Eurozone finance ministers gave Greece and the rest of the bloc a clear signal in the direction of fiscal adjustment on Monday after the last Eurogroup meeting before the summer vacation. According to a joint statement from the body, the extension of the expansionary fiscal policy in 2023 “is not justified.”
Instead, the emphasis must go on protecting the most vulnerable consumers against the consequences of the energy shock, it noted. Fiscal policy, the finance ministers said, should not contribute to exacerbating inflationary pressures, but should facilitate the task of restoring price stability.
For Greece – which has spent large sums on the state’s response to the pandemic and which is among the first in the European Union in spending as a percentage of gross domestic product in the face of the energy crisis – the bell is already tolling. The increase in borrowing costs and the failure to reach investment grade yet make for an ominous scenario for the most over-indebted country in the eurozone.
In a statement on the sidelines of the meeting, Greek Finance Minister Christos Staikouras underlined the need for “European initiatives for energy security and dealing with the energy crisis,” as well as for better European coordination “in policies to deal with the economic effects of the energy crisis.”
Inflation in the eurozone has climbed to 8.6% (12% in Greece), while the mandate of the European Central Bank is to keep it marginally below 2% on an annual basis. The eurozone’s central bank is expected to raise interest rates at its next meeting on July 21, for the first time since 2011.
“The macroeconomic environment, including growth prospects and inflation dynamics, has deteriorated,” the Eurogroup‘s joint statement said. Eurozone economies remain resilient, but “global risk factors, including those linked to war, the pandemic and volatility in financial markets, remain elevated,” including a complete shutdown of Russian gas supplies in the near future.