The government will seek an economic miracle in 2021 so that the country can leave the great financial adventure of the coronavirus behind it as quickly as possible.
Among the parameters of that miracle will be a drastic reduction of the debt to gross domestic product ratio near 185% – this year it is projected to approach 200%, the world’s second highest – as well as a strong growth rate over 5-6% to take the jobless rate back below the pre-pandemic level of 16-17%, from about 20% expected at end-2020.
The Finance Ministry will also attempt to return to primary budget surpluses as a sign of the exercising of “consistent economic policy that will not rely on borrowed money.”
This year is set to end with a very high general government deficit, at 7% or over, and a primary deficit that will approach or even exceed 4% of GDP. Nevertheless the ministry estimates that an immediate return to primary surpluses is feasible, and without taking any additional measures that have only hurt the effort to return to growth.
Instead, the objective is to find fiscal space of 2 billion euros to finance by priority the reduction of the social security contribution rates paid by employers and employees – which requires at least €1 billion – and to start the process for the gradual abolition of the solidarity levy and the duty paid for practicing certain professions.
The drafting of the 2021 budget with such provisions will have to rely on two unknown factors; the first concerns health conditions, as the total recovery of the economy can only be achieved if there is global normality next year; the second factor pertains to whether the Greek request for the waiving of the strict post-bailout surveillance framework to be waived for 2021 too, as it forces Greece to achieve a primary surplus of 3.5% of GDP.
Greece’s tools for that economic miracle include the fact that this crisis is caused by external factors, which once extinguished will allow for a strong rebound from a low starting point.
Another important point is that the debt-to-GDP ratio can decline thanks to the rise of the denominator (growth) in 2021, while this year’s extraordinary measures will not be repeated in 2021, allowing for a significant reduction in state expenditure.