With Prime Minister Antonis Samaras predicting a recovery for Greece’s economy as soon as next year, the country’s international lenders are more worried about 2015-16, saying the outlook is “inherently uncertain” and will be the focus of negotiations with the government later this year, the European Commission said.
The Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) lauded Greece’s progress earlier in making reforms and imposing more austerity measures in return for a second bailout of $173 billion, but said there’s still a big problem with collecting from tax cheats who owe $70 billion, the European Union’s Brussels-based executive arm said in a report.
A fiscal gap of 1.7 percent of Gross Domestic Product in 2015 and 2.1 percent in 2016 needs closing, according to the report. Unless corrected, that could put Samaras in a tough spot as he has vowed there will be no more austerity measures no matter what, although the Troika could put his feet in the fire if the fiscal targets fall short.
“The fiscal outlook depends to a large extent on the strength of the recovery and improvement in taxpayer capability to service their tax obligations, as well as gains made from strengthening tax and social security administration,” the commission said. “The task of filling the gap in 2015-16 will be taken up in the context of the 2014 budget negotiations in the autumn.”
Since a budget deficit of 15.1 percent – more than five times the 3 percent ceiling allowed by the Eurozone – forced Greece to seek a first bailout of $152 billion in May 2010, the Troika has held quarterly reviews and negotiations with Greek authorities on its compliance with the terms of the rescue packages that came with attached pay cuts, tax hikes and slashed pensions.
The commission’s report today forecasts the budget deficit will narrow to 3.3 percent of GDP next year from 4.1 percent this year, while public debt will peak at 175.2 percent of GDP this year before gradually declining. Economic output will contract 4.2 percent this year, its sixth year of recession, before GDP increases 0.6 percent next year “led by investment and exports.”
“For the very first time since the inception of the adjustment program for Greece, the macroeconomic scenario projected during the last review remained substantially unchanged,” the commission said in the report.
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