorum Strategy will have succeeded unless Democrats dramatically change their communication strategy as soon as possible. Even if President Obama is re-elected, he will have very little power if the Republicans keep the House, and a great deal less if they take the Senate. And if they keep and take more state houses and local offices around the country, there will be less and less possibility of a liberal future.

The Republican presidential campaign is not just about the presidential race. It is about using conservative language to strengthen conservative values in the brains of voters — in campaigns at all levels from Congress to school boards. Part of the Republican strategy is to get liberals to argue against them, repeating conservative language. There is a reason I wrote a book called Don’t Think of an Elephant! When you negate conservative language, you activate conservative ideas and, hence, automatically and unconsciously strengthen the brain circuitry that characterizes conservative values.

As I was writing the paragraphs above, the mail came. In it was material from Public Citizen (an organization I admire) promoting Single Payer Health Care (which I agree with) by arguing against right-wing lies about it. In big, bold type the lies were listed: Single payer is socialized medicine. Single payer will lead to rationing, like in Canada. Costs will skyrocket under Single Payer. And so on. After each one, came the negative: Wrong. And then in small, unbolded type, the laundry lists of policy truths. Public Citizen was unconsciously promoting the conservative lies by repeating them in boldface and then negating them.

The same naiveté about messaging, public discourse, and effects on brains is now showing up in liberal discussions of the Republican presidential race. Many Democrats are reacting either with glee (“their field is so ridiculously weak and wacky.” — Maureen Dowd), with outrage (their deficit-reduction proposals would actually raise the deficit — Paul Krugman), or with incredulity (“Why we're debating a woman's access to birth control is beyond me.” — Debbie Wasserman Schultz). Hendrik Hertzberg dismissed the ultra-conservatives as “a kick line of clowns, knaves, and zealots.” Joe Nocera wrote that he hopes Santorum would be the Republican candidate, claiming that he is so far to the right that he would be “crushed” — an “epic defeat,” “shock therapy” that would bring back moderate Republicans. Democrats even voted for Santorum in the Michigan primary on the grounds that he would be the weaker candidate and that it would be to the Democrats’ advantage if the Republican race dragged on for a long time.

I mention these liberals by name because they are all people I admire and largely agree with. I hope that they are right. And I hope that the liberal discourse of glee, scorn, outrage, incredulity, and support for the most radical conservative will actually win the day for Democrats at all levels. But, frankly, I have my doubts. I think Democrats need much better positive messaging, expressing and repeating liberal moral values — not just policies— uniformly across the party. That is not happening.

One of the reasons that it is not happening is that there is a failure to understand the difference between policy and morality, that morality beats policy, and that moral discourse is absolutely necessary. This is a major reason why the Democrats lost the House in 2010. Consider how conservatives got a majority of Americans to be against the Obama health care plan. The president had polled the provisions, and each had strong public support: No preconditions, no caps, no loss of coverage if you get sick, ability to keep your college-age child on your policy, and so on. These are policy details, and they matter. The conservatives never argued against any of them. Instead, they re-framed; they made a moral case against “Obamacare.” Their moral principles were freedom and life, and they had language to go with them. Freedom: “government takeover.” Life: “death panels.” Republicans at all levels repeated them over and over, and convinced millions of people who were for the policy provisions of the Obama plan to be against the plan as a whole. They changed the public discourse, changed the brains of the electorate — especially the “independents” — and won in 2010.

The radical conservative discourse of the Republican presidential race has the same purpose, and conservative Republicans are luring Democrats into making the same mistakes. Santorum, the purest radical conservative, is the best example. From the perspective of conservative moral values, he is making sense and arguing logically, making his moral values clear and coming across as straightforward and authentic, as Reagan did.

The Moral Value Systems

The basic moral values in the progressive moral system are empathy and responsibility, both for oneself and others. This leads to a view of government as having certain moral obligations: providing protection and empowerment for everyone equally. This requires a vibrant commitment to the public — public infrastructure (roads, buildings, sewers), public education, public health, and so on. No private business can prosper at all without such public provisions. The private depends on the public.

These values follow from certain ideal progressive family values, as projected to larger institutions. The progressive family has parents of equal authority. Their central moral role requires empathy with each other and their children, it requires self-responsibility, and responsibility for the well-being of other family members. This means open communication, transparency about family rules, shared decision-making, and need-based fairness.

This is an idealized view. Because our first acquaintance with being governed is in our families, we come to understand ideal versions of governing institutions (e.g., churches, schools, teams, and nations) in terms of idealizations of families.

The idealized conservative family is structured around a strict father who is the natural leader of the family, who is assumed to know right from wrong, whose authority is absolute and unchallengeable, who is masculine, makes decisions about reproduction, and who sets the rules – in short, the Decider. Children must be taught right from wrong through strict discipline, which is required to be moral. This maps onto the nation. To be prosperous in a free market, one must be fiscally disciplined. If you are not prosperous, you must not be disciplined, and if you are not disciplined, you cannot be moral, and so you deserve your poverty.

When this idealized family model is projected onto various governing institutions, we get conservative versions of them: conservative religion with a strict father God; a view of the market as Decider with no external authority over the market from government, unions, or the courts; and strictness in other institutions, like education, prisons, businesses, sports teams, romantic relationships, and the world community. Control over reproduction ought to be in the hands of male authorities.

For conservatives, democracy is about liberty, individual responsibility and self-reliance — the freedom to seek one’s own self-interest with minimal or no commitment to the interests of others. This implies a minimal public and a maximal private.

We can now see why the Santorum Strategy is so concerned with family values. Strict father family values are the model for radical conservative values. Conservative populism — in which poor conservatives vote against their financial interests — depends on those poor conservatives having strict father family values, defining themselves in terms of those values, and voting on the basis of those values, thus selecting strict fathers as their political leaders.

The repetition of language expressing those values leads to more and more working people becoming political and accepting those values in their politics. As long as the Democrats have no positive moral messaging of their own, repeated over and over, the Santorum Strategy will go unchallenged and conservative populism will expand. Moreover, repeating the Santorum language by mocking it or arguing against it using that language will only help radical conservatives in propagating their views.

Democrats are concentrating on the presidential race, hoping that if Obama wins, as it looks like he will, all will be fine. They are missing the bigger picture. The Democratic strategy of getting the independent women’s vote for Obama is not sufficient, because independent women may still vote for their local conservative leaders as the strict fathers they want to see in office.

Democrats have been gleeful about the Santorum birth control strategy, taken up by conservatives in the House as a moral position that if you want to use birth control, you should pay for it yourself. Democrats see this as irrational Republican self-destruction, assuming that it will help all Democrats to frame it as a “war against women.” I hope they are right, but I have doubts.

This is anything but an irrational position for radically conservative Republicans. Quite the contrary. It fits conservative moral logic — the logic used by conservative populists, male for sure and for many women as well. In some respects it embodies the most powerful aspects of conservative moral logic, strengthening conservative moral logic in the minds not only of conservatives, but also of independents who have both conservative and progressive world views and swing between them.

Here’s how that logic goes.

• The strict father determines what happens in the family, including reproduction. Thus reproduction is the province of male authority.
• The strict father does not condone moral weakness and self-indulgence without moral consequences. Sex without reproductive consequences is thus seen as immoral.
• If the nation supports birth control for unmarried women, then the nation supports immoral behavior.
• The conservative stress on individual responsibility means that you and no one else should have to pay for your birth control — not your employer, your HMO, or the taxpayers.
• Having to pay for your birth control also has a metaphorical religious value — paying for your sins.
• This is a classical slippery slope narrative. If no one else should have to pay for your birth control, the next step is that no one else should have to pay for any of your health care.
• And the step after that is that no one else should be forced to pay for anyone else. This is, everything should be privatized — no public education, safety nets, parks, or any public institutions or services.

That is what makes conservative moral logic into such a powerful instrument. And conservative and independent women can be pragmatic about the birth control details, while accepting the moral logic as a whole.

Incidentally, Rush Limbaugh’s “slut” and “prostitute” remarks, while even more extreme than Santorum, make sense to conservatives in terms of the same conservative moral logic. Limbaugh apologized for those two words, but not for the logic behind them. Even after the apology for the two words, the logic lingers.

All moral logic in politics, whether progressive or conservative, is based on metaphorical thought processes, applying family moral values to political moral values. Republicans understand this and Santorum carries it out masterfully for the benefit of all conservative Republican office seekers at all levels, today and in the future.

The Santorum Strategy does not end with this election. It is part of a permanent campaign that has been going on since the Gingrich revolution of 1994, and will continue into the indefinite future.

Democrats tend to be literalists, assuming that the presidential campaign is only about the presidential campaign and that birth control is only about birth control. In 2010, they thought that health policy was only about health policy, even as conservatives were metaphorically making it about freedom (“government takeover”) and life (“death panels”).

It is vital that Democrats not make that mistake again.

Troika confidential report: Greece: Preliminary Debt Sustainability Analysis

STRICTLY CONFIDENTIAL

Greece: Preliminary Debt Sustainability Analysis

February 15, 2012

Since the fifth review, a number of developments have pointed to a need to revise the DSA. The 2011 outturn was worse than expected, both in terms of growth and the fiscal deficit; the macroeconomic outlook has deteriorated significantly, due to events in Europe; the fiscal outlook has deteriorated due to the economy and due to delays in developing fiscal-structural reforms; and the strategy of the program has been adapted, to place greater emphasis on upfront actions to improve competitiveness (which will change the expected profile of the recovery and have implications for the fiscal accounts). The DSA also must be updated to include the envisaged PSI deal between the IIF-led creditor group and the Greek authorities

The assessment shows that, in a baseline scenario, public debt will decline to around 129 percent of GDP by 2020, staying above the 120 percent of GDP level targeted by European leaders in October. The results point to a need for additional debt relief from the official or private sectors to bring the debt trajectory down, consistent with the objective of achieving a 120 percent of GDP debt ratio by 2020. The results will need to be updated once information on additional debt-reducing actions is available.

There are notable risks. Given the high prospective level and share of senior debt, the prospects for Greece to be able to return to the market in the years following the end of the new program are uncertain and require more analysis. Prolonged financial support on appropriate terms by the official sector may be necessary. Moreover, there is a fundamental tension between the program objectives of reducing debt and improving competitiveness, in that the internal devaluation needed to restore Greece competitiveness will inevitably lead to a higher debt to GDP ratio in the near term. In this context, a scenario of particular concern involves internal devaluation through deeper recession (due to continued delays with structural reforms and with fiscal policy and privatization implementation). This would result in a much higher debt trajectory, leaving debt as high as 160 percent of GDP in 2020. Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it.

I. Baseline assumptions

The revised DSA framework starts from the October DSA, and updates macro and policy assumptions along several dimensions:

·      The path for the projected economic recovery has been adjusted. Three factors have contributed to the new profile: (i) the worse-than-expected outturn for 2011 (growth below -6 percent versus -5.5 percent projected); (ii) the deterioration in the 2012-13 outlook for Europe (and globally); and (iii) the revised package of structural reforms agreed, which will tend to deepen the contraction initially, but will pull forward the recovery (by improving unit labor costs, which through the other structural reforms assumed in the program, translates into increased price competitiveness and higher investment). Medium-term potential growth assumptions have been maintained, on the assumption that the whole structural reform agenda is able to move forward as envisioned in the October DSA.

The fiscal path has also been adjusted. The revised path captures; (i) the slightly worse than expected 2011 outturn (a deficit estimated to be 9¼ percent of GDP rather than the previously projected 9 percent); and (ii) an adjustment of the primary deficit target for 2012 (from 0.2 to -1 percent of GDP), to accommodate the worse 2011 ₆ outturn and the deterioration in the macro context (including the impact on short term activity of more ambitious labor market reforms), and thus avoid a large new negative fiscal impulse. The path would still bring Greece to a primary general government surplus of 4½ percent of GDP by 2014, although additional measures will need to be identified to secure this outcome.

·      Estimated bank recapitalization needs have increased. The Blackrock diagnostic exercise, the PSI exercise (including its likely accounting treatment), and refined estimates of resolution costs (as opposed to recapitalization costs) have pointed to higher needs than assumed at the time of the Fifth program review (€50 billion versus €40 billion previously). Recoveries, through the sale of bank equity, are not expected to be materially higher in the medium-term.

·      Market access prospects have become more adverse. The PSI deal, in the process of being agreed with creditors (below), has worsened the outlook for new market access due to the proposed co-financing structure with the EFSF (which essentially implies that any new debt will be junior to all existing debt). It is now uncertain whether market access can be restored in the immediate post-program years—a conclusive assessment on this issue also depends on the modality and scale of debt reducing operations required to bring the 2020 debt ratio to 120 percent of GDP. For the purpose of constructing the DSA baseline, Greece is assumed to maintain good policies post-program, and it is assumed that financing needs are met by Greece's European partners on standard EFSF borrowing terms.

Financing assumptions have also been updated:

·      Private sector involvement. The assumptions about PSI now incorporate the design now in the process of being agreed between Greece and the IIF-led creditor group: (i) a reduction in the nominal value of eligible Greek government bonds by 50 percent (15 percent paid upfront in EFSF short-term notes, with the remaining 35 percent exchanged into 30-year bonds amortisable after 10 years); (ii) coupons of 3 percent in 2012-20 and 3% percent from 2021 onwards; (iii) a GDP-linked additional payment (capped at 1 percent of the outstanding amount of new bonds); and (iv) a co-financing structure with the EFSF concerning the 15 percent upfront payment. The pool of debt for the debt exchange has also been updated (although an exemption for retail investors, now under consideration by the authorities, is not assumed). The creditor participation rate is assumed to be 95 percent.

·      Official financing. EFSF funding is assumed to remain at cost, but the amortization period has been shortened to 25 years, and interest is now assumed to be paid annually, rather than quarterly. IMF lending is now assumed to be on EFF terms with broadly unchanged peak exposure versus the SBA (and would finance about three-elevenths of the projected need, excluding PSI-related financing, bank recapitalization, and Greece's ESM contributions). Importantly, the new official financing assumed does not incorporate the impact of potential separate actions by Greece's European partners to help reduce the debt stock to 120 percent of GDP, which would tend to reduce program financing needs.

II. Debt dynamics

Projections indicate that, under the baseline scenario, and before any further action to reduce debt, the debt ratio would fall to 129 percent of GDP in 2020 (Table 1). This is noticeably above the target set by European leaders during the October Summit (120 percent of GDP), and above the upper limit of what could be considered sustainable for Greece. In terms of trajectory, the PSI deal helps to initially reduce debt, but debt then spikes up again to 168 percent of GDP in 2013 due to the shrinking economy and incomplete fiscal adjustment. Official financing needs between 2012 and 2014 would be about €170 billion before further actions to reduce debt (or about €136 billion additional to what is already in the existing program). For the period 2015-2020 official financing needs could amount to an additional €50 billion (again before actions to reduce debt), although this figure could be a little lower if Greece is able to gain some limited market access in the last years of the decade.

Stress tests continue to point to a number of sensitivities with the balance of risks mostly tilted to the downside:

·      Policies. As before, if the primary balance gets stuck below 2½ percent of GDP (a level it now only exceeds in 2014), then debt would be on an ever-increasing trajectory. Significant shortfalls in privatization proceeds (only €10 billion of €46 billion realized by 2020), would raise the level of debt appreciably, and slow its projected decline, leaving it at 148 percent of GDP by 2020.

·      Macro parameters. Debt outcomes remain very sensitive to growth or to faster internal devaluation. Fixing the primary balance, nominal growth permanently lower by 1 percent per annum would send debt-to-GDP to 143 percent by 2020; nominal growth permanently higher by 1 percent per annum would allow debt to fall to 116 percent of GDP by 2020. Interest rate sensitivities arise via the rate charged on official financing (since Greece is out of the market for most of the decade under the assumed borrowing rule). If the spread on EFSF borrowing were to be 100 bps higher, then debt-to-GDP would reach 135 percent by 2020.

·      The PSI deal. Debt is sensitive to the degree of participation in the PSI deal, and also sensitive to the pool of debt to which the deal will apply. Concerning participation, for every 5 percent decline in participation (with hold-outs paid in full) the 2020 debt to GDP ratio would climb by 2 percent. With each €5 billion change in the pool of eligible debt, the debt to GDP ratio changes by about 1 percent of GDP.

III. Debt dynamics under an alternative unchanged policies scenario

The Greek authorities may not be able to deliver structural reforms and policy adjustments at the pace envisioned in the baseline. Greater wage flexibility may in practice be resisted by economic agents; product and service market liberalization may continue to be plagued by strong opposition from vested interests; and business environment reforms may also remain bogged down in bureaucratic delays. On the policy side, it may take Greece much more time than assumed to identify and implement the necessary structural fiscal reforms to improve the primary balance from -1 percent in 2012 to 4½ percent of GDP, and concerning assets sales, delays may arise due to market-related constraints, encumbrances on assets, or political hurdles. And of course a less favourable macro outcome would itself further hurt policy implementation prospects.

A tailored downside scenario can help to capture these joint risks. Specifically, a failure to reinvigorate structural reforms is assumed to hold up the recovery, forcing higher unemployment and deeper recession to secure internal devaluation over a longer period. At the same time, it is assumed that this, and difficulties in identifying reforms, delay the completion of fiscal adjustment by 3 full years. Finally, it is assumed that privatization plans take an additional 5 years to complete (with proceeds through 2020 reduced by €20 billion). Prospects for a return to the market become even less certain. For illustrative purposes, the additional financing requirements in this scenario are assumed to be covered by the official sector on EFSF terms (under the assumption that despite delays Greece continues to make slow progress towards program objectives).

The debt trajectory is extremely sensitive to program delays, suggesting that the program could be accident prone, and calling into question sustainability (Table 2). Under the tailored scenario described above, the debt ratio would peak at 178 percent of GDP in 2015. Once growth did recover, fiscal policy achieved its target, and privatization picked up, the debt would begin to slowly decline. Debt to GDP would fall to around 160 percent of GDP by 2020, well above the target of about 120 percent of GDP set by European leaders. Financing needs through 2020 would amount to perhaps €245 billion. Under the assumption that stronger growth could follow on the eventual elimination of the competiveness gap, the debt ratio would slowly converge to that in the baseline, but likely only in the late 2020s. With debt ratios so high in the next decade, smaller shocks would produce 100 unsustainable dynamics, leaving the program highly accident-prone.

IV. Official Sector involvement

These projections do not account for potential actions by Greece's European partners to reduce debt to GDP, under the baseline, by about 9 percent of GDP to about 120 percent of GDP by 2020. The DSA will have to be redone once information on steps to reduce debt further are available. At this point, several main options that are being considered as follows:

·      Restructuring of accrued interest. At the time of the debt exchange, Greece is expected to pay the interest that creditors have accrued on each bond since the latest coupon was paid. Depending on the date of the exchange, this is estimated at around €5-5.5 billion. A decision to accelerate accrued interest and add it to the principal amount to be restructured would reduce the debt ratio in 2020 by about W2 percentage points, and would reduce the official financing envelop during the program by nearly €5 billion.

·      Interest rate reduction on Greek Loan Facility (GLF). The Commission services estimate that there is scope to reduce the spread on GLF loans to 210 bps over their entire life (versus 200 bps increasing to 300bps over time).This reduction, if implemented, would lower Greece's interest bill (and deficit). The Commission estimates that it would reduce the projected debt ratio in 2020 by about 1½ percentage points. The official financing in the programme period would also be reduced by around €0.5 billion.

·      Restructuring of Greek bonds held by the National Central Banks (NCBs) of the euro area in their investment portfolios.^[1] Including Greek government bonds held by NCBs in their investment portfolio in the debt exchange in PSI would reduce the debt-to-GDP ratio in 2020 by about 3½ percentage points (net, after accounting for sums needed to recapitalize the Bank of Greece).

·      SMP income. The income stream resulting from the orderly repayment Greek government bonds in the ECB's SMP portfolio (interest and capital gains) is assumed to be transferred to NCBs. NCBs will, in turn, distribute dividends reflecting this and other income to the respective government according to their statutes or regulations. This could be reflected in the DSA if euro area member states make explicit commitments to transfer specific amounts to Greece. If euro area member states commit to transfer over time specific amounts matching the expected income accruing to their NCBs from this source, this could reduce debt to GDP in Greece by about 5½ percentage points by 2020. During the program period official financing could drop by about €5 billion.

Table. Estimated effect of OSI options
	Debt reduction by 2020 (percent of GDP)	Reduction in financing during program period (Euro billion)
Non-payment of accrued interest	1.5	5.0
Interest rate reduction on GLF	1.5	0.5
Restructuring of bonds held by NCBS	3.5	n.a.
SMP income	5.5	5.0

Table 1. Greece: Debt Sustainability Baseline, 2009-2030

(In percent of GDP, unless otherwise indicated)

	Actual			Projections
	2009	2010		2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2030	Debt-stabilizing primary balance 10/ 1.5
Baseline: Public sector debt 1/	129	145		164	163	168	166	160	154	147	141	135	129	100
Change in public sector debt	16.3	15.6		19.4	-1.4	5.4	-1.5	-6.1	-6.3	-6.8	-6.0	-6.2	-6.2	-1.9
Identified debt-creating flows (4+7+12)	18.3	16.7		17.8	37.5	5.9	-1.3	-5.8	-6.6	-6.9	-6.1	-6.3	-6.2	-1.9
Primary deficit	10.4	5.0		2.4	1.0	-1.8	-4.5	-4.5	-4.5	-4.5	-4.3	-4.2	-4.3	-3.5
Revenue and grants	37.9	39.5		39.5	39.5	39.5	39.5	39.5	39.5	39.5	39.5	39.5	39.5	39.5
Primary (noninterest) expenditure	48.3	44.6		41.9	40.5	37.7	35.0	35.0	35.0	35.0	35.3	35.3	35.3	36.0
Automatic debt dynamics 2/	5.9	8.0		13.9	12.1	7.0	2.9	0.7	0.5	0.2	0.2	0.0	0.1	1.6
Contribution from interest rate/growth differential 3/	5.9	8.0		13.9	12.1	7.0	2.9	0.7	0.5	0.2	0.2	0.0	0.1	1.6
Of which contribution from real interest rate	2.3	3.4		4.7	4.7	7.0	6.7	5.3	4.9	4.3	3.9	3.4	3.0	2.9
Of which contribution from real GDP growth	3.7	4.6		9.2	7.4	0.0	-3.8	-4.6	-4.4	-4.1	-3.7	-3.4	-2.9	-1.4
Contribution from exchange rate depreciation 4/	0.0	0.0		…	…	…	…	…	…	…	…	…	…	…
Denominator = 1+g+p+gp	1.0	1.0		1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0
Other identified debt-creating flows	1.9	3.7		1.5	24.4	0.7	0.3	-1.9	-2.6	-2.6	-2.1	-2.1	-2.1	0.0
Privatization receipts (negative)	0.0	0.0		-0.5	-1.5	-2.1	-2.1	-2.6	-2.6	-2.6	-2.1	-2.1	-2.1	0.0
Recognition of implicit or contingent liabilities	0.3	1.0		2.1	26.0	2.3	0.5	0.7	0.0	0.0	0.0	0.0	0.0	0.0
Other 4/	1.6	2.6		-0.1	0.0	0.5	1.9	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Residual, including asset changes (2-3) 5/	-2.0	-1.1		1.6	-38.9	-0.5	-0.2	-0.4	0.3	0.1	0.1	0.1	0.1	0.0
Public sector debt-to-revenue ratio 1/	340.5	365.5		414.4	410.9	424.5	420.7	405.2	389.2	371.9	356.6	340.9	325.3	251.7
Gross financing need 6/	15.7	19.2		26.7	31.9	13.8	18.1	13.1	8.2	8.5	7.0	8.6	7.1	5.2
in billions of U.S. dollars	50.8	56.9	10-Year	74.3	84.2	36.1	48.0	35.9	23.3	25.2	21.6	27.7	23.9	24.9
Scenario with key variables at their historical averages 7/				164	153	155	158	158	158	158	159	159	160	182
Scenario with no policy change (constant primary balance) in 2011 -2021			Historical	164	164	174	179	180	180	181	181	182	182	222
Key Macroeconomic and Fiscal Assumptions Underlying Baseline			Average
Real GDP growth (in percent)	-3.3	-3.5	2.2	-6.1	-4.3	0.0	2.3	2.9	2.8	2.8	2.6	2.5	2.2	1.4
Average nominal interest rate on public debt (in percent) 8/	4.7	4.2	5.2	4.7	2.1	3.8	4.0	4.1	4.2	4.2	4.3	4.3	4.2	4.9
Average interest rate on new market debt (incl. T bills)				3.3	6.0	7.0	7.2	4.2	3.8	2.5	5.5	2.0	6.3	5.7
Average interest rate on all new debt (includes EU bilateral and IMF debts)				3.4	2.4	3.6	3.9	4.1	4.4	4.4	4.5	4.4	4.4	4.8
German bund rate				270	225	258	295	338	360	360	360	360	360	360
Average real interest rate (nominal rate minus change in GDP deflator, in percent;	1.9	2.5	2.1	3.0	2.7	4.3	4.1	3.3	3.2	2.9	2.8	2.6	2.4	3.0
Inflation rate (GDP deflator, in percent)	2.8	1.7	3.1	1.7	-0.7	-0.4	0.0	0.8	1.0	1.3	1.5	1.7	1.8	1.8
Growth of real primary spending (deflated by GDP deflator, in percent)	2.8	-11.0	3.6	-11.6	-7.5	-6.9	-5.0	2.9	2.8	2.8	3.3	2.5	2.2	1.4
Primary deficit	10.4	5.0	2.5	2.4	1.0	-1.8	-4.5	-4.5	-4.5	-4.5	-4.3	-4.2	-4.3	-3.5

Table 2. Greece: Debt Sustainability in Alternative Scenario, 2009-2030

(In percent of GDP, unless otherwise indicated)

	Actual			Projections
	2009	2010		2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2030	Debt-stabilizing primary balance 10/ 1.5
Baseline: Public sector debt 1/	129	145		164	163	168	166	160	154	147	141	135	129	100
Change in public sector debt	16.3	15.6		19.4	-1.9	9.2	5.7	0.8	-1.0	-4.0	-4.2	-4.9	-5.1	-1.9
Identified debt-creating flows (4+7+12)	18.3	16.7		17.8	36.7	9.7	5.9	1.2	-1.3	-4.0	-4.2	-4.9	-5.2	-2.0
Primary deficit	10.4	5.0		2.4	1.0	0.5	0.0	-1.3	-2.5	-4.5	-4.5	-4.5	-4.3	-3.5
Revenue and grants	37.9	39.5		39.5	39.5	39.5	39.5	39.5	39.5	39.5	39.5	39.5	39.5	39.5
Primary (noninterest) expenditure	48.3	44.6		41.9	40.5	40.0	39.5	38.3	37.0	35.0	35.0	35.0	35.3	36.0
Automatic debt dynamics 2/	5.9	8.0		13.9	10.4	7.4	4.6	3.4	2.9	2.2	1.5	0.8	0.4	1.5
Contribution from interest rate/growth differential 3/	5.9	8.0		13.9	10.4	7.4	4.6	3.4	2.9	2.2	1.5	0.8	0.4	1.5
Of which contribution from real interest rate	2.3	3.4		4.7	2.2	5.8	6.8	6.6	6.4	5.9	5.2	4.5	3.9	3.3
Of which contribution from real GDP growth	3.7	4.6		9.2	8.2	1.6	-2.3	-3.3	-3.5	-3.8	-3.7	-3.7	-3.5	-1.7
Contribution from exchange rate depreciation 4/	0.0	0.0		…	…	…	…	…	…	…	…	…	…	…
Denominator = 1+g+p+gp	1.0	1.0		1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0	1.0
Other identified debt-creating flows	1.9	3.7		1.5	25.3	1.8	1.4	-0.9	-1.7	-1.7	-1.2	-1.3	-1.3	0.0
Privatization receipts (negative)	0.0	0.0		-0.5	-0.5	-1.0	-1.0	-1.6	-1.7	-1.7	-1.2	-1.3	-1.3	0.0
Recognition of implicit or contingent liabilities	0.3	1.0		2.1	25.7	2.3	0.5	0.7	0.0	0.0	0.0	0.0	0.0	0.0
Other 4/	1.6	2.6		-0.1	0.0	0.5	1.9	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Residual, including asset changes (2-3) 5/	-2.0	-1.1		1.6	-38.6	-0.5	-0.2	-0.4	0.3	0.1	0.1	0.1	0.1	0.0
Public sector debt-to-revenue ratio 1/	340.5	365.5		414.4	409.7	432.9	447.4	449.4	446.9	436.9	426.4	414.1	401.2	296.6
Gross financing need 6/	15.7	19.2		26.7	31.7	16.1	22.8	17.1	11.2	9.9	8.2	10.0	8.8	7.6
in billions of U.S. dollars	50.8	56.9	10-Year	74.3	84.2	42.2	60.5	46.1	31.0	28.1	24.1	30.6	28.0	35.7
Scenario with key variables at their historical averages 7/				164	154	157	161	162	163	164	165	167	168	184
Scenario with no policy change (constant primary balance) in 2011 -2021			Historical	164	163	175	183	187	191	195	197	200	201	229
Key Macroeconomic and Fiscal Assumptions Underlying Baseline			Average
Real GDP growth (in percent)	-3.3	-3.5	2.2	-6.1	-4.8	-1.0	1.3	1.9	2.0	2.2	2.2	2.3	2.2	1.5
Average nominal interest rate on public debt (in percent) 8/	4.7	4.2	5.2	4.7	2.1	3.8	4.0	4.1	4.2	4.3	4.3	4.3	4.3	4.9
Average interest rate on new market debt (incl. T bills)				3.3	6.0	5.0	5.9	6.5	6.8	6.6	6.6	6.9	7.1	5.8
Average interest rate on all new debt (includes EU bilateral and IMF debts)				3.4	2.3	3.5	3.9	4.3	4.6	4.7	4.8	4.8	4.9	5.0
German bund rate				270	225	258	295	338	360	360	360	360	360	360
Average real interest rate (nominal rate minus change in GDP deflator, in percent;	1.9	2.5	2.1	3.0	1.3	3.5	4.0	3.8	3.7	3.5	3.1	2.8	2.5	2.9
Inflation rate (GDP deflator, in percent)	2.8	1.7	3.1	1.7	0.8	0.3	0.0	0.3	0.5	0.8	1.2	1.5	1.8	2.0
Growth of real primary spending (deflated by GDP deflator, in percent)	2.8	-11.0	3.6	-11.6	-8.0	-2.2	0.1	-1.3	-1.3	-3.3	2.2	2.3	3.0	2.9
Primary deficit	10.4	5.0	2.5	2.4	1.0	0.5	0.0	-1.3	-2.5	-4.5	-4.5	-4.5	-4.3	-3.5

1/   General gross government debt (including debt for collateral requirements).

2/   Derived as [(r - π(1+g) - g + αε(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; α = share of foreign-currency denominated debt; and ε = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).

3/   The real interest rate contribution is derived from the denominator in footnote 2/ as r - π (1 +g) and the real growth contribution as -g.

4/   Includes build up of deposits, collateral requirements.

5/   For projections, this line includes exchange rate changes. For 2011, large residual can be explained by headline debt reduction following the discount bond exchange and debt buy backs. For 2012 onward, the residual is explained by the accrued interest on zero-coupon collateral, which lowers the deficit but not the debt.

6/   Defined as general government deficit, plus amortization of medium and long-term general government debt, plus short-term debt at end of previous period.

7/   The key variables include real GDP growth; real interest rate; and primary balance in percent of GDP.

8/   Derived as nominal interest expenditure divided by previous period debt stock.

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^[1] The ECB Governing Council does not support this approach.