PBO Report Warns Greek Government of Risks in Bailout Deal

Hefty tax burdens will burden the Greek economy and keep uncertainty lingering, a quarterly report by the Parliamentary Budget Office revealed on Tuesday, while also stressing that even though the new deal could have some positive aftereffects it comes hand in hand with many risks.

Uncertainty has increased due to the delays in the bailout review which is “poison for the economy the PBO report notes while a major uncertainty factor that will also determine the success of the program is the country’s apparent failure to meet growth targets.

The report highlights the risk of the country falling in an “austerity trap,” where constant tax hikes and shrinking expenditure eat into the gross domestic product and increase the debt, as was the case with the 2016 primary surplus.

The report also adds that the spring of 2018 is a key milestone since this is the time when it will be decided whether the fiscal targets of 2018 will be met, whether the so-called countermeasures will apply, and whether the tax measures for 2020 will be brought forward to 2019. It is also then that the decisions on the national debt will be finalized.

The Parliament’s economist say that the 2.7 percent expansion forecasted for Greece’s budget is unlikely, taking into consideration the slowdown recorded in the last quarter of 2016. If this is confirmed the report signals that “the other forecasts of the budget, regarding tax revenues and the primary surplus, will also be disputed.”  What does this mean for the Greek economy? Long strides will have to be made in the following quarters to reverse the impact — a possible event that would threaten a full reversal of the bailout program’s provisions with unpredictable consequences.

Warding off the negative affects will depend on the political choices of the government regarding the efficacy of the reforms along with creditors’ willingness to reduce the debt and primary surplus.