Greek primary surplus comes at the expense of growth

The 2017 budget has officially registered a record primary surplus of 4.2 percent of gross domestic product, against a target for 1.75 percent, but this came at a particularly heavy price for the economy, which grew just 1.4 percent against a budget target for 2.7 percent.

It is obvious that securing primary surpluses of more than twice the target, depriving the economy of precious resources, is directly associated with the stagnation of growth compared to original projections. It is no coincidence that consumption edged up just 0.1 percent last year, which analysts have attributed to taxpayers’ exhaustion due to overtaxation.

The surplus was mainly a result of drastic cuts to the Public Investments Program (by about 800 million euros) and social benefits, due to the delay in the application of the Social Solidarity Income.

The government was quick to express its satisfaction upon the release of the fiscal results by the Hellenic Statistical Authority on Monday, although it was just two years ago that Prime Minister Alexis Tsipras accused the previous administration of setting excessive targets for the primary surpluses of 2016, 2017 and 2018 at 4.5 percent of GDP. Eventually he reached that target with his own government, although the creditors had lowered the bar, to 1.75 percent for 2017 and 3.5 percent this year.

The Finance Ministry spoke yesterday of proof of “the credibility of the fiscal management,” adding that “those data show that not only is the target of 3.5 percent feasible for this and the coming years, but there will also be some fiscal space for targeted tax easing and social expenditure in the post-program period.”

That reference concerns the so-called “countermeasures” the government has planned in case it exceeds the 3.5 percent target in the 2019 and 2020 primary surpluses, but for now they are at the discretion of the IMF, which will decide next month whether they can be introduced. Obviously Athens hopes the 2017 figures will positively affect the Fund’s view.

There was also a positive response from Brussels on Monday, with European Commissioner for Economic Affairs Pierre Moscovici and Commission spokesman Margaritis Schinas stating that the efforts and sacrifices of the Greek people are now paying dividend.