Greece Meets Budget Target for More Debt Relief, EU Says

Greece met the budget goal its euro-area partners set as a condition for discussing further debt relief.

The government of Prime Minister Antonis Samaras recorded a primary budget surplus, which excludes interest and one-time payments, of 1.5 billion euros ($2.1 billion) last year, the European Commission said today.

The result is “well ahead of the 2013 target, which was for a balanced primary budget as set out in the economic adjustment program, and is a reflection of the remarkable progress that Greece has made in repairing its public finances since 2010,” commission spokesman Simon O’Connor told reporters in Brussels.

Achieving a primary surplus is a crucial step in Greece’s recovery after its debt sparked turmoil across the euro area four years ago. Euro-area finance ministers said in November 2012 that when the government in Athens registered a surplus, they would “consider further measures and assistance” to help Greece meet the targets set out in its rescue-aid agreement.

That deal foresees a debt-to-gross domestic product ratio “substantially lower” than 110 percent in 2022. Separate data today showed Greece’s debt pile reached 175.1 percent of GDP in 2013, a euro-era record.

“We are of the view that Greece’s debt is sustainable, provided of course that full program implementation continues over the coming years,” O’Connor said.

Bank Aid

The primary surplus, equivalent to 0.8 percent of GDP, is based on a headline deficit of 12.7 percent of GDP. The commission then excluded interest payments of 4 percent and other payments, mainly one-off bank support, of 9.5 percent.

Samaras has said that 525 million euros of the surplus will be used to help “those worst hit by the crisis.” About 30 percent will be used to pay down debt and the remainder will pay for state arrears.

“We expect by the year 2015 that we will have not simply primary surplus, but that we’re going to have a fiscal surplus,” Samaras said in an interview last week. “This means we will be able on our own to pay our debt, without borrowing at all. There are very few European countries that are doing this today.”

Seeking to bolster a shaky two-party coalition government, Samaras is keen to obtain a political reward for his cost-cutting measures before European legislative elections next month and wants the euro area to offer debt relief. This could include the extension of loan maturities and a further reduction of interest rates, EU Economic and Monetary Affairs Commissioner Olli Rehn has said.

Debt Relief

While euro-area finance ministers could kick-start discussions on debt relief for Greece at their next meeting on May 5, O’Connor said today that the matter will probably not to be taken up until the second half of the year.

Today’s announcement comes four years to the day since former Prime Minister George Papandreou used a televised address to call for a financial lifeline to bolster Greece’s fragile economy. Since then, Greece has gone through the world’s biggest sovereign-debt restructuring and has received 240 billion euros in aid commitments. To receive payments, the country has faced a series of economic conditions including labor-market reforms and budget goals.

“We live in a country with a surplus of poverty, misery and hypocrisy,” Nikos Chountis, a European Parliament lawmaker from the coalition of the radical left, Syriza, Greece’s main opposition party, said in a statement.

Bond Sale

In recent weeks, Greece’s recovery has gained momentum. The government held its first bond sale in four years earlier this month and forecasts it will emerge from a six-year recession this year after six years of contraction. Its debt pile is still the highest in the 18-nation euro bloc.

“The surge in public indebtedness since Greece’s fiscal crisis erupted in 2009 is staggering,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “The fact that, technically speaking, it’s still debatable whether Greece is solvent says much about the management of its crisis.”

Today’s data from the EU’s statistics agency in Luxembourg also confirmed that other fragile euro-area economies are still struggling to control debt levels even as recovery across the currency region takes hold. Italy’s debt mountain increased and remained as the second highest in the euro area after Greece, going up to 132.6 percent of GDP in 2013 from 127 percent the previous year.

Debt Crisis

Portugal, in third place, saw its debt rise to 129 percent of GDP from 124.1 percent, while in Ireland, next in line, debt rose to 123.7 percent from 117.4 percent. Both countries received international bailouts at the height of the euro crisis.

The data also show that some euro-area countries are struggling to reduce their budget deficits to with the EU’s 3 percent of GDP limit. France, the region’s second-biggest economy, posted a deficit of 4.3 percent, down from 4.9 percent. Spain recorded a deficit of 7.1 percent last year, narrowing from 10.6 percent the year before.