The brutal recession that drove Greece to the brink of social breakdown and threatened to push Athens out of the euro zone is finally coming to an end, but the recovery will not ease a crippling jobless rate any time soon, the Finance Minister says.
Yannis Stournaras said in an interview Thursday he is confident growth will return in the last quarter of this year and continue into 2014 and beyond as the edge comes off the grinding austerity measures that sent the jobless rate soaring and crimped the buying power of families.
"On a annual basis, we expect a positive sign next year, but we might see positive developments in the last quarter in this year," he said.
Mr. Stournaras, who is 56 and has been Finance Minister for six months, cited rising business confidence, the end of the tourist drought, improved competitiveness and stabilizing government finances for his optimism. The government managed to run a primary surplus in January, that is, income exceeded expenditures if interest payments are stripped out.
His prediction for an economic reversal late this year is not shared by some economists or even the governor of the Bank of Greece, George Provopoulos.
Indeed, Mr. Provopoulos does not expect a reversal in the fourth quarter and fears that Greece's slow-motion reform program will ensure the weakest of recoveries. He expects growth sometime in 2014, provided that the touted economic reforms, such as freeing up markets and professions, are implemented.
"The only way to counteract the strong recessionary effects of strong fiscal consolidation is through structural reforms, and those reforms have to be implemented without delay," he said in an interview.
Deutsche Bank is calling for Greece's gross domestic product to fall a hefty 4.2 per cent this year and for tepid growth of 0.9 per cent in 2014, after a forecast 6.5-per-cent plunge in 2012. After the biggest sovereign bailout in history, worth €240-billion, however, there is little doubt the worst is over for the country's deepest peace-time recession.
During the debt crisis that began in late 2009, private holders of Greek sovereign debt took a €100-billion "haircut" and gross domestic product contracted by more than 20 per cent, putting the economy into depression territory. The jobless rate surged from a pre-crisis 8 per cent to a record 27 per.
An average 1,000 private-sector jobs disappeared daily. Armies of public sector jobs disappeared too. Mr. Stournaras said about 300,000 have been eliminated, mostly through attrition, taking the total down to about 650,000. Another 75,000 are to disappear by 2015 as the austerity programs grind their way through the system.
Crunch time came last year, when mass anti-austerity strikes, demonstrations and riots, some violent and deadly, crippled the cities. At the same time, the bank run accelerated, threatening to destroy the banking system and the Greek economy along with it. Between the end of 2009 and last June, Greek banks lost €95-billion of deposits.
The panic peaked just before the June election, when the radical left, anti-austerity coalition, Syriza, came close to forming the new government. The election winner, Antonis Samaris's conservative New Democracy party, kept austerity intact.
Mr. Stournaras called the austerity efforts "very, very painful" and predicted the jobless rate will continue to rise as spending cuts continue, even if they are less severe than they were in the last two years. "It will go up before it falls," he said, though he doubts it will reach the 30 per cent figure of some predictions.
Greece's fiscal consolidation has been the most extreme seen in the Western World. New figures released by the finance minister reveal that primary government expenditures, which exclude debt payments, fell to €88-billion in 2012 from €113-billion in 2009. Mr. Stournaras expects the figure to fall to €79-billion this year as pension and civil servant costs decline.
That translates into a 54 per cent fall in expenditures over five years, equivalent to 43 per cent of GDP.
"We need another 4 per cent of GDP [in spending cuts]," he said. "That's about €8-billion up to 2016, but you can imagine that this is much milder compared to what happened in the last three years."
He expects a small primary surplus in 2013, against a primary deficit of €20-billion in 2009. "It's a huge correction in three years," he said.
He also predicted that the current account – the difference total exports of goods, services and transfers and their total imports – will be "close to balance" this year, for the first time in 35 years, because of suddenly booming exports, driven by lower labour costs.
Mr. Stournas said he is so optimistic that he no longer thinks Greece will need another bailout, though he did think one was probable only six months ago.
"There is no Grexit anymore," he said, referring to the term used to describe the Greek exit from the euro that seemed possible, even probable, last year. "We have managed to avert fears that Greece will leave the euro."