Parliament’s budget office dampens govt, EU predictions of Greek economic recovery

21 July 2016
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The Greek parliament’s budget office on Wednesday dampened optimistic predictions over an immediate return to growth by the Greek economy in the second half of the year, predictions that were prominently repeated only days earlier by both the relevant EU Commissioner and the Greek finance minister.

In its quarterly report, Parliament’s budget office warns that the risk the third memorandum (third bailout) will ultimately fail has not been eliminated, while detailing the reasons it forecasts less ambitious figures for the economy than the ones cited by the current leftist government.

The report comes on the heels of statements in Athens by both visiting EU Commissioner Pierre Moscovici and Greek FinMin Euclid Tsakalotos, who referred to a reversal of the recession in the second half of 2016 and eyebrow-raising GDP growth rates for the Greek economy of 2.7 percent and 3.1 percent for 2017 and 2018, respectively.

The relevant office in Parliament, however, offered a diametrically different outlook for the still recession-battered economy.

Significant economic growth, by contemporary Greek standards, is a primary component of the government’s policies, given that it must meet memorandum-mandated fiscal targets, especially primary budget surplus goals, through August 2018. Goals of a 0.5-percent primary budget surplus, as a percentage of GDP, for this year, followed by 1.75 percent for 2017 and a highly ambitious 3.5-percent target for 2018 depend entirely on greater economic growth and a commensurate increase in tax revenues flowing into state coffers.

Another ambitious goal in the current “Greek program” (third bailout) deals with non-performing loans (NPLs) in the country, as economic growth is considered imperative in order to allow at least some businesses and households to start servicing their outstanding debt loads.

However, even with the expected activation of distress funds in the sector, the Bank of Greece (BoG) still estimates that only five to seven billion euros will be eliminated from the total figure that corresponds to NPLs, as opposed from a target of 40 billion euros by the end of 2019.

Estimates show that NPLs in the country easily exceed 80 billion euros, with other estimates reaching 110 billion euros.

The main arguments cited in the budget office’s report are:

— Economic recovery is not assured with the current available data

— Prospects for economic growth are unclear and medium term, while citing the continuing negative impact of capital controls

— More businesses are closing than opening, while citing the emergence of a “new austerity” after the recently passed tax (direct and indirect) hikes and pension cuts, tabled by the government and passed by MPs in Parliament backing the government coalition.

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