Lower surplus targets to top 2020 agenda

Apart from the election of a new president and changes to the electoral law, the reduction of the primary surplus targets that Greece must achieve is expected to top the government’s agenda in 2020.

The need to reduce country’s surplus targets from the current 3.5 percent level as of 2021 was formally raised by Prime Minister Kyriakos Mitsotakis at the last European Union summit. He also discussed the issue during his meeting with new European Central Bank President Christine Lagarde, who is said to be sympathetic to Greece’s position.

According to sources, Athens’ request for lower surpluses will be formally submitted to the Eurogroup sometime in early April and certainly before the end of May, by which time the government will have drafted its new medium-term fiscal policy program.

Greece’s optimal target is to reduce the primary surpluses it must achieve in the coming years to 2 percent of gross domestic product.

However, given that in Brussels the agreements are the product of negotiations, a compromise at a slightly higher rate is the more likely outcome.

In any case, even a reduction to 2.5 percent would create an additional budgetary space of around 2 billion euros per year.

For its part, Athens will make its case by preparing its own debt sustainability report via the Public Debt Management Agency (PDMA)– apart from those drafted by the European Commission and the Bank of Greece.

It is also banking on four factors that are expected to play a decisive role in the final outcome of its request for lower surplus targets.

The first concerns the economy’s performance next year. If the economy, as the government predicts, grows in the first quarter to the order of 2.8 percent then Athens will have a stronger hand in its negotiations.

Secondly, Greece’s case will be further boosted if its borrowing rates remain at a low level, which is something the government considers imperative.

Thirdly, a new move to repay expensive International Monetary Fund (IMF) loans is planned in the coming months, while last but not least, the government will have decided in 2020 which projects will be funded by eurozone central banks’ profits from Greek bond holdings.