Waking up to a fiscal nightmare

The government is facing an economic and possibly fiscal nightmare with the war in Ukraine, as natural gas and oil rates leapt higher on Thursday, again upending projections on inflation, growth and the budget deficit.

The budget is facing a double threat from the growing energy prices and from the decline of the country’s gross domestic product due to the drop in disposable incomes, tourism and consumption. The rise in energy rates will lead to increased support needs for households, while the GDP reduction – compared to projections – will lead to a drop in budget revenues.

Finance Ministry officials were sweating on Thursday over the estimate that the cost to the budget could reach up to 1.6 billion euros, if the current subsidization of power bills is to continue, and from the anticipated GDP drop. Alternate Finance Minister Thodoros Skylakakis said that for every 10-euro increase in the natural gas market rates, Greece’s GDP misses out on €600 million on an annual basis.

However, the government is determined to continue supporting vulnerable households in paying their energy bills, even if the costs soar.