“The most recent official data provide some encouragement, despite the ongoing weakness in tax receipts and the continuing accumulation of government arrears,” Eurobank Research economists Platon Monokroussos and Theodoros Stamatiou said in a note distributed today. “Contrary to what many investors appear to believe, the applied austerity program has yielded considerable fiscal results over the last two years.”
Greece trimmed its deficit to 9.1 percent of gross domestic product last year from 15.6 percent in 2009, according to the European Commission, by cutting spending and increasing taxes in exchange for bailout loans from the European Union and International Monetary Fund. Budget data released on June 12 showed the central government’s deficit in the first five months was 2 billion euros ($2.5 billion) below the target for the period. The full-year deficit target is 13.7 billion euros.
Earlier this year, Greece sliced about 100 billion euros off its debt load when it agreed to the world’s biggest sovereign debt restructuring with private creditors. This will cause debt servicing costs to “decline significantly in the years to come,” making it easier for Greece to meet fiscal targets and improving the state’s solvency outlook, the economists said.
The government’s total payment arrears to third parties at the end of April stood at 6.3 billion euros, according to the research note. While failing to reduce these arrears sufficiently is a failing of the government’s economic reform program and is keeping needed liquidity from the Greek economy, it does not necessarily constitute a risk to meeting its 2012 fiscal targets, Monokroussos and Stamatiou said.
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