The challenges after the end of enhanced supervision

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By Tasos Dasopoulos

The positive news of the end of the enhanced surveillance for Greece and the acceptance of Croatia’s accession to the euro were left yesterday by the representatives of the institutions that participated in the Eurogroup in Luxembourg, avoiding the two difficult issues that will be discussed after the Commission’s vacation. September.

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The first is already known: The finalization of the guidelines for the budgets of the Member States in 2023 and especially for the countries with high debt, such as Greece, Italy, Spain and Portugal.

The extension of fiscal flexibility for 2023 is positive, but will not apply to everyone in practice. Those countries that have high debt should continue to watch their spending and not increase their debt.

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Asked about this, the Italian Commissioner for Finance, Paolo Gentiloni, reiterated the general directive on “prudent fiscal policy”.

Regarding the – meteor – request of some states for a new common European fund for defense and energy, Mr. Gentiloni diplomatically ruled it out, saying that although he is not against some new initiatives, the Member States should first use the already established ones. tools: The money of the Recovery and Durability Fund.

In fact, he noted that for high-debt Member States with limited fiscal space, these funds are an opportunity to promote investment and reform. It even reminded me of the latest program, RepowerEU, to speed up fossil fuel recovery.

Eurogroup President Pascal Donahue closed the issue by saying that next year the state budgets will partner with the Recovery Fund to strengthen the resilience of the European economy.

The new tool of the ECB

A second issue, which was raised at the meeting but not commented on by the institutions’ representatives, is the ECB’s new initiative to limit the spread of high-debt countries during the period of rising European interest rates.

Germany has already objected to such an intervention, noting that such a tool would undermine market confidence in all European securities.

The question received yesterday by the heads of institutions was whether the use of this tool will be accompanied by specific obligations (conditionalities) of the Member States that will be favored. In this matter, too, none of the representatives of the institutions denied the possibility, but all of them denied that a discussion took place at yesterday’s meeting. It seems that this debate will open as soon as the ECB intervention is presented, towards the end of the summer.

Regling optimistic about investment grade

A second positive development for Greece is the belief of the outgoing CEO of ESM K. Klaus Regling that the country will be able to regain the investment level, despite the crisis of high inflation and rising interest rates.

Referring to the ESM head, he reminded that the creditworthiness of the Greek economy has been upgraded many times during the crisis of the coronavirus pandemic and recently despite the energy crisis, even reaching a stage before the investment stage.

“60% of the debt is in low interest rates in the hands of the official sector, with 50% in the hands of the EFSF and ESM at extremely low interest rates. Therefore, it is entirely possible for Greece to achieve the investment grade,” he concluded. Regling.

Source: Capital

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