BRUSSELS – Greece has reached a major financial milestone that its creditors demanded as a precondition for being granted more debt relief, the European Commission said Wednesday.
Additional help from its bailout creditors would help the crisis-stricken country as it seeks to overcome a protracted recession and tackle rampant unemployment.
Greece’s government revenues last year exceeded expenditure when interest payment and other items were excluded, thus achieving a so-called primary budget surplus, a spokesman for the EU’s executive Commission said.
Simon O’Connor said the surplus of 1.5 billion euros ($2.1 billion), or 0.8 per cent of its annual gross domestic product is “well ahead of the 2013 target which was for a balanced budget” and showing Greece is on the right track to heal its finances.
Greece’s international creditors have said a primary surplus will entitle Greece to further debt relief. Discussions on those measures are set to be concluded in the second half of the year, O’Connor added.
Most governments in the 18-nation eurozone are opposed to outright forgiving any of Greece’s debt and are instead though to be offering to further lower interest rates on the country’s rescue loans and extend again the date by which they have to be repaid.
“The Greek people’s sacrifices are starting to pay off,” Greek Deputy Finance Minister Christos Staikouras told journalists in Athens. “After these years, that were very tough on households and businesses, the country and its economy are in a definitely better position.”
Four years ago, Greece became the first country in the eurozone to be bailed out after the country got locked out of international bond markets and faced imminent bankruptcy. The country is in its sixth year of recession and the unemployment rate is stuck at around 27 per cent.
According to EU figures published Wednesday, Greece’s budget deficit rose from 8.9 per cent in 2012 to 12.7 per cent last year, mostly due to a one-off payment to support the country’s banks. Its total debt burden also increased from 157 per cent to 175 per cent of GDP, partly because the economy continued to contract.
Many analysts argue that a debt burden above 120 per cent of GDP is unsustainable for a small economy like Greece.
The bailout program Athens concluded with the International Monetary Fund, the European Central Bank and the European Commission, also foresees a gradual reduction of its debt over the coming years — with the goal of reaching the 120 per cent target early in the next decade.
The Greek government says the primary surplus serves as proof of its seriousness, since it even exceeded the agreed target. Athens therefore hopes it will be granted more leeway on other targets by its so-called troika of creditors.
The lenders say Greece must continue to implement an ambitious program of economic reforms to improve the country’s competitiveness and lay the foundations for future growth. Greece has also pledged to significantly increase its primary surplus target to 3 per cent of GDP by next year.
Separately, figures released Wednesday showed eurozone nations made further headway in 2013 in reducing their deficits, evidence that spending cuts and the nascent economic recovery are helping to heal government finances.
The overall budget deficit across the eurozone fell to 3.0 per cent of GDP from 3.7 per cent the year before as borrowing fell to 293 billion euros ($404 billion) from 352 billion euros, according to Eurostat, the EU’s statistics office.
However, the overall figure masks huge divergences across the region, which has faced an acute debt crisis over the past four years that at times appeared to threaten the future of the euro currency itself.
Because most countries in the eurozone continue to borrow, Eurostat found the region’s debt burden rose from 90.7 per cent to 92.6 per cent of GDP, or to 8.9 trillion euros ($12.3 trillion).
Overall, that still compares favourably with the United States which, according to the International Monetary Fund, had a debt burden of 105 per cent in 2013, or about $17.5 trillion.
However, the key difference with the U.S. is that the eurozone countries have to borrow money in the financial markets on their own so they live and die by the state of their public finances.
Elena Becatoros and Nicholas Paphitis in Athens contributed reporting.
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