Athens rewarded for progress
The European Commission gave Athens some much needed fiscal leeway on Wednesday, as in its sixth enhanced surveillance report on Greece it recommended the disbursement of the earnings of eurozone central banks from Greek bond holdings.
The report paves the way for the payment of some 748 million euros from the SMPs and ANFAs, European Economy Commissioner Paolo Gentiloni told a press conference on Wednesday. However, the report adds that the Greek authorities have agreed that these funds will be disbursed now to cover the country’s funding needs and it will be examined in the fall whether any future revenues will be utilized for public investments.
Brussels praised Greece’s response to the coronavirus, noting that the government adjusted policy priorities in a responsible manner, mobilizing significant sums of income support and liquidity supply measures, while adhering to its pledges for reforms that will support the recovery from the pandemic. However, it highlights the importance of the delayed reforms in the credit sector and the restoration of trust, and criticized the constant underexecution of the public investments program.
The report further stresses the need for the law on banks’ deferred tax assets to be suspended, otherwise lenders will need major share capital increases to avoid recording losses in 2020.
Regarding the impact of the pandemic on the economy, the report focused on the blow to tourism and shipping, arguing that the recession this year will come to 10% and unemployment will climb to 20%, in line with the Commission’s spring forecasts. On Wddnesday Finance Minister Christos Staikouras said the recession may even reach up to 13% in 2020.
The report noted that the fiscal adjustment of previous years means Greece is in a much better position to deal with pressure on its public finances than at the start of the previous crisis. Greece’s creditors believe the country will record a primary deficit in 2020 and return to a primary surplus in 2021. However, there is great uncertainty in the forecast, so it will be adjusted in the fall.