The plan for a financially ‘prudent’ energy package

By Tasos Dasopoulos

The success of the support measures during the coronavirus crisis and the current crisis of high inflation will try to repeat the financial staff in the near future.

With the intervention of the support measures of 43 billion euros that were allocated in the previous two years, the economy went through the recession of 9% in 2020 and recovered in 2021, showing a growth of 8.3%. At the same time, last year it succeeded in reducing the deficit and debt, despite the pandemic.

At the present stage, the big problem is the high inflation in the prices of energy products and especially electricity and in the second phase of food. The problem with high electricity prices is expected to grow, especially from June onwards when consumption will peak mainly due to air conditioners. That is why the choice that is made is the great intervention in the energy crisis, to be made in the electricity tariffs.

Budgetically, the margin for support measures is set by the additional budget of 2 billion euros recently voted. Of this, about 500 million euros cost the measures announced in early April and are currently being implemented: The precision check, the fuel subsidy, the special diesel subsidy, and the 200 euro allowance for taxis.

Margin for intervention up to 2.5 billion in electricity

Therefore, the budgetary margin for new support measures from now until the end of 2022 is around € 1.5 billion.

However, along with the intervention in the electricity tariffs, the government wants to repeat a package to support the financially vulnerable and to extend the power of low VAT rates in tourism, transport, catering, theaters and cinemas (the cost is estimated approximately at EUR 270 million). Together with these measures, the budget margin for intervention in electricity is limited to close to 1 billion euros.

To this money will be added another 1.5 billion euros, from the fund that collects pollution rights and the fund of RES which are outside the budget. This is due to the fact that the subsidies for electricity and gas, which started in November, will stop in May.

Therefore, the total margin for intervention in electricity tariffs reaches 2.5 billion euros. According to recent statements by the Minister of Finance Mr. Christos Staikouras, the intervention will last at least until the end of 2022. According to information, the intervention is to limit the electricity bills to the levels of 2021, as long as prices are higher.

The success of budgetary targets

Given the intervention in electricity, the financial staff revised upwards the primary deficit target from 1.4% of GDP to 2% of GDP.

In 2023, although support for electricity may continue, (the amount of support will depend on the duration of high prices) the financial staff’s goal is for the budget to show a primary surplus of 1.1% of GDP according to the Stability Program and Development (PSA) 2022-2025.

The “secret” of this plan is that the money that will be given for the reduction of electricity tariffs, will not only have costs but also a positive effect on GDP. As with support measures in the face of the coronavirus crisis, support for households and businesses will prevent revenue losses, new red loans and a further slowdown in GDP, from the 3.1% forecast by the PSA, at least for this year. Having overcome the danger zone of 2022, and in the hope that the prices of gas and electricity will begin to decline from the beginning of 2023, the continuation of the intervention will have the effect of increasing GDP.

With these data, the forecast of 4.8% for next year, which was incorporated in the Stability and Growth Plan 2022 -2025, may finally prove to be conservative.