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The bra de fer with the institutions for the goals of 2023

By Tasos Dasopoulos

In a peculiar bra-de-fer with the institutions, and especially with the European Stability Mechanism (ESM), for the 2023 budget targets is the financial staff, in the shadow of the high inflation that affects all of Europe and the war in Ukraine, in order to be able to implement its financial program.

As is well known, Greece had until 2019, before the outbreak of the chronovirus virus, the obligation to achieve primary surpluses of 3.5% of GDP by 2022, while then this target would be gradually reduced, reaching a medium-term basis of 2 , 2% of GDP. The crisis brought by the coronavirus and the high inflation that followed it, after the lifting of the restrictive measures and the restart of the economies, and the activation from March of the total escape clause, ie the suspension of the fiscal rules, overturned the agreement that had been made. in 2018 after the end of the third Memorandum. Due to the additional expenditures for the needs of the pandemic, in 2021 a primary deficit was recorded close to 6.5% of GDP and a budget deficit close to 8.8% of GDP, based on data from the Ministry of Finance.

In view of the submission of the revised Stability and Growth Plan at the end of the month and, in the context of the 14th and last evaluation under enhanced supervision, a discussion was held with the institutions and on the fiscal targets for 2023. Athens clarified that its goal is to pass in primary surplus next year, if prices normalize and approach a level close to that of 2019. In fact, recently from the Delphi Economic Forum, the Secretary General of Fiscal Policy, Mr. Athanasios Petralias, had said that the target for 2023 is to have a primary surplus of 1% of GDP and to balance the fiscal balance of the Budget. At the same time, the head of the ESM, Mr. Klaus Regling, when asked if Greece should have a primary surplus of 2.2% of GDP for 2022, stressed that it is positive that Greece was aiming for a primary surplus, but this surplus should be close to the “agreed” limits.

Officials of the Ministry of Finance have admitted that, in addition to the general discussion about the change of fiscal rules within the EU, Greece will have its own special negotiation for its own fiscal target in 2023. This given that continues to remain after the exit from the enhanced supervision in the summer in an “informal” special regime due to the amount of its debt, which is by far the largest within the EU. Therefore, what has been agreed translates into a primary surplus in the region of 2% of GDP, which is far from the 1% of GDP that Greece plans to target.

It should be noted that this special treaty for Greece will not be lifted even if the Commission finally decides in May to extend the lifting of fiscal rules until 2023.

Why the ESM is pushing

The ESM is pushing for more ambitious fiscal targets, with debt sustainability as its benchmark. This viability is confirmed in the short term, but raises doubts in the medium term, due to the rapidly deteriorating international environment.

In the short term, the Greek debt has an average maturity of about 20 years. European loans, which currently account for more than 2/3 of the total debt of 351 billion euros (reaching about 240 billion), are at a rate of 85% at a fixed interest rate and have a repayment period of 30 years. The high cash reserve of the State, which currently reaches 38 billion euros, also provides great security.

In the medium term, conditions are changing, and rapidly. The ECB announced on Thursday the end of the quantitative easing in the third quarter of the year, with the prospect of starting to increase its intervention rates before the end of 2022. The sustainability reports made for the Greek debt are based on the fact that in the worst case the ECB interest rates would start rising at the end of 2023 and at best in 2024, while Greece would certainly have recovered its investment grade.

With the early rise in interest rates due to inflation, while Greece does not yet have an investment grade, debt refinancing will become more and more expensive, with 10-year interest rates expected to climb to 4% or higher. If we add to this the high inflation – which will not disappear suddenly at the end of the year – which will gnaw at the real GDP, Greece is already in danger of borrowing more and more, with the growth rates declining due to inflation. and general uncertainty.

What Athens is planning

For its part, the government is committed to repeating the successful model it used during the coronavirus in the energy crisis. But the support packages he plans and the tax and contribution cuts he has planned are not in line with such high fiscal targets.

At present, with the “air” that gives the lowest deficit of 1% of GDP in 2021, Athens is planning ambitious plans for a ceiling on gas prices, through subsidies to electricity producers, in order to significantly reduce electricity tariffs. . At the same time, it announces the repetition of subsidies to economically weaker groups, in order to rely on the wave of accuracy.

As the Prime Minister has announced, the intervention that will be made in the current through the natural gas will proceed if there is no similar decision from the next Summit on May 30 and 31. The measure will have a significant budgetary impact, which will be borne by debt and deficit in 2022.

The biggest problem with the institutions’ demands for a high primary surplus in 2023 is that next year, which according to current data will be electoral, the government wants to abolish the special solidarity contribution for the public and private sectors and to perpetuate the reduction. by 3% of insurance contributions. These two measures have a total cost of 2 billion euros, ie 1.1% of GDP.

Thus, if the institutions insist on the demand for a primary surplus of 2% of GDP next year, Greece will have to, in an energy crisis, which is not at all certain that it will not continue in 2023, achieve a primary surplus again close to at 3% of GDP.

Source: Capital

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