The discourse on the Greek economy currently revolves around 4 main themes:
- Fiscal Gap
- Funding Gap
- Debt sustainability
- Funding for Growth
In terms of budget execution, it hasn’t been a smooth ride but the government has made a remarkable effort and we believe it is going to be on target. The fiscal gap identified for 2015-2016 amounts only to €4.1bn (or 2% of GDP).
A small funding gap does exist due to lower than expected privatization receipts and the fact that NCBs reneged on their promise to roll over maturing debt. The funding gap is estimated to €10.9bn for 2014-2015.
Debt sustainability is significantly more contentious than the fiscal and funding gaps. Troika’s DSA was always controversial (at least to us), priced to perfection and with a substantial degree of reverse engineering. It is our view that a decision should not provide a short-term patch but a viable and robust long-term solution.
Funding for growth. Our long term view is that due to the decline in disposable income and the fiscal consolidation effort both private and public consumption will continue to decline. Furthermore, credit constraints and high interest rates do not create an environment conductive to private sector investment. As a result an investment-led recovery can materialize only if the public sector increases its capital expenditure on large infrastructure projects. In order for that to happen the necessary funds must be appropriated preferably from EU Structural Funds.