FINANCE

Tough decisions looming on support

Tough decisions looming on support

The government will have to make some tough decisions next month over how it will support households against energy rate hikes without leading the country to a fiscal derailment and pushing up the cost of borrowing.

Proposals such as the imposition of a limit on the wholesale price of electricity, following the Spanish model, at a cost of 3-4 billion euros for the budget, are causing jitters at the Finance Ministry. This is because – according to officials – the measure could put the ministry’s major objectives in jeopardy. These are credit rating upgrades, an agreement with the European Union for a more realistic primary surplus next year, the exit from the enhanced surveillance status and the recapturing of investment grade in 2023. Therefore, such support to households would come at a huge price for the national economy.

On the other hand, ministry officials acknowledge that the pressure on households is huge and some form of relief needs to be found. The main ideas on the table follow the prime minister’s lead for easing power bills. However, no specific decisions have been made yet, government sources stress.

The two main scenarios regard the cap on the price of electricity and the further subsidizing of power bills, with a number of variations regarding the size of the intervention and whether the measures will be permanent or temporary. The government is also considering providing some kind of support to corporations so that energy hikes are not passed on to consumers.

For the time being, as Minister Christos Staikouras said, the fuel subsidy may well be expanded in May.

In the absence of a joint European initiative, the prime minister has said that Greece will resort to national solutions, which currently appears the most likely scenario. However, economic analysts warn that any moves should be made with great caution, without Greece jeopardizing its fiscal balance by introducing the most generous support solutions. It is no coincidence European Stability Mechanism chief Klaus Regling recently stated in Athens that Greece’s main tasks right now is to continue implementing reforms and to follow a sensible fiscal policy.