Greece will emerge from six years of recession next year, a draft budget forecast yesterday, signalling the country is past the worst of a crippling debt crisis that nearly broke Europe’s single currency.
Twice bailed-out Athens also confirmed it would post a budget surplus before interest payments this year for the first time in over a decade, and its battered economy won a vote of confidence from billionaire US investor John Paulson.
The positive outlook marks a sharp reversal in fortunes for a nation that had become Europe’s problem child, lurching from one crisis to the next as it tottered close to bankruptcy and exasperated its international partners with broken promises.
Analysts cautioned that despite the signs of economic stabilisation Greece remained hooked on aid and that further debt relief was inevitable to bring down a level of indebtedness set to top 175 per cent of gross domestic product this year.
“The key thing is that while things are improving they’re doing so from a very low level in Greece. Greece still needs financial assistance from outside,” said Ben May, economist at London-based Capital Economics.
“Certainly there are signs that the worst of the crisis may well be over in the euro zone in the short term but you could easily see concerns flaring up longer term.”
The Greek economy, which has shrunk by about a quarter since its peak in 2007 and thrown more than one in four out of work, will grow by a modest 0.6 per cent next year thanks to a rebound in investment and exports including tourism, the budget predicted.
In a further boost, Athens forecast a primary budget surplus of 1.6 per cent of national output next year after posting a small surplus of €340 million this year.
Attaining a primary surplus – which excludes debt servicing costs – makes Athens eligible for further debt relief from its EU and International Monetary Fund lenders.
“In the last three years Greece found itself in a painful recession with an unprecedented level of unemployment,” Deputy Finance Minister Christos Staikouras said as he unveiled the 2014 budget. Since this year, the sacrifices have begun to yield fruit, giving the first signs of an exit from the crisis.”
Athens will ask its creditors to honour their commitment to provide debt relief, and hopes it can return to the bond markets in the second half of next year, Staikouras said.
Greece is hoping for an extension of maturities and lower interest rates on bailout loans after its partners ruled out an outright write-off of debt. It also expects to receive a third bailout of about 10 billion euros to get through next year.
On the streets of the capital, Greeks worn down by years of rising taxes and shrinking wages were sceptical about any upturn. Few shared their government’s optimism that the country was finally turning the corner.
“I don’t believe them. Whatever they’ve told us has been wrong,” said Yorgos Dedousis, 55, a newspaper vendor on Syntagma square outside parliament.
“Every day people walk past here and tell me ‘I’m hungry, I’m hungry.’ What’s changed? As long as we’re under the bailout, we’re going to have problems.”