The European Commission published its ”2019 Spring Package” on Wednesday, in which it comments on the economic situation of every member state and proposes reforms to coordinate fiscal policy across the Union.
For Greece, the Commission focuses on two main aspects of the Greek government’s economic policies which were recently announced.
The first regards the 120-installment payment scheme for those who owe taxes to the Greek state. The European Commission expresses its concern that this plan might lead to the creation of a fiscal gap which could equal 0.6 percent of Greek GDP, endangering the country’s fiscal stability.
The ”hole” in Greece’s public finances could reach €600 million from this scheme, the Commission notes in its report.
The second issue concerns the same scheme for those who owe money to the country’s social security funds. The projected deficit in this area could reach an additional €300 million for this year, adding yet more burdens on the next Greek government.
In a news conference on Wednesday, Commission Vice President Valdis Dombrovskis lauded the fact that Greece was among the countries which had pushed through the most reforms over the last five years, which led to a rise in employment and an increase in consumer demand.
He stressed, however, that “the reform momentum has slowed in recent months,” and added that it is a “delicate exercise for Greece to return to the markets with public debt of around 180 percent of GDP.”
“There is very little room for mistakes,” he said.
The current Greek administration strongly opposes these estimated figures, calculating that the Greek state will not only not lose revenue, there will be an augmentation of at least €200 million, since people who currently are not repaying any debt to the state, will begin to do so.
At present, more than 90,000 debtors in Greece have applied to join the 120-installment repayment plan.
But apart from these issues, the Commission notes that the country has slowed down its reform efforts, most likely due to the European and national elections.
The report mentions that some of the other measures the Tsipras administration implemented or will implement, including the reduction of specific tax rates, the so-called ”thirteenth pension” and the cancellation of the reduction of the tax-free threshold, endanger Greece’s commitments to its European partners.
The main problem with this is in regard to the country’s primary surplus targets.
The Commission believes that Tsipras’ handouts will in total cost more than one percent of the country’s GDP, something which ”could put in danger Greece’s target of (a) 3.5 percent primary surplus for 2019.”
The Greek government, however, believes that the primary surplus for 2019 will reach 4.1 per cent of its GDP, leaving a fiscal space of 0.6 per cent, an amount that can cover the relief measures announced by Tsipras.