Despite the extension in the general escape clause from the European Union Stability Pact for another year, Greece will still have to take substantial steps toward fiscal streamlining in 2023, European institutions agree, having been one of the most generous member-states in the bloc regarding measures against the pandemic’s economic impact and energy hikes.
The European Commission announced on Monday that the opt-out of the bloc’s fiscal rules will also apply in 2023, as long as EU finance ministers approve it, probably in June; crucially, Brussels stated it currently has no intention of launching the excessive deficit process against any member-state.
However, competent officials stressed it will not allow for any fiscal excesses, nor will all states enjoy the same degree of liberty in their 2023 economic policies. Especially for overindebted countries, such as Greece, the monitoring of expenditure will be stricter.
According to the latest assessment of the Commission, Greece is one of the three states (along with Cyprus and Italy) with excessive macroeconomic imbalances.
Commission Vice President Valdis Dombrovskis noted that overindebted countries should expand their spending at a lower rate than the medium-term rate of potential gross domestic product growth. For Greece, the potential midterm growth rate is estimated at a negative rate of 0.3% per year, therefore in practice Brussels recommends a reduction to current expenditure – although it does note that this rate will be revised upward when the impact of the Recovery and Resilience Fund is factored in, thereby loosening the spending limit.
Greece also has the highest debt-to-GDP ratio in the EU (at 193.3%) and this year it will have the third most expansive fiscal policy in the bloc after Lithuania and Bulgaria. This is because Athens is also the third most generous government in terms of support against the energy rate hikes. According to the data the Commission presented yesterday, the Greek government’s support measures in 2022 amount to 1.1% of the GDP.
For the 2021-23 period the Commission estimates Greece is second only to Spain in the RRF’s contribution to the national economy.