The European Commission’s compliance report on Greece is scuppering government plans to make handouts out of excessive primary surpluses. The report was published on Wednesday, ahead of a crucial Eurogroup meeting on Thursday that is expected to decide on a number of issues concerning Greece.
The report makes a specific reference to the tax cuts and the social handouts the government has been promising as a result of using up the so-called “fiscal margin” – the excess of the primary surpluses from 2019 – saying that such interventions have not been taken account of by the creditors, who will need to give their approval in the context of the 2019 budget.
The measures are expected to include tax reductions for bolstering growth and targeted social measures, the report states, “but the details of that package have not been specified,” it adds referring to the so-called offsetting measures. “Such measures are exempted at this stage and will have to be agreed as part of the 2019 budget at the end of the year,” it notes.
The Commission takes for granted both a reduction in pensions as of January 2019 and a cut to the income tax discount from January 2020. It has also factored in several other measures that Athens has agreed to up to 2022, such as maintaining the balance of public sector hirings and departures at a one-to-one ratio from 2019, restrained raises in the average state salary, an increase in healthcare spending, etc.
The report further confirms the implementation of the 88 prior actions, paving the way for a decision by eurozone finance ministers today for the disbursement of the bailout tranche upon the completion of the fourth review.
The Eurogroup is expected late on Thursday to agree on a long-anticipated set of measures for lightening Greek debt, for the post-bailout surveillance process and the amount of the tranche disbursed in a way that the markets will consider as credible given that the International Monetary Fund will not participate fully in the program.