Stournaras Says Tsipras Handouts Nix Primary Surplus Target Hit

Bank of Greece Governor Yannis Stournaras (AP Photo)

ATHENS – Joining with the country’s creditors worried about a rampage of election handouts Prime Minister Alexis Tsipras gave, Bank of Greece Gov. Yannis Stournaras said the political largesse means a key primary surplus target won’t be bit.

The Radical Left SYRIZA leader had agreed to a goal of 3.5 percent of Gross Domestic Product (GPD) – which he said wasn’t attainable and then said it was, using a big chunk for pension bonuses and tax cuts.

Stournaras, a frequent critic and thorn in the side of the government as a July 7 snap election looms and SYRIZA far behind New Democracy, said Tsipras giveaways were undoing progress from reforms attached to three bailouts of 326 billion euros ($369.6 billion) since 2010.

Those include a third in the summer of 2015 for 86 billion euros ($97.5 billion) that Tsipras sought after swearing he wouldn’t because it came with more crushing austerity measures he said he would reject but then implemented and said it wasn’t his fault.

Ahead of May 26 elections for Greek municipalities and the European Parliament, he rolled out the bonuses and tax cuts after slashing benefits and raising taxes in what New Democracy said were open bribes to voters.

It didn’t work as SYRIZA candidates took such a thumping that Tsipras called the snap polls, with surveys showing he’s now 7.7 percent and unlikely to return to power unless he makes a surprising rebound, already promising 500,000 jobs if he’s re-elected.

Stournaras said the primary surplus – which doesn’t include interest in the debt or loans, the cost of running cities and towns, state enterprises, social security, some military expenditures and payments the state owes being held back, will be 2.9 percent.

That means a loss of 1.1 billion euros ($1.25 billion) in expected revenues with Tsipras having no wiggle room left for further handouts although Parliament – with all rival parties but one boycotting sessions – also approved canceling new taxes set for 2020 for low-income families and individuals.

It also means whoever wins the election will be faced with a new economic problem caused by what the country’s lenders, the Troika of the European Union-European Central Bank-European Stability Mechanism (EU-ECB-ESM) and the Washington, D.C.-based International Monetary Fund warned about: a return to past overspending and patronage.

Stournaras, agreeing with poll-leading New Democracy chief Kyriakos Mitsotakis, said it made sense to reduce the primary surplus they said had been set too high anyway and that it’s cutting into growth prospects because it relies on big taxation scaring off investors.

“In communication and agreement with the creditors, the primary surplus targets up to 2022 will have to be reduced and the economic policy will have to entail the adoption of a fiscal policy mix with lower tax rates and lower social security contributions, so as to be friendlier to investment, competitiveness and growth,” said Stournaras.

Speaking at an investment seminar where his remarks were reported by Kathimerini and the business newspaper Naftemporiki, he said that “Reducing the primary budget surplus goal to a more realistic level, compared to the current 3.5 percent of GDP until 2022, assuming it is combined with more reforms and privatizations, does not necessarily equal higher public debt, but quite possibly lower (debt),” he also said.