Greece's new fiscal package increases uncertainty about the country's medium-term policy stance and is set to generate tensions with Greece's European creditors, Fitch Ratings said on Monday.
“We view it at least in part as an attempt by the governing Syriza party to boost its popularity after three years of fiscal tightening. Whether the package will lead to a lasting shift in the fiscal stance will partly depend on how it affects relations with official creditors, and also on the composition of Parliament after October's national elections,” the agency said in a press release.
Fitch said analysts had anticipated partial policy reversals as part of Greece's dialogue with its official creditors following the completion of its third bailout program in August 2018.
“Indeed, the 2019 budget had already partially reversed some program measures, including pension cuts, with the approval of creditors,” the ratings agency said.
“However, the new announcements represent a larger, faster reversal than we anticipated. In particular, repealing the reduction in the income tax threshold could make it harder for future Greek governments to rebalance the fiscal policy mix without hampering the commitment to fiscal targets. The measures increase uncertainty over near-term fiscal outturns,” it said.
Fitch also said the measures may increase tensions between Greece and its creditors. "The consequences are unclear, but a sharp escalation could have an impact on Greek public finances," it added.