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Fiscal flexibility with ‘German key’

By Tasos Dasopoulos

Another headache for the financial staff and the effort to support the economy is brought by the activation of Germany in the EU fiscal course, with the intention expressed by the European Commission since March to extend the total escape clause in 2023.

Germany agreed to extend the suspension of fiscal rules for another year, but first secured that the guidelines would be reviewed in September, especially for high-debt countries – and especially Italy and Greece. Information wants German Finance Minister Christian Lindner to insist that countries with fiscal problems should make efforts to reduce their deficit and debt, even during a period of fiscal suspension.

In its Greek translation, this development is not very important, at least for the time being. The support measures against the accuracy of 3.6 billion euros that Athens has declared for this year in PSA 2022 -2025 are agreed with the institutions and are accompanied by a significant reduction of debt greater than 10% of GDP. The large, retroactive intervention of 3.2 billion euros in electricity tariffs, where the budget will contribute 1 billion euros, is also almost agreed with the European authorities.

New support measures

The problem may be with the support measures that will be finalized and implemented by the fall. These measures will further increase the primary deficit from the 2% target for this year. The concern of the Ministry of Finance is not to affect the debt, that is, not to be covered by a new loan which is now 3 times more expensive than a year ago. The European Commission, in its report on the latest assessment of Greece under Enhanced Surveillance, mentions the adoption of a new package of measures of 0.4% of GDP, ie about 800 million euros from Athens until September.

The financial staff, after the last announcements, keeps a waiting attitude. He expects the expected outperformance from the tourism turnover and the good course of direct taxes (income tax, ENFIA) before making the final decisions on who and how he will support, in the coming months. The only thing that is said unofficially is that an effort will be made for the next support package to contain measures specifically for the most financially vulnerable, so that it is in line with the general guidelines given by the European Commission for a long time.

The increase in interest rates

Restrictions already in place against the precision measures will be met from next month and the start of the ECB’s interest rate hike cycle.

The conjuncture of informal fiscal constraints, rising interest rates and high inflation will have a negative impact on the development of EU countries with high debt. For Greece, countermeasures to the economic slowdown will be the 11 billion euros of public investment and the rally that investments and exports continue to make. Depending on the rate at which interest rates rise, the forecast for growth of 3.1% this year may turn out to be realistic instead of conservative.

Source: Capital

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