Budget breather for Greece would spur economic recovery

The estimate chimes with the view of Greek Prime Minister Antonis Samaras who has tried, unsuccessfully, to win such an extension in the past and is expected to refloat the 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% of GDP by the end of 2014, from an expected 9.3 percent of GDP this 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% in 2013 and grow by 2% in 2014, the newspaper said. If no extension was granted, the economy would contract by up to 4.5% 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% 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 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% in the first half of this year, compared with an EU/IMF forecast for a 4.7% contraction for the full year. Samaras said last month that the economy would shrink by more than 7% in 2012.