Greece Exits Recession After Crisis That Put Euro at Risk

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Greek Prime Minister Antonis Samaras
Greek Prime Minister Antonis Samaras arrives for a European Union summit at the EU headquarters in Brussels on Oct. 24. Confirmation that Greece has pulled out of a recession may help Samaras follow Ireland, Portugal and Spain out of the nation’s rescue program. Photographer: Thierry Charlier/AFP via Getty Images

Greece ended its worst recession in more than a half-century, emerging from a period marked by two bailouts and financial-market turmoil that almost pushed the country out of the euro.

Gross domestic product increased 0.7 percent in the third quarter, according to data from Eurostat, the European Union’s statistics office, which resumed publishing quarterly figures today. From a year earlier, the economy grew 1.7 percent on a non-seasonally adjusted basis, according to a separate release from Greek authorities.

Greece’s six-year recession was deepened by budget cuts tied to its rescue, which has left Prime Minister Antonis Samaras struggling in political polls. The government’s reform efforts got the public finances sufficiently under control to allow Greece to sell bonds in 2014 for the first time in four years, and Samaras now wants to push on and exit the aid program.

“For the rebound to be sustainable you need investment, which will help the Greek economy recover the lost ground,” George Papaconstantinou, Greece’s finance minister when it received its first bailout in 2010, said by e-mail. “If we abandon the effort which started in 2010, we run a real danger of reliving the same nightmare and all the sacrifices will have been in vain.”

Today’s adjusted data show that GDP rose 0.8 percent in the first three months of the year and 0.3 percent in the second on a quarterly basis.

Bailout Exit

Confirmation that Greece has pulled out of a recession may help Samaras follow Ireland, Portugal and Spain out of the nation’s rescue program. To do so, he must reverse an increase in Greek sovereign borrowing costs in the past two months driven by renewed political instability and disagreements with euro-area and International Monetary Fund officials about the pace of reforms.

The country’s 10-year bond yield fell 11 basis points to 8.04 percent at 12:26 p.m. in Athens today. While that’s down from a record of 42 percent on the eve of the biggest debt restructuring in history in 2012, it’s up from about 5.7 percent in early September, threatening the country’s continued access to markets.

Greece was the first of five euro-area countries to receive a bailout in 2010 after its budget deficit spiraled to 15.7 percent the previous year, more than five times the European Union limit. As the crisis pushed the currency bloc to to the brink of a breakup, Athens was rocked by anti-austerity protests and violent riots as successive governments pushed budget cuts through parliament in knife-edge votes.

Currency Exit

Havard University professor Martin Feldstein, Nobel laureate Paul Krugman and economists at Citigroup Inc. and Roubini Global Economics LLC were among those to say during the crisis that Greece might need to leave the euro to spur efficiency via a cheaper currency.

Having said during the euro-area crisis that it was more likely than not that a country would exit the currency bloc within five years and Greece was the prime candidate, Roger Bootle, the chairman of London-based Capital Economics Ltd., says the country still has little to celebrate.

While the economy has become more competitive through deflation, its GDP remains well below what it was six years ago.

“It’s been devastating,” said Bootle. “So if it gets a flick up, does that mean you should open the Greek brandy? I’d say no.”

High Cost

Highlighting the social cost of the crisis, Greece’s jobless rate stood at about 26 percent in August. That toll has left Samaras, trailing the anti-bailout Syriza party in opinion polls, pushing for an end to the country’s unpopular rescue program this year.

“The cost of taking the route that Greece took turned out to be surprisingly high, but we don’t know how things would have gone with Greece pulling out of the euro,” said Edmund Phelps, a professor at Columbia University in New York and winner of the 2006 Nobel prize in economics. “It’s important in Greece to look beyond the short run, and see what you are willing to do to bring economic health in the long run.”

Outgoing EU President Herman Van Rompuy, who presided over all-night leaders’ summits on Greece during the crisis, visited Athens this month and urged the country’s politicians not to throw away the “tremendous efforts” made.

The European Commission forecasts Greece will grow 0.6 percent this year and 2.9 percent in 2015, when its budget deficit will shrink to 0.1 percent of GDP. It warned last week that uncertainty about the country’s implementation of reforms could weigh on investment in the first half of 2015.

“The truth is that the 2010 bailout deal was the best possible negotiated in the circumstances Greece was facing,” said Papaconstantinou, the former finance minister. “The recession would have been less severe with a longer adjustment period, but this required more funding, which the EU countries were not prepared to give.”

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