Recession seen ending in respite for Samaras

Greek Prime Minister Antonis Samaras is looking to the economy for some relief.

After his plan to sever the international lifeline keeping the country afloat was shouted down by investors, a return to growth may serve as a reminder of the recovery. The economy probably recorded its first annual expansion in six years in the third quarter, according to the median of seven estimates in a Bloomberg News survey before data on Nov. 14.

Confirmation that Greece has pulled out of its worst recession since World War II may help Samaras follow Ireland, Portugal and Spain out of a rescue program. To do so, he must reverse an increase in Greek sovereign borrowing costs in the past two months driven by renewed political instability and disagreements with euro-area and International Monetary Fund creditors about the pace of structural reforms.

“The recovery is fragile but it’s a very important message for the people,” said Andreas Scheuerle, an economist at Dekabank in Frankfurt. “The risk for Greece is they’ve succeeded in a lot of things, but there’s a lot of things still to do, and we have high political uncertainty.”

Yield jump

The Hellenic Statistical Authority in Athens will also release quarterly gross domestic product data for the first time in more than three years. On that basis, it is forecast to show the economy returned to growth in the April-June period.
That projected expansion hasn’t yet fed through to the labor market. Unemployment probably remained at 26.1 percent in August, the highest in the 18-nation currency bloc, according to a separate survey before data on Nov. 13. Data on Monday showed consumer prices fell 1.8 percent from a year earlier.

Greece’s 10-year yield has risen 249 basis points to 8.06 percent from a low in September, when government officials including Samaras signaled the country was willing to forgo available bailout funds to end its program at the end of the year. While that’s down from a high of 42 percent on the eve of the biggest debt restructuring in history in 2012, it threatens the country’s continued access to markets after it sold bonds in April for the first time since 2010.
“There is a general concern that the Greek authorities have taken a step too far,” said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London. “Market funding doesn’t seem viable at the rates at which Greek bonds are trading.”

Bailout country

Greece was the first of five euro-area countries to receive a bailout in 2010 after its budget deficit spiraled to more than five times the currency bloc’s permitted limit, and came close to exiting the euro amid anti-austerity protests. Samaras’s success in bringing public finances under control since taking office in 2012 has emboldened him to push for the bailout exit at the end of the year.

Standing to lose early elections in 2015 if he can’t find support in February for a presidential candidate he has yet to name, his efforts have met a cool response from euro-area officials, reminiscent of earlier stages in the crisis, when Greece was regularly on the receiving end of rebukes about the pace of reforms.

Dutch Finance Minister Jeroen Dijsselbloem, who chairs meetings of his euro-area counterparts, has emphasized the need for Greece to complete its current review of progress in meeting bailout terms.

Reform resentment

Michael Michaelides, a rates strategist at Royal Bank of Scotland Plc in London, said pension and labor-market reforms linked to it will be tough to get through parliament because Pasok, Samaras’s junior coalition partner, is unlikely to support them. Pasok bore the brunt of popular resentment to austerity measures under former Prime Minister George Papandreou, who led the country into the bailout, which was opposed by Samaras, then leader of the opposition.

“Uncertainty over policy implementation looks set to continue weighing on investment decisions in the first half of 2015,” the European Commission said last week, when it forecast economic growth of 2.9 percent next year. The warning contrasts with a positive assessment of Ireland, the first country to exit its bailout program.

“Greece doesn’t have that export-oriented economy or the dynamic growth and flexible markets of Ireland,” said Dekabank’s Scheuerle. “There are a lot of differences, but you can see that at the end of the tunnel, there’s light, and you can see that you can be successful. That’s most important message from Ireland to Greece”.