Signs of recovery, public finances overperformance | The end of Greece’s dependence?

Government’s officials and the European Commission seem to share some common views as far as the Greek public finances performance and the general macro outlook of the country:

In an interview in “Epohi” Sunday newspaper, Secretary General for Fiscal Policy Fragiskos Koutentakis defends the Greek government’s budget for 2017 – that predicts a 2,7% growth – saying that these were also the European Commission’s forecats, and that they have been agreed to by the Institutions.

Koutentakis explains that the over-performance in revenues of 2016 was partly due to factors like increased tax compliance, but because these factors cannot be quantifiably predicted, they were not included in the IMF report for the Greek economy. According to Koutentakis, “we have every reason to believe that tax compliance will continue to rise in the next years, leading to an upward revision of growth forecasts”.

As far as the IMF’s demand for a priori legislation of austerity measures is concerned, Koutentakis stresses that while the government will not accept irrational demands, it is confident that the fiscal targets can be met, and is therefore willing to offer guarantees to that effect: “If these guarantees are a package of measures that will never be implemented if we achieve our targets, then there is no need for concern. This is actually what the fiscal cutter, instituted last year, already does.”

As far as the negotiations for the second review of the program are concerned, Koutentakis purports that the current delay is due to the Institutions’ demands that are outside of the agreed framework. He estimates that a political agreement, clearly outlining the conditions for concluding the second review can be achieved by February 20, clearing the path for a quick final conclusion. Koutendakis wraps up by saying that the government took on a huge political cost in 2015 when it agreed on the adjustment program: “Now that we are at a point where we can see the conclusion of the program, the end of Greece’s dependence on EU financing, and its return to international markets, we are not going to allow that the Institutions jeopardize this”.

European Commission: Signs of recovery linked to programme implementation

According to European Commission Economic forecasts (13.2.2017), the Greek economy has been gradually growing since the conclusion of the first review of the ESM programme. Brighter economic sentiment is supporting recovery in domestic demand, reflected also in labour market developments. Public finances are performing better than expected and the overall macro outlook remains positive, though subject to downside risks.

The improved fiscal position and stronger GDP growth are expected to put the debt to-GDP ratio on a declining path starting in 2017. Greece’s economic recovery is expected to gather pace in 2017 with growth of 2.7%, on the back of improving financial conditions amid a gradual relaxation of capital controls. Growth in third quarter points to the prospect of a sustained recovery. Strong revenue performance and ambitious reforms should further improve fiscal outcomes.