Greek milestone helps Europe put crisis in past
Apr. 23, 2014
BRUSSELS (AP) — Europe's debt crisis is receding farther behind in the rear view mirror.
Led by good news from Greece, the eurozone on Wednesday notched up several key milestones that together indicate stronger government finances amid a modest but increasingly sustainable recovery.
Confirmation Wednesday from the European Union that Greece has recorded a primary budget surplus — what's left after interest and debt payments are stripped out — was a key requirement for the country to get more debt relief from international creditors.
It also came on the same day Portugal completed a successful 10-year debt sale that could be a precursor to it following Ireland and emerging from its own bailout program on schedule on May 17, as well as a closely watched survey pointing to a pick-up in eurozone-wide economic growth.
For over four years, the eurozone has been grappling with a loss of investor confidence that stemmed from out-of-control public finances in a number of countries, such as Greece and Spain. However, the tough austerity medicine that involved big spending cuts and tax rises appears to have stabilized the situation.
Official EU statistics showed that the deficits across the eurozone have finally fallen to the symbolically important 3.0 percent of annual economic output. That's the much-violated limit enshrined in the euro rulebook.
Greece, which has been at the forefront of the crisis, has made big strides in getting its public finances under control even though the cost has been huge — the Greek economy, which many economists predict will start growing soon, is around a quarter smaller following the recession, while unemployment has leapt to around 27 percent.
Commission spokesman Simon O'Connor said the country's primary surplus in 2013 of 1.5 billion euros ($2.1 billion), or 0.8 percent of 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 creditors — the other eurozone governments and the International Monetary Fund — 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 eurozone are opposed to outright forgiving any of Greece's debt and are instead thought to be considering further lowering interest rates on the country's rescue loans and another extension to the date by which they have to be repaid.
"Today's announcement ... certifies the great turnaround of the Greek economy, thanks to the sacrifices made by all Greeks," Prime Minister Antonis Samaras said. "We are gradually moving away from the crisis and laying the foundations of a new Greece."
In 2010, Greece was the first country in the eurozone to be bailed out — over two rescues, it has receiving loans worth a total 240 billion euros — after it got locked out of international bond markets. In 2012 private creditors were also forced to take losses, wiping some 100 billion euros from the country's debt.
Still, Greece's financial position remains strained to say the least.
According to EU figures Wednesday, Greece's budget deficit rose from 8.9 percent in 2012 to 12.7 percent last year, mostly due to a one-off payment to support the country's banks. And its total debt burden increased from 157 percent to a staggering 175 percent of GDP, partly because the economy continued to contract. Many analysts argue that a debt burden above 120 percent 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 124 percent in 2020 and 110 percent two years later.
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 percent of GDP by next year.
Clearing another milestone toward regaining control over its economy, Greece earlier this month returned to financial markets with the sale of five-year bonds worth 3 billion euros.
Separately, figures released Wednesday showed eurozone nations made further headway in 2013 in reducing their deficits. It was evidence that spending cuts and the nascent economic recovery are helping to heal government finances — even as those austerity cuts exact a high price in economic terms, notably in the numbers joining the ranks of the unemployed.
The overall budget deficit across the eurozone fell to 3.0 percent of GDP from 3.7 percent the year, according to Eurostat, the EU's statistics office. However, the overall figure masks huge divergences across the region.
Because most countries in the eurozone continue to borrow, the region's debt burden rose from 90.7 percent to 92.6 percent of GDP, or to 8.9 trillion euros ($12.3 trillion).
Overall, that still compares favorably with the United States which, according to the International Monetary Fund, had a debt burden of 105 percent of GDP in 2013, or about $17.5 trillion.
Not all is rosy and it's going to take years for the eurozone to get back to where it was before the crisis. Unemployment still remains high at 11.9 percent while low inflation of 0.5 percent has fueled concerns of a crippling downward spiral in prices, or deflation.
The eurozone barely crept out of recession last year and grew 0.2 percent in the fourth quarter. That moderate expansion is now accelerating, according to Wednesday's survey of purchasing managers from financial information company Markit. Its purchasing managers' index — a gauge of business activity — rose to 54.0 in April its highest level since May 2011.
McHugh contributed from Frankfurt, Germany. Elena Becatoros, Derek Gatopoulos and Nicholas Paphitis in Athens contributed to this report, as did Barry Hatton in Lisbon.
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