Greece Expects Primary Budget Surplus for 2015

But Spending Plans Not Agreed with Creditors

The Wall Street Journal

By STELIOS BOURAS and  ALKMAN GRANITSAS

Updated Nov. 21, 2014 7:03 a.m. ET

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ATHENS—Greece’s 2015 budget, submitted by the government to parliament on Friday, aims to meet the fiscal demands of the country’s creditors but comes without the prior approval of its troika of international inspectors.

According to the budget, Greece will achieve a primary budget surplus—before taking into account debt payments—of €3.3 billion ($4.1 billion), equal to 3% of gross domestic product, next year, which is in line with the country’s bailout program.

Overall, the government will record only a minor budget deficit of €338 million—equivalent to just 0.2% of gross domestic product—next year, in effect marking the first balanced budget Greece has produced in four decades.

Despite surpassing its budget targets for three years running, Greece is at loggerheads with the troika—made up of representatives from the European Commission, the International Monetary Fund and the European Central Bank—over further fiscal measures the country must take, as well as a number of promised overhauls.

The troika sees the government’s budget deficit next year at closer to 3% of GDP and has asked Greece to make somewhere between €1.8 billion and €3.5 billion in additional cutbacks for 2015.

The government, however, has balked at those demands, fearing that additional austerity measures could quash a nascent economic recovery that has taken hold following six years of recession. A five-hour-long conference call between Greek finance ministry officials and troika representatives Thursday night failed to resolve those differences, raising doubts whether the latest troika review would conclude in time for a meeting of eurozone finance ministers early next month.

The budget includes a number of tax cuts and other measures to ease some of the tough austerity measures Greece has adopted over the past five years, a move aimed at boosting the government’s flagging popularity amid speculation it may face snap elections early next year.

“As of now, the end of 2014, a stabilization in the country’s public finances has clearly been recorded. The fiscal targets have been achieved for the third successive year,” said Deputy Finance Minister Christos Staikouras in presenting the budget. But, he added: “we have differing estimates with the troika” over the country’s finances for next year.

Following six years of a deep recession—made worse by waves of austerity measures—Greece emerged from recession earlier this year and reported better-than-expected growth of 1.7% on year in the third quarter, thanks mainly to a surge in tourism. Greece’s economy is expected to grow 0.6% in 2014—and 2.9% next year—according to official forecasts, although private sector economists say growth this year could be slightly higher.

With its public finances improving and the economy returning to growth, Greece’s two-party coalition government—made up of the conservative New Democracy and socialist Pasok parties—have set a goal to leave the bailout program, or scale back the degree of control international authorities exercise, at the end of the year. That would be 18 months earlier than the rescue plan now calls for and would require an agreement with Greece’s eurozone partners and the IMF—ideally in time for a Dec. 8 meeting of eurozone finance ministers—over a contingent credit line to be put in place.

The government considers the oversight of the troika—representing creditors who have pledged some €240 billion over the past five years to bail out Greece—to be onerous, and hopes that, by freeing the country from this, it will boost its standing among Greece’s crisis-weary population.

Likewise, the budget includes a number of tax cuts and other measures to ease some of the tough austerity measures Greece has adopted over the past five years.

With a small government majority in Greece’s 300-seat legislature, parliament is expected to narrowly approve the budget when it comes for a vote Dec. 7.

But a bigger challenge lurks early next year when parliament must elect—with a minimum of 180 votes—a new head of state. Currently, the government doesn’t have those votes and, under Greece’s constitution, if parliament cannot elect a president then national elections must be called. Recent public opinion polls show that the antiausterity opposition party Syriza would win those elections.

Write to Stelios Bouras at stelios.bouras@wsj.com and Alkman Granitsas at alkman.granitsas@wsj.com