Cautious attempt to move the 2020 primary surplus goalposts

The government is hoping to secure up to 1.2-1.3 billion euros, or 0.6-0.7 percent of gross domestic product, in additional fiscal space for 2020 that would allow it some leeway to enforce tax easing plans, despite promises last week by Prime Minister Kyriakos Mitsotakis to German Chancellor Angela Merkel that Greece will meet the target of 3.5 percent of GDP for the 2020 primary surplus.

The leeway is seen coming from the annual return of eurozone central bank profits from Greek bonds (SMPs and ANFAs), which are currently not included in the budget revenues, though this is expected to change.

Kathimerini understands that the issue will likely be addressed at a Eurogroup meeting of eurozone finance minister on December 4 and, in the event that an agreement is reached, the technical aspects of the solution will be clarified by January.

“We will obviously raise this issue, given that we are not touching on the matter of a 2020 target reduction,” says a government source.

If the Greek proposal is given the green light, it will amount to a reduction of the primary surplus target from 3.5 percent to 2.8-2.9 percent of GDP for next year. If all goes well later on, the government will be able to seek a further reduction to the targets for 2021 and 2022.

The Greek demand is likely to be facilitated by the new and adjusted debt sustainability report, which will probably be attached to the fourth post-bailout review. Given the major contraction of borrowing rates, not just of Greece but also of the European Stability Mechanism, the picture of the debt’s sustainability is expected to be improved, thereby rendering the need for high primary surpluses less pressing. A better picture will likely convince the creditors to accept the inclusion of SMP and ANFA profits in budget revenues, if not to reduce the primary surplus targets.

Even so, the additional fiscal space of 1.2-1.3 billion euros will still not allow for any major tax easing next year. This is why the prime minister is expected to make some very careful policy announcements at the Thessaloniki International Fair this coming weekend, in order to avoid provoking a reaction from the country’s creditors. The government’s intention clearly is to proceed on the basis of consent with the eurozone.