Greece expects economy to grow, finally

By Nicholas Paphitis

Associated Press

Published: Monday, Oct. 7 2013 7:24 a.m. MDT

Deputy Finance Minister Christos Staikouras speaks during press conference in Athens, on Monday, Oct. 7, 2013.

Petros Giannakouris, Associated Press

ATHENS, Greece — Greece expects its economy to grow next year — at last.

In its draft budget presented Monday, the government forecast the economy would grow 0.6 percent, the first annual improvement after a brutal six years of contraction. This year it is predicted to shrink 4 percent, leaving the economy 25 percent smaller than when it was first hit by the financial crisis in 2008.

The government even expects some jobs growth and a continued improvement in public finances through further spending cuts, but without new taxes. Deputy Finance Minister Christos Staikouras cited a rise in investment and exports.

Greece's economy was hit like many others by the global market turmoil in 2008. But its problems multiplied in late 2009, when it revealed that its public debt was far higher than expected as a result of dodgy book-keeping. That scared international investors away from buying its government bonds, bringing the country to the brink of bankruptcy in early 2010.

It was saved when other European countries and the International Monetary Fund stepped in with two massive bailouts. In exchange, however, Athens had to make harsh spending cuts and tax increases to rein in the runaway deficits. The reforms devastated the economy and eroded standards of life.

The country is now seeing signs of hope, though the recovery is expected to be slow.

The draft budget Staikouras presented foresees a slight drop in unemployment — from 27 percent in 2013 to 26 percent next year. That is still not far from the 28 percent hit in June, which is the highest rate among the 17 countries that use the euro currency.

Staikouras warned the government cannot afford to relax its five-year austerity drive, with further reforms and privatizations needed. Athens continues to face a crushing debt load, expected to reach 174.5 percent of annual output next year.

The minister said the conservative-led government has been able to reduce government overspending to 2.4 percent of output this year, from 6 percent in 2012 and more than 15 percent three years ago. According to the draft budget, the deficit will remain at the same percentage in 2014.

"These positive developments must add impetus to our efforts and not allow any relaxation, because Greece's chronic structural and fiscal problems ... have not been fully addressed," Staikouras said at a press conference.

Staikouras confirmed earlier forecasts that Greece hopes to once again be able to borrow in international bond markets late next year.

"It is our intention, and we are taking initiatives to ensure that access to markets becomes feasible in the second half of 2014," he said.

The final version of the budget will be tabled in Parliament following extensive negotiations with Greece's bailout creditors, and is expected to be voted in December.

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