NEWS

Government moves hinging on Ukraine war

As prices soar, Athens drafting plans of action based on best- and worst-case scenarios

Government moves hinging on Ukraine war

The government is reportedly working with three different hypotheses regarding the duration of the war in Ukraine and its consequent adverse effects on the Greek economy.

The first scenario is that the war and the turmoil it is causing in international markets, which also affects Greece, will last until the end of the month. The second is that the crisis will continue until Easter, while the third, and worst-case scenario is that the war will cast its shadow on the world economy until June and beyond. 

For the government, the best-case scenario is that the war in Ukraine will end within the next two weeks and that a gradual normalization of international markets will begin. 

In this case, it is estimated that the financial planning for 2022 will not be burdened dramatically. Tellingly, much of the 1.1 billion euros’ worth of emergency support measures announced by Prime Minister Kyriakos Mitsotakis last week, are essentially covered by the revenue surplus in January and February. 

What’s more, according to government estimates, if the war ends in the next two weeks, a positive market psychology will return immediately and tourism will perform satisfactorily, while the need to support the most vulnerable – with the exception of energy – will be limited.

The second scenario, which stipulates an extension of the turmoil until the end of April, is not welcome but is seen as being manageable, given the strong counterweight of the European Union’s Recovery Fund.

However, there is also grave concern over the possibility that the crisis will extend until June or later. 

In such a case, it is obvious that the government will be forced to proceed with new support packages, while the side-effects on the economy on the fronts of inflation, revenue and growth, will be significantly greater.

This would lead to a large deficit for the third consecutive year, after two years of the pandemic.

At the same time, the cost of supporting households and businesses that were adversely affected by the coronavirus lockdowns has also put pressure on the public debt.

As a result, crucial goals such as keeping borrowing costs low and gaining an investment grade will become more elusive. Similarly, the abolition of the solidarity levy for civil servants and retirees from January 2023 will also be up in the air.