Finally, the extraordinary benefits resulting from fiscal rules

Emergency income support for vulnerable social groups will become a thing of the past from 2025, due to barriers imposed by new EU fiscal rules.

This year is essentially the last year of fiscal flexibility for the government, which has the ability to distribute the tax surplus that has been accumulating since the first quarter of the year.

The tightening of fiscal policy is dictated not only by the new fiscal rules, but also by the slowdown in the growth rate (2% instead of the 2.4% forecast for the Greek economy in 2023), a development that leads to a revision of forecasts for both this year as well as for 2025.

The budget forecast for GDP growth of 2.9% this year is now considered overly optimistic, but has not yet been officially revised. New estimates will be formulated during the coming period based on the picture that the initial indicators will give.

On April 22, Eurostat data on the size of the 2023 surplus is also expected, which will be a “barometer” for the government’s next extraordinary moves to restore losses in household purchasing power caused by high inflation in the past. Two years.

The Minister of National Economy and Finance, Kostis Hatzidakis, signaled by Parliament the end of the era of exceptional allowances and punctuality checks, stating that “if we generate more income than expected in one year, we will not be able to achieve this.” Divide it into benefits. But on the contrary, if we had less income, we would not have to make spending cuts.”

He pointed out that in this way we work to discourage the growth of excessive spending in good economic times – which leads to inflation – while at the same time protecting public spending in times of economic recession. We don't spend leftovers. We keep it so that there is no pressure on citizens during difficult periods like the pressure that existed on Greek citizens in the last decade.

Stability programme

In the financial sphere, nothing has changed with the stabilization programme, with primary surplus and public debt targets remaining “fixed” at 2.1% of GDP and 152.3% of GDP respectively, while average inflation expectations remain unchanged at 2.6. % in 2024.

With the new compact fully implemented from next year, even if the primary surplus generated by overpayments is above the target, the entire “surplus” will be directed solely to debt reduction.

As relevant officials have noted, the focus of fiscal adjustment is shifting from the primary surplus to the growth rate of net primary expenditures, which should not exceed the 2.6% ceiling that is likely to be set. Cash space for benefits will only be created if spending remains below this limit.

Along with the rules:

The required debt reduction will not remain the same for everyone, but will be calculated on the basis of the characteristics of each member state. As a minimum for countries with high debt of more than 90% of GDP such as Greece, the debt reduction is set at an average of 1% calculated throughout the four-year implementation period of the programme.
Minimum requirements have been reduced to reduce the fiscal deficit. For Greece, the upper limit on the deficit is between 0.5% and 0.7% today, with the new rules set at 1.5% of GDP.
However, the landscape of new binding targets for Greece will become clear in the summer, as at the end of June the Commission is expected to publish the new targets for the period 2025-2028 for all countries and will serve as a compass for the Mediterranean. Duration program (four years), which the government will submit to the committee by September 20.

From April 8 to 15, new institutional monitoring of Greece's progress will be implemented in the context of post-programme supervision.
Source: ERT