The roadmap for exiting enhanced surveillance

By Tasos Dasopoulos

On the way out of enhanced supervision, Greece will meet the new provisional fiscal targets set by the European Commission, especially for over-indebted countries, which due to the current situation, will have to accelerate the reduction of deficits and debt.

The countdown to the exit from the enhanced supervision which was also discussed during the 13th evaluation is going through a fatal and faster fiscal adjustment. The two sides agreed to allow some individual reforms, which were delayed due to the pandemic, to be completed after the end of the successive quarterly evaluations. However, due to the nervousness of the markets, Brussels will insist on one of the chapters of enhanced surveillance: that of the country’s fiscal targets, which “froze” due to the pandemic, along with the overall escape clause that applies this year as well.

As is well known, Greece has committed through the budget to reduce the budget deficit in 2022 from 9.6% of GDP, which corresponds to 17.073 billion to 7.416 billion (4% of GDP) at the end of the year. The primary deficit should be reduced from 7% of GDP or 12.345 billion to 1.4% of GDP or 2.68 billion euros. All this based on the forecast that growth will reach 4.5% this year

The assessment of the Ministry of Finance is that in 2023 Greece will aim to achieve a primary surplus in the region of 2% of GDP. That is, close to the target (2.6% of GDP) that had been set in the country after the end of the third memorandum for the same year. It is recalled that Greece should achieve a primary surplus of 3.5% of GDP for the period 2018-2022 and then, the target fell to 2.6% of GDP and in the medium term to 2.2%.

In any case, in March, the European Commission will have to give all Member States guidelines that will be equivalent to provisional fiscal rules and targets, especially for 2023.

This is because discussions on changes to the Stability Pact will begin in March, but will not end until April. Until then, however, Member States will have to submit revised stability plans and, a month later, revised medium-term plans. Therefore, given that fiscal rules are coming back in 2023, every Member State should know the limits that need to be set.

Accelerate the over-indebted

The question is whether the Commission, seeing the increase in borrowing costs for Greece and due to the significantly higher economic growth for 2021, asks Greece to accelerate the pace of fiscal adjustment for 2022 and 2023.

With regard to 2022, due to the suspension of the fiscal rules, the targets will not be very different from the Budget targets. In 2023 things are a little more “narrow”, as the goals will be ambitious. In fact, if there is an intermediate failure, then we will enter the process of “corrections” again.

Given that all this is constantly being discussed all these days for the completion of the report for the 13th evaluation also explains the fact of the suspension of extraordinary horizontal plans of high budgetary cost, such as the extraordinary reduction of VAT on food.