Budget breather for Greece would spur economic recovery - report
ATHENS (Reuters) - Finance ministry officials in Greece have calculated that the debt-stricken country's economy will recover faster and its debt be more sustainable if it is given two more years to reduce its budget deficit, a Greek newspaper reported on Saturday.
The estimate chimes with the view of Greek Prime Minister Antonis Samaras who is expected to float the extension proposal next week with the leaders of France and Germany as well as with Jean-Claude Juncker, the Eurogroup chief.
Under the terms of its European Union/International Monetary Fund bailout, Greece is bound to implement painful austerity measures to bring its budget deficit below 3 percent of GDP by the end of 2014, from 9.3 percent of GDP last year.
But with the country in its fifth consecutive year of recession and social and political discontent rising, Samaras is keen to soften the impact of budget cuts on society by extending the deadline international lenders set it.
The latest estimate, reported by the Imerisia newspaper, cited calculations by finance ministry officials it did not name, saying they had worked out that a two-year extension would help the economy shrink at a slower pace in 2013 and rebound quicker from 2014.
Under such a scenario, the economy would shrink by 1.5 percent in 2013 and grow by 2 percent in 2014, the newspaper said. If no extension was granted, the economy would contract by up to 4.5 percent next year and not recover before 2015, it said.
Greece's ability to service its debt is seen by its politicians as something that can only be facilitated by growth as its lenders will only continue bankrolling it if it makes all the necessary budget cuts and reform measures to reduce its debt to 120 percent of GDP by 2020 from 165 percent in 2013.
But doubts are growing that Athens will hit those targets, prompting calls from some European politicians and policymakers to either eject Greece from the euro zone or to forgive it part of its debts to help it keep the euro.
There is already a clause in Greece's 130-billion-euro (102.3 billion pounds) bailout deal that says the deficit adjustment period could be extended if its recession is deeper than expected.
Greece's economy contracted at an annual rate of 6.35 percent in the first half of this year, compared with an EU/IMF forecast for a 4.7 percent contraction for the full year. Samaras said last month that the economy would shrink by more than 7 percent in 2012.
(Reporting by Harry Papachristou; Editing by Andrew Osborn)
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