Greece will struggle to cut its debt load as envisaged by international assessors even with the return of modest economic growth next year, said German Christian Democratic Union lawmaker Michael Fuchs.
“I’m very much concerned because to me it’s almost impossible to do this without great leaps in economic growth,” Fuchs, a deputy parliamentary leader and economy spokesman for Chancellor Angela Merkel’s CDU, said in a telephone interview yesterday. “You have to look at the math of cutting debt to about 120 percent -- one plus one is two, not three.”
European officials are at odds over how to ease Greece’s burden as Prime Minister Antonis Samaras’s government strives to fulfill the terms of its bailout program through August 2014. While Finance Minister Yannis Stournaras is counting on the euro area to ease debt repayment terms after Greece reports a primary budget surplus, Merkel has ruled out a second writedown of Greek debt, or haircut, as too risky. Her finance minister, Wolfgang Schaeuble, has left open the door to reviewing help for Greece as agreed with euro-area partners.
“Because of some legal arguments there will be no proper haircut, but rather a third program in which interest payments are suspended or Greece gets direct support to circumvent the cut,” Frank Schaeffler, a member of parliament’s Finance Committee who opposed aiding fellow euro members, said by phone. “It won’t be called a haircut, but it will have the same effect.”
In November last year, euro-area finance chiefs agreed to review Greece’s finance needs provided it ran a budget surplus before interest payments. Achieving the goal this year would be a “catalyst” to fill the financing gap from mid-2014, Stournaras said yesterday in a Bloomberg Television interview.
Greece’s sputtering efforts to fulfill conditions tied to aid payments in the third quarter are more indicative of its underlying fiscal situation than achieving a primary surplus, said Fuchs. A payment of 2.5 billion euros ($3.3 billion) was only agreed on July 26 after Greece agreed to transfer a group of education ministry workers to a general work pool.
The Greek economy may grow 0.6 percent next year following six years of recession, the European Union Commission forecast on May 3. Unemployment may slip to 26 percent from 27 percent, while debt as a percentage of gross domestic prices will remained unchanged on the year at 175 percent, it said.
“The Greek people are suffering -- if it were German civil servants they too would be out on the streets,” said Fuchs. “They have made progress in reforms and they have to do more even though it will be even more difficult.”