EU sees Greece hitting 2013-14 fiscal goals, but more pain ahead

Greece will hit its fiscal targets this year and next but needs additional savings to meet its bailout requirements in 2015 and 2016, the European Commission said.

The findings add to evidence that the country is back on track to cut its deficit after nearly crashing out of the eurozone last year, when reforms stalled during a political crisis.

Eurozone finance ministers will meet in Brussels later on Monday to approve as much as 7.5 billion euros ($9.7 billion) of bailout payments for Greece, after the country’s finances won a clean bill of health from EU/IMF inspectors last month.

Under a new coalition government that took power last year, Athens has adopted fresh austerity measures demanded by its lenders and outperformed its 2012 fiscal goals, the Commission said in a report dated May 7 and released in Athens on Monday.

Athens has also taken all necessary measures to meet its 2013 and 2014 targets, said the Commission, predicting a balanced primary budget before interest payments this year and a surplus of 1.5 percent of gross domestic product in 2014.

“Effective measures have been taken to reach the targets… in 2013 and 2014,” said the 11-page report. Spurred on by its lenders, Athens has narrowed its budget gap by two thirds since 2009, to about 6 percent of GDP last year.

But austerity-weary Greeks still need to find new savings to meet a more ambitious target for a primary budget surplus of 3 percent of GDP in 2015 and 4.5 percent in 2016, the report said.

Athens needs extra fiscal measures worth 1.8 percent of GDP in 2015 and 2.2 percent in 2016 to live up to these goals, according to the Commission.

Based on Greek government estimates of nominal GDP over the two years, the Commission’s estimates translate into a fiscal gap of nearly 8 billion euros, according to Reuters calculations.

Any demand for fresh spending cuts may cause friction between Athens and its creditors. The fragile coalition government has said that society would not tolerate more austerity after three years of harsh budget and wage cuts.

Athens and its lenders would make a new estimate on the size of the gap and discuss the measures needed to fill it in the autumn, the report said.

Austerity measures adopted since the country’s first EU/IMF bailout in mid-2010 have driven unemployment to a euro zone record of about 27 percent.

Greeks’ average disposable income dropped by a third and the economy is seen contracting by almost a quarter between 2008 and 2013, the country’s worst recession since the World War II. [Reuters]