The Greek government presented a draft budget Monday that forecasts a return to growth next year after six painful years of recession and an operating surplus that Athens hopes will allow it to return to bond markets for the first time since the debt crisis began.
In an ambitious fiscal plan that could still be derailed by the volatile political environment, the draft 2014 budget targets further cuts in spending and seeks higher revenue from taxes in an effort to meet the goals set by Greece's international creditors.
Experts from the European Union and the International Monetary Fund, who have helped bail out Greece twice, will return to Athens later this month to review the budget in detail and decide whether Greece has done enough to receive more financial aid.
Amid an avalanche of austerity measures aimed at plugging the country's chronic budget gaps, Greece's economy has shrunk by roughly a quarter since its peak, forcing tens of thousands of businesses into bankruptcy and sending unemployment to a high in Europe.
"From this year, the sacrifices are starting to take hold, creating the first signs of the country's exit from the crisis," Deputy Finance MinisterChristos Staikouras said at a news conference. "With the state budget for 2014, these first significant achievements are being capitalized on, consolidating the stabilization of public finances and improving conditions for the gradual return to a growth path."
Apart from putting back to work the roughly 1.4 million Greeks now without jobs, a return to growth is also key to helping the country address its debt pile—seen at close to €320 billion ($434 billion) next year, or about 175% of annual economic output.
According to the draft budget, the Greek economy is expected to grow 0.6% next year, after an upwardly revised 4% contraction in 2013—slightly better than initial forecasts. Unemployment, which was recently about 28% of the workforce, is expected to ease to 26% on average in 2014.
At the same time, Greece is forecasting a primary budget surplus—before counting debt payments—of €2.8 billion, or 1.6% of gross domestic product. For this year, Greece says it will achieve a small primary surplus of €340 million, its first since the crisis began in late 2009.
The final version of the budget—pending consultation with the troika of international inspectors from the European Commission, IMF and European Central Bank—is expected to be voted on by lawmakers toward the end of the year.
The EU and the IMF, however, aren't convinced about the targeted primary surplus for next year. According to their estimates, the Greek government could be looking at a potential €1 billion to €1.5 billion budget shortfall next year, and may demand further cutbacks.
Greece's fragile, two-party coalition government, which controls only a narrow majority in Parliament, is eager to avoid any fresh austerity measures as it battles with deepening despair on the streets that has fueled a rise in political extremism and brought about a new wave of protests in recent weeks.
Last month, the government began a crackdown on the far-right Golden Dawn party, which is alleged by police to be connected to a series of violent incidents, including the recent killing of a prominent left-wing rap artist, Pavlos Fyssas. The arrests of several Golden Dawn lawmakers, including the party's leader, since then, has provided Prime Minister Antonis Samaras with a boost, according to public opinion polls, but he is still struggling to convince Greeks that an economic turnaround is in sight.
"Greece's economic prospects are improving, though the political situation is very unstable and people feel this," said Aristides Hatzis, an associate professor of law and economics at the University of Athens. "A chance event could blow everything up. The murder of Fyssas is such an example, but the government reacted quickly in this case and strengthened its position."
Athens has been effectively shut out of capital markets since the spring of 2010, when it was forced to seek its first multibillion-euro bailout from its euro-zone partners and the IMF. Despite being pledged more than €245 billion in loans since then, Greece may need an additional €11 billion to cover its financing needs from the middle of next year—when some of its bailout loans run out—through 2016, when Greece is expected to be able to finance itself.
But in his remarks, Mr. Staikouras said Greece is eyeing a return to the bond markets next year, something that could reduce its borrowing from creditors.
"We are already putting into effect a series of initiatives so that it is possible in 2014, and in particular the second half, for the country to return to the markets," said Mr. Staikouras.
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