Greece: Government and international lenders still at odds over 2014 budget
November 21, 2013
On 5 November, representatives of the Troika - comprised of the European Commission, the European Central Bank (ECB), and the International Monetary Fund (IMF) - returned to Greece to resume their review of the bailout program. The review focused on the government's 2014 budget as well as on the implementation of the four preconditions that Greece must meet in order to receive the next EUR 1 billion bailout tranche that was approved in July. After more than two weeks of talks, the Troika said that three of the four preconditions are on the right track for implementation: settling the debt the state owed to water companies, the mobility scheme requiring forced transfers and layoffs, and changes to the code for lawyers. However, the government and the Troika did not reach an agreement on the fate of the two unprofitable state-run firms, Hellenic Defense Systems (EAS) and Hellenic Vehicle Industry (ELVO).
Regarding the 2014 budget, international lenders are still at odds over the size of the country's 2014 fiscal gap. The government's target is a primary surplus of 1.6% of GDP (EUR 2.96 billion). According to the bailout program, achieving a primary surplus of 1.5% of GDP (EUR 2.75 billion) is a precondition for considering additional debt relief. The Troika believes that the government will fall short of the target by EUR 1.5 billion next year. However, the government says that it will be EUR 500 million short of the goal at the most. The government believes that it can bridge the gap by cracking down on those who are evading the social security contribution. International lenders, however, are doubtful. They think that the fiscal gap can only be closed if the government implements further "horizontal measures" by cutting wages and pensions. For 2013, the government expects a primary surplus of EUR 812 million, double the forecast of just one month ago. On 21 November, the government submitted its draft budget to Parliament. Talks with international lenders will be resumed at the Eurogroup summit on 9 December.
FocusEconomics panelists expect government deficit to reach 5.7% in 2013, which is down 1.6 percentage points from last month's estimate. In 2014, the panel expects government deficit to reach 3.0%, which is up 0.4 percentage points from last month's estimate.
Author: Dirina Mançellari, Senior Economist