Targeted state support is key to recovery
State spending in the post-pandemic and post-ECB support period will be a crucial factor for national finances and recovery in the eurozone, as in Greece, especially regarding the utilization of the Next Generation EU fund, analysts tell Kathimerini.
HSBC Senior European Economist Fabio Balboni says the key is what type of support the states continue to give: “Support to households and firms to cope has to be temporary in nature – otherwise it could create permanently higher spending – and also targeted to the sector affected by the crisis, to prevent the risk of it being used by ‘zombie’ firms in other sectors which should otherwise go bust. But when activity levels have returned to pre-crisis levels and it is possible to assess where the crisis has left countries in terms of the underlying fiscal position, if this has deteriorated it is important that a credible medium-term fiscal consolidation strategy is implemented swiftly.”
Balboni adds that “at that stage, the gradual reintroduction of European Union rules can facilitate this, providing more credibility to the process, while at the same time the Next Generation EU fund continues to provide the amount of resources needed to support the economy and increase growth potential. The risk here is that if the crisis has led to permanently higher spending and lower taxes (through more generous tax credits, for example) then restoring the sustainability of public finances might require some tough fiscal consolidation measures which might be hard to implement, even though the Greek government, with a comfortable majority, seems to be in a better place to do that than other countries in the eurozone periphery for example.”
Spyridoula Tzima, assistant vice president of Global Sovereign Ratings at DBRS Morningstar, says Athens is expected to continue supporting “sectors highly significant for the Greek economy to continue and to delay the fiscal consolidation. However, we note that Greece entered the crisis following years of fiscal overperformance, which together with the sizable cash reserves provide the country with some fiscal space to deal with the crisis. Also it is important to note that the EU funds could also have a positive indirect impact on the fiscal accounts, provided that Greece is successful in absorbing these funds and keeping up the pace of reforms.”
