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Fiscal road with obstacles in 2022

To Tasos Dasopoulos

Another fiscal “obstacle course” will be in 2022 for the financial staff, as it will be obliged to fully achieve the goals set in the Budget to reduce deficits by about 10 billion euros by the end of the year.

Its ambitious goal is to reduce the budget deficit from 17.97 billion euros in 2021 to 7.4 billion euros at the end of the year and the primary deficit from 12.35 billion last year to 2.7 billion. this year looks easy at first reading. Based on the official assumptions of the Budget for 2022, the measures to support the economy will be reduced to 3 billion euros, from 17.2 billion euros that reached 2021, mainly due to the extension of the pandemic.

However, even at the beginning of the new year, the combination of the Omicron mutation and high inflation creates new needs for support measures. Sources of YPOIK clarified that in no case the support measures for this year will reach the amount of 2021, as a general lockdown has been almost ruled out. In addition, this year, there are many more “weapons” to deal with the pandemic. More worrying are high energy prices and high inflation, which indirectly threaten the fiscal target. High inflation reduces real GDP and, consequently, despite the adjustment made by the Ministry of Finance, the deficit as a percentage of GDP seems higher.

Also, the disruption created by high prices in products and services, high fuel prices, both in Greece and in the rest of Europe, can affect exports and investment. This, while there are expectations of a significant increase of 11.1% and 21.9%, respectively, for 2022. Also, inflation expectations are expected to affect private consumption, which creates on a fixed basis 3/4 of the country’s GDP .

The consequences of the pandemic

However, apart from the extraordinary conditions created by the duo of high inflation and the pandemic, the risks of 2022 should include the permanent damage caused by the economic crisis as a result of the pandemic and the two lockdowns of the economy.

This small or large permanent loss is expected to appear this year, a year in which most of the 43.3 billion support measures implemented in 2020 and 2021 are expected to be withdrawn. “reluctance” of companies to join the settlement of 36 to 72 installments of debts of 2.5 billion euros created in the pandemic, with the ministry having already extended the deadline for accession until January 26, instead of the initial deadline of December 31 . In the meantime, of course, due to the extension of the pandemic, the amount of taxes left unpaid for 2021 had reached 3.7 billion euros by October. These 6.3 billion euros of taxes that are pending can create a problem for the revenues of 2022 if some more favorable solution for their repayment is not found in time.

To the tax debts should be added another 6 billion from overdue debts to insurance funds, which will make the problem even bigger.

A third source of concern for fiscal developments in 2022 is the 8.5 billion euro loan guaranteed by the Greek State, which were granted under the measures to support the economy in 2020 and 2021. The problem of default of borrowers and, consequently, forfeitures of the State guarantees have been pointed out in their reports by both the European Commission and the International Monetary Fund.

All this while at the beginning of 2022 the Ministry of Finance has already extended by six months the start of repayment of 3 billion of the 7 cycles of repayable advances that should normally begin to be repaid from January 30. The repayment of the first of the 60 installments for the end of June already deprives the Budget of 2022 of revenues of 300 million euros.

The change of fiscal rules

On the other hand, the criticality of the success of the fiscal targets lies in the fact that Greece, due to the enhanced supervision, will be closely monitored by the European Commission for the “transitional” 2022. As is well known, due to the suspension of the fiscal rules and for This year, the Commission will have to set some guidelines for each Member State. These guidelines will help each country set new fiscal targets from 2023 onwards, which will be reflected in the stability programs and medium-term programs submitted in the spring.

Therefore, no country, and even more so Greece, would risk a fiscal easing beyond what is expected, which would then have obligations for restrictions in order to return to a fiscal adjustment trajectory.

The designation of 2022 as a transitional year refers to the fact that, following the damage done to the European and world economy, everyone in Europe agrees that fiscal rules need to change.

Of course, from the first discussions in 2021 it seems that once again – as was to be expected – Europe has been divided into two camps, with the European North limiting the necessary changes to a simplification of rules and the European South to request structural changes. Recently, it became clear that the institutions will also enter into this dialogue divided, as in a recent interview the Commissioner for Economic Affairs, Mr. Paolo Gentiloni, disagreed with the solution proposed by the ESM for the changes in the Stability Pact, which Among other things, it wants to increase the debt ceiling to 100% of GDP and maintain the other fiscal rules as they are. The Italian commissioner proposed a “national” debt limit for each member state, adapted to the specific characteristics of each country’s economy.

At the top level, France, through its president, Emanuel Macron, before officially taking over the EU presidency. and in the run-up to its national elections in April, sought an alliance with Italy. At their meeting just before Christmas, the Italian Prime Minister, Mario Draghi, and Mr. Macron invited the rest of the EU countries. to follow them in the course of changes in fiscal rules in favor of development.

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Source From: Capital

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