A last-minute flurry of pension bonuses and tax cuts that partially undid austerity measures to which Prime Minister Alexis Tsipras agreed before trying to regain favor with voters could undercut progress made by tough reforms that came with 326 billion euros ($367.19 billion) the European Commission worries.
The Radical Left SYRIZA leader fell in polls for reneging for four years on anti-austerity vows before trying to wiggle out of them, which didn’t help as his party’s candidates took a beating in May 26 elections for Greek municipalities and the European Parliament and is some 9 points behind the major opposition New Democracy ahead of July 7 snap polls.
The European Union and the country’s creditors – which let Tsipras go ahead with rolling back some of the reforms they had demanded – now is anxious that whoever wins will have to deal with the effect, warning against any further backtracking, said the financial news agency Bloomberg.
Tsipras’ handouts will cost the equivalent of more than 1 percent of the country’s Gross Domestic Product (GDP) of 177.83 billion euros ($200.3 billion,) and eat away at progress that was bringing a slow recovery with the Aug. 20, 2018 end of the rescue packages.
That was revealed in a review by the country’s lenders, the Troika of the European Union-European Central Bank-European Stability Mechanism (EU-ECB-ESM) with no explanation why he wasn’t warned off.
“The adopted measures on pensions and VAT are targeted at consumption and will absorb a considerable amount of fiscal space that was envisaged in legislation adopted in 2017 for growth-enhancing reductions in labor and corporate tax rates,” the Commission said.
Greece’s economy will be monitored for years to make sure the reforms don’t undo economic gains and trigger automatic spending cuts if fiscal targets aren’t met, a prospect which could hamstring the next government and burden New Democracy leader Kyriakos Mitsotakis if he wins.
Any change to primary surplus targets agreed in June 2018 would need to be discussed at a meeting of euro-area finance ministers in the context of an updated debt sustainability analysis, the Troika envoy report said.
Tsipras, in a failed attempt to win back voters despite what New Democracy described as “bribes,” gave the pension bonuses and tax cuts after he had slashed benefits and put an avalanche of tax hikes and new taxes on citizens and residents.
He also decreased the country’s surplus targets to 2.5% of GDP, from the 3.5% target agreed with creditors and they let him do it, saying they didn’t want to get too involved in a political campaign and appearing to take sides while taking sides.
Tsipras also plans to roll back planned new taxes on low-income groups he agreed would be implemented in 2020, an action that could further undercut gains and with worries that with the end on Aug. 20, 2018 of the rescue packages the government would, as had previous administrations, start spending wildly and hiring people, which it did.
Mitsotakis, who was Administrative Reform Minister in a previous New Democracy-led coalition where he fired thousands of workers without giving them reviews as he promised, said he would, if he wins, undertake more reforms and lure back investors.
The EU report said the country’s banks are still burdened with bad loans even though Tsipras, reneging again, allowed them to foreclose on homes and sell off loans they couldn’t collect to agencies hounding people hit hardest by pay cuts, tax hikes and job losses.
“If elected, Mitsotakis will face a difficult juggling act: satisfying the demands of creditors who are warning of backtracking and risks to the country’s debt sustainability and easing the pain for the bailout-worn Greeks, who have suffered almost ten years of belt-tightening policies and a deterioration of their living standards,” reported Bloomberg.
“It is a delicate exercise for Greece to return to markets. With public debt at around 180% of GDP, there is very little room for mistakes,” European Commission Vice President Valdis Dombrovskis also told reporters in Brussels.