Greek Budget Numbers Boost Government Stance in Negotiations

Updated on
  • Country had 2015 surplus before debt servicing, bank costs
  • Tsipras says country doesn't have to take more fiscal measures

Greece’s case that it doesn’t need to find additional budget savings got a boost from new data showing the country outperformed the targets set under its bailout program.

The country posted a budget deficit before debt service costs of 3.4 percent of gross domestic product in 2015, compared with a surplus of 0.4 percent the previous year, according to Eurostat-approved data from the Hellenic Statistical Authority. Stripping away the cost of recapitalizing banks, which isn’t included in the bailout program’s definition of the primary balance, the country’s posted a primary surplus of 0.7 percent, better than the target for a small deficit.

Greek negotiators are locked in talks with euro-area and International Monetary Fund officials to agree on austerity measures needed to release loans, with Prime Minister Alexis Tsipras arguing his proposals are enough to hit bailout targets. Under the country’s creditor agreement last year, the government was expected to run a primary deficit of 0.25 percent in 2015, with an improvement to a 3.5 percent surplus by 2018.

“It’s definitely positive when there’s budget over-performance however it’s come about,” said Tassos Anastasatos, an economist at Eurobank Ergasias in Athens. “But it is important to see how the numbers were arrived at to see the carry over into 2016 and how much it will affect the negotiations over the fiscal gap for the coming years.”

Delays in the latest bailout review have weighed on Greek markets, with the country’s bonds delivering the worst returns of all sovereign securities tracked by Bloomberg’s World Bond Indexes this year. Yields on two-year notes rose 17 basis points to 12.47 percent at 3:10 p.m. in Athens on Thursday, while the benchmark Athens Stock Exchange dropped 1.5 percent.

Greece remains the euro area’s most indebted country even after public debt fell to 176.9 percent of GDP last year from 180.1 percent, according to a separate release from the European Union’s statistics agency. Its overall budget deficit widened to 7.2 percent of GDP from 3.6 percent in 2014.

German Finance Minister Wolfgang Schaeuble said on Wednesday he isn’t sure whether Greece’s bailout will succeed, though there’s progress on the more immediate task of concluding the current review. Euro-area finance ministers are scheduled to discuss the country’s progress in meeting creditor demands at a meeting on Friday, with hopes receding that negotiators can reach an agreement on time.

Other euro-area countries have made clear that a deal will require the IMF’s continued involvement, an outcome that has come into question as the fund’s officials have for months expressed doubts over Greece’s ability to satisfy the primary surplus targets. Christine Lagarde, the IMF’s managing director, warned last week against “far-fetched fantasy hypotheticals concerning the future of the Greek economy” and repeated her call for a “debt operation.”

One sticking point in talks has been a lowering of the income tax-free threshold, with the IMF insisting this is needed to broaden the tax base and complement fiscal adjustment with structural reforms. Greece has submitted tax reform proposals that would set the threshold at 9,100 euros ($10,300), higher than creditors have asked for.

The adjusted primary surplus undermines the credibility of the IMF’s estimates and claims that the government needs additional austerity measures, a Greek government official said in an e-mailed statement, asking not to be named in line with policy.

For the 19-nation euro area as a whole, public debt fell to 90.7 percent of GDP in 2015 from 92 percent the year before. The currency bloc’s budget deficit narrowed to 2.1 percent from 3 percent.

“The debt and deficit data released today show overall positive developments both in terms of the general aggregate government deficit in the euro area and the EU,” Annika Breidthardt, a spokeswoman for the European Commission, told reporters in Brussels. “We are currently analyzing the data on the individual countries. They will be included in our spring forecasts, which will be published in early May.”