One step forward, two back
Grim financial forecasts overshadow good news
BRUSSELS— Every step Greece takes to shore up its finances seems to make it harder for Athens to make the numbers add up in the longterm, especially when it comes to its spiralling debt.
Monday’s 2013 budget plan contained some positive news — for example, the expectation that Greece will have a primary budget surplus, before debt financing costs, for the first time since 2002 — as well as some more alarming forecasts.
Chief among those was an acknowledgement that the economy will shrink again next year, by 3.8 per cent, the sixth annual contraction in succession, and that the debt-to-GDP ratio will rise to 179.3 per cent in 2013, a dauntingly high figure.
The bottom line is that Greece is in a worse state now than even the most pessimistic forecast just six months ago. The relationship between growth and debt is the focus of the European Commission, the European Central Bank and the International Monetary Fund — the troika of inspectors currently in Athens poring over the government’s projections. In the coming four to six weeks, the troika will publish its latest report assessing whether Greece’s debt is sustainable in the longerterm, something many private-sector economists have already concluded is not the case. In its last analysis published in March, the troika said Greece needed to get its debts down to 120 per cent of GDP by 2020 for the situation to be manageable and concluded the goal was achievable under certain optimistic assumptions.
But as so often with the Greek economy in the past three years, most of the assumptions are already way off-target and the likelihood of Athens meeting the 2020 goal is now even slimmer than it was then.
That makes it all the more likely that Athens will have to go through another debt restructuring, involving further losses for bondholders, if it is to return to solvency. And this time it is the official sector — mostly European governments and their taxpayers — who will have to take a hit rather than the private sector.
That would be a major blow to German Chancellor Angela Merkel, whose country is the biggest contributor to euro zone rescue funds, and diplomats say she would be eager to avoid such an event before a September 2013 German general election.