ATHENS – Riding high on a big victory in July 7 snap elections and moving swiftly to implement his ideas for a New Greece, Prime Minister and New Democracy leader Kyriakos Mitsotakis will run smack into financial reality in dealing with the country’s lenders.
Mitsotakis promised tax cuts among other measures to bring back investors scared off by a 29 percent corporate rate imposed by former Premier and Radical Left SYRIZA leader Alexis Tsipras, whose party had elements wanting to keep out foreign companies.
But trying to implement a pro-business program and cut taxes butts up against how much money is available after Tsipras spent some 1.7 billion euros ($1.91 billion) on pension bonuses and tax cuts after slashing benefits and raising taxes.
He was trying to restore favor with voters after reneging on anti-austerity promises for 4 ½ years but failed and the handouts, along with expected less revenues this year from tourism after five consecutive record years could leave Mitsotakis little room to make his moves.
The Troika of the European Union-European Central Bank-European Stability Mechanism (EU-ECB-ESM) put up 86 billion euros ($96.51 billion) in the summer of 2015 in a third rescue package after Greece had received 240 billion euros ($269.32 billion) in two previous rescue packages, the Washington, D.C.-based International Monetary Fund (IMF) having taken part in the first two.
The money came with attached austerity and other reforms, including a requirement that fiscal targets, such as a primary surplus of 3.5 percent of Gross Domestic Product (GDP) be met and the Troika and Eurozone officials have already shot down his hope of revising that.
His point man in talks with the lenders will be Finance Minister Christos Staikouras, who has a Ph.D. in Banking for City University London, and worked as an analyst for the Bank of England and then Eurobank Ergasias before becoming a lecturer at the Athens University of Economics and Business.
Mitstotakis told CNBC in Athens: “I’ve received an outright majority … that means there is a real, strong mandate for change in Greece, and this what I have promised to deliver, and this is what I will do.”
TOO MUCH, TOO MUCH
He had told CNBC February that Greece had gone “overboard with austerity ” and one of his priorities as Prime Minister would be to change some of the fiscal targets, including the primary budget surplus.
During a previous New Democracy-led coalition with the now-defunct PASOK Socialists who went belly-up after backing austerity measures antithetical to their alleged principles, Mitsotakis was Administrative Reform Minister and supported the harsh measures, while firing thousands of state workers without giving them a review as promised.
Mitsotakis said he has plan to speed a slow recovery in the wake of the Aug. 20, 2018 end of the three bailouts of 326 billion euros ($365.87 billion) but the creditors shot down revising the primary surplus and said “it is hard to see” how fiscal targets could change.
“This is a cornerstone of the program since the beginning,” Klaus Regling, Managing Director of the bailout fund ESM, told journalists about the 3.5% threshold, the news site also added.
“It is the precondition for additional debt relief measures and it is very hard to see how debt sustainability can be achieved without that,” he added.
If fiscal targets aren’t hit it could affect a debt relief plan Tsipras got that gave Greece more time to repay the loans and also trigger automatic spending cuts at the same time Mitsotakis said he wouldn’t fire workers and would keep benefits for the lower-income.
Regling recalled during the press conference in Brussels that Greece owes more than 200 billion euros ($224.46 billion) to his agency, while Mario Centeno, head of the group that brings together the 19 finance ministers of the Eurozone said, “We must keep at all moment(s) in time our commitments. “This is the only way I know to gain credibility,.”
That could put Mitsotakis in a bind as Pierre Moscovici, European Commissioner for Economic Affairs and who was involved in the progress of the Greek bailout, told CNBC that Europe needs to look at Greece again.
“There were talks/promises during the campaign… but we’ll discuss in time and on very precise requests (the Greek situation),” Moscovici told CNBC’s Willem Marx.
Mitsotakis wants to lower the corporate rate to 20 percent over the next two years and said he would restart major projects stymied by SYRIZA, including the $8 billion development of the abandoned Hellenikon International Airport.