Troika Watching, Greece’s New Finance Chief Says Tax Cuts Priority

New Finance Minister Christos Staikouras speaks during a handover ceremony in Athens, Tuesday, July 9, 2019. (AP Photo/Thanassis Stavrakis)

ATHENS – The financial cupboard raided by former Premier and Radical Left SYRIZA leader Alexis Tsipras in a failed bid to win re-election, Greece’s new Finance Minister Christos Staikouras said the ruling New Democracy will still go ahead with planned tax cuts.

That could put the new administration on a collision course with the country’s creditors, the Troika of the European Union-European Central Bank-European Stability Mechanism (EU-ECB-ESM) that said fiscal targets agreed by Tsipras to get a third bailout of 86 billion euros ($96.45 billion) in the summer of 2015.

After cutting benefits and raising taxes as part of the agreement, Tsipras gave pension bonuses and cut taxes ahead of the July 7 snap elections he lost to now-Prime Minister Kyriakos Mitsotakis who said tax cuts to lure investors was a linchpin of his government.

The creditors, however, could have a big say in whether tax cuts could happen and to what degree because Greece is committed to a primary surplus of 3.5 percent of Gross Domestic Product (GDP) which Mitsotakis said is too high and is limiting growth prospects.

Three rescue packages of 326 billion euros ($365.62 billion) from the Troika and with the Washington, D.C.-based International Monetary Fund (IMF) taking part in the first two expired on Aug. 20, 2018 but Greece still hasn’t been able to make a full market return.

The Troika shot down Mitsotakis’ idea of trying to rework some of the terms, including lowering the primary surplus, after Tsipras used some 1.7 billion euros ($1.91 billion) in the handouts, likely locking the new government into keeping the pension bonuses going.

Finance ministers from the 19 European Union countries that use the euro currency, known as the Eurogroup, met in Brussels Monday evening and insisted key budget targets must be adhered to.

“Commitments are commitments, and if we break them, credibility is the first thing to fall apart,” Mario Centeno, President of the Eurogroup, said after the meeting. “That brings about a lack of confidence and investment.”

CUT, BABY, CUT!

Mitsotakis won the election on pledges that included making the country more businesses-friendly, cutting taxes and negotiating an easing of draconian budget conditions agreed as part of the country’s rescue program.

His new Cabinet, which relies heavily on experienced politicians who have served in previous governments but also includes non-partisan technocrats considered experts in their fields, was sworn into office on July 9 and set to meet July 10 to review Greece.

“Our central aim is to create the conditions for a high and sustainable development with healthy public finances and a stable banking sector,” Staikouras said during the handover of the ministry from his predecessor, Euclid Tsakalotos, a Marxist economist forced to bend to the Troika as well.

“We will go ahead with relieving the tax burden on households and businesses,” said Staikouras, an economist and engineer who comes to the post with the experience of serving as deputy minister under a previous government during Greece’s financial crisis.

“We will promote production, productivity, competitiveness, quality, adaptability and an outward looking approach of our economy.”

Greece depended for eight years on rescue loans from the Troika and IMF in return for deep reforms to the country’s economy that included steep tax hikes and major spending cuts. As a result of bailout deals signed by successive governments – including a previous New Democracy-led coalition under then-Premier Antonis Samaras, Greece remains under strict surveillance from its euro partners.

Staikouras said that unlike frequent practices at ministry handovers during a change of government, he would not say everything his predecessor had done was wrong.

“We will maintain any positive things that were done and we will build on them,” he said. “But we will correct mistakes and deal with any oversights.”

 

(Material from the Associated Press was used in this report)