Let economy take its course

The Finance Ministry is determined to restrict state support against the pandemic to the 1 billion euros provided for by the state budget for this year. It will have to avoid any major interventions in the economy apart from highly targeted ones, say ministry officials, such as last Friday’s announcements about limited furloughs in specific sectors.

The government, along with the rest of Europe, has shifted away from state interventions and is heading back toward fiscal streamlining. A senior ministry source notes that “the effect of the pandemic on the economy has grown weaker. The economy has adjusted with the exception of certain sectors that are indeed hurt, such as playgrounds and conferences. Therefore new measures will not be required, apart from some very limited ones.” He adds that “in 2022 the country will reduce its deficit, so that in 2023 it gets back to surpluses.”

In the same spirit, European Central Bank Vice President Luis de Guindos noted a few days ago that the economy is getting used to the coronavirus and will not lose its momentum. Although the inflation did seem to worry him when he said “it may not be so temporary after all,” he insisted it will definitely drop below the 2% target in 2023 and 2024.

Greece has many more reasons than the other member-states to show fiscal sense in 2022, which also explains why Minister Christos Staikouras rushed to shoot down any scenarios of a value-added tax rate reduction. As he stressed, Greece has the highest debt-to-gross domestic product ratio, the third highest fiscal deficit (some 7% of GDP in 2021), it is not at investment grade and remains under enhanced surveillance. Furthermore, the ECB may also reduce its interventions, and the European Union is about to change its Stability Pact rules.

In this context the government has deemed it would have been irresponsible to take a high-cost measure such as the VAT rate cut, at the start of the year too, slashing its intervention options for the rest of 2022.