Fiscal pressure set for a return

Fiscal restraint is back for the Greek government. Market signals through high bond yields, the imminent submission of the European Commission’s Stability Pact proposals bringing back fiscal targets after a three-year break due to crises, and the uncertainty from next year’s elections are pointing to the need for a change in the agenda.

The Finance Ministry is expected to pull the plug on any more support measures, to ensure that Greece can meet the fiscal targets for this year and use its possible “over-performance,” either at the growth or on fiscal level, to create a “reliability reserve” against the markets. It must also convey that the primary deficit will be smaller this year – at 1.7% of GDP at the most – and the debt-to-GDP ratio will drop below the government’s draft budget (169.1% of GDP).

The speed with which the markets canceled the planned economic policy in Great Britain served as a reminder of who is the strictest monitor of the Greek economy now that the post-bailout period has also ended. Thus, any talk of policies that lead to additional deficits may create problems. This is why the prime minister made a point in Brussels of providing assurances that the goal of keeping this year’s primary deficit at 1.7% of GDP will be reached.