Will 2014 Be a Turnaround Year for Greece?
Greece’s preliminary budget for 2014 signals that officials in the country are optimistic about their country’s future, Reuters reports. The budget forecasts that the Greek economy will grow by 0.6 percent during 2014, which would be welcome news for a country that has seen its economy contract by nearly a quarter since 2007. In addition, the budget predicts that Greece will have a primary budget surplus of 1.6 percent next year. This means that, if Greece had no debts to pay back, the country would actually be in the black.
Achieving a primary budget surplus is an important benchmark for Greece to attain because it allows the country to unlock additional funding from international lenders. Representatives of the lenders have recently been in Athens to discuss the situation of the nation’s economy with Greek officials, with officials trying to convince the world that they will be on track to achieve the primary surplus perhaps as early as by the end of this year.
The problem with using the primary surplus as an indicator is that it ignores the very problem that got the country into a mess in the first place — debt. Debt levels are expected to peak at 175 percent of the country’s GDP this year, and are not expected to fall by any more than a slim margin in the near future.
One option currently on the table is to restructure Greece’s debt into a series of extremely long term bonds, with a maturity date some fifty years from now. This would rescale the payments that Greece needs to make and relieve some of the short term pressure that is being put on the government. However, there are several problems with the plan, including the need to find buyers for the bonds, the high level of interest that would need to be paid to mitigate the risk of such a long term investment, and the fact that Greece has not yet even returned to international bond markets.
Another option that some in Greece have called for is to have Germany transfer their country a large sum of money as a reparation for damages caused during World War II. Greeks have cited unpaid German debts that the Greek government was forced to give to Nazi Germany during wartime, as well as large amounts of infrastructural damage that were inflicted during the fighting as reasons for the legitimacy of the claim, which could total over $200 billion. Germany is understandably skeptical of the plan, voicing concerns over the way in which the sums were calculated as well as the principle behind the proposition.
One good sign was that Paulson & Co., the American hedge fund, declared that the Greek banking sector could present an attractive investment opportunity moving forward into the coming years. This vote of confidence is not a unanimous opinion. Skeptics of a Greek recovery point to the need for an additional 10 billion euros in bailout money in 2014 — as well as perpetual problems such as unemployment and youth inactivity — as signs that the country is still a long way from achieving an economic turnaround.
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