Greek budget aimed at weaning aid does not impress creditors

Greece's Deputy Finance Minister Christos Staikouras addresses reporters during a presentation of the government's draft 2015 budget in Athens October 6, 2014. — Reuters pic
Greece's Deputy Finance Minister Christos Staikouras addresses reporters during a presentation of the government's draft 2015 budget in Athens October 6, 2014. — Reuters pic

ATHENS, Oct 6 — Greece’s creditors insist the country should retain access to bailout funds next year even as the government seeks an almost-balanced budget for the first time in decades, two officials with knowledge of the matter said.

The country’s budget deficit will shrink to €338 million (US$424 million) next year, or 0.2 per cent of gross domestic product, from €1.41 billion, or 0.8 per cent of GDP, this year, according to the 2015 draft budget, which was submitted to parliament today. The primary surplus, which is the budget before interest payments, will rise to €5.42 billion in 2015, or 2.9 per cent of GDP, from of €3.6 billion this year, the plan shows.

Greece’s improving public finances haven’t convinced its euro-area partners to accept Prime Minister Antonis Samaras’s plan for a clean bailout exit at the end of 2014, said the officials, who asked not to be identified because the talks are private.

The Mediterranean nation returned to bond markets in April, when it sold debt for the first time in four years, and Samaras has repeatedly said that Greece will be able to cover its financing needs in the markets after the euro-area program me expires in December. Samaras has said that the country would potentially forgo some remaining tranches from the International Monetary Fund if necessary.

Creditors’ preference

The government plans to issue 7-year and 10-year bonds, according to the draft budget, which doesn’t provide details on the timing. It will also sell treasury bills with maturities longer than six months, the current maximum, without increasing the overall stock of bills.

The yield on Greece’s benchmark 10-year bonds was little changed today, rising 1 basis point to 6.35 per cent at 1.29am in Athens. The Athens Stock Exchange Index was up 0.5 per cent at 1055.19. Greece’s 10-year bond has fallen 5.8 per cent in the past month, according to Bloomberg data as the Greek government became increasingly vocal in its vows for an early exit from the bailout.

Greece’s creditors would prefer to keep some form of credible backstop in case market conditions worsen, the people said. The prevailing view among officials from the European Commission, the European Central Bank and the IMF, who monitor Greece’s compliance with the terms of its bailout, is that the country’s market access remains fragile, one of the people said.

Strict conditions

The bailout loans, which have kept Greece afloat since 2010, came with strict conditions of belt tightening that triggered a social backlash and exacerbated a recession that left more than a quarter of the workforce without a job. Access to bailout funds next year would also come with strings attached.

ECB President Mario Draghi weighed into the debate last week, saying the country needs to remain in some kind of programme for Greek banks’ junk-rated asset-backed securities to be eligible for the Frankfurt-based central bank’s liquidity- enhancing ABS purchase programme.

Greek GDP will expand 2.9 per cent in 2015 after growing 0.6 per cent this year, its first annual expansion in seven years, according to the draft budget. Those forecasts are the same as in the IMF’s most recent report on Greece in June. General government debt will fall to 168 per cent of GDP next year, or €316 billion, from 175 per cent this year, the highest debt ratio in the euro area, according to the draft. — Bloomberg

Related Articles