Handout promises rattling European Commission, investors

Handout promises rattling European Commission, investors

The government’s promises of fresh handouts ahead of next years’s general elections have reportedly annoyed officials in Brussels and are rattling investors, with analysts warning they will serve as another obstacle to Greece’s bid to tap international markets.

Moreover, in its post-bailout report on Greece – which will be published on November 21 and has been seen by Kathimerini – the European Commission will stress that none of the 16 reforms Athens needs to implement by the end of the year have been completed.

Given the Italian crisis, the EC has remained low-key with regard to Greece’s post-bailout course as it does not want to open a new front. “Nobody wants to worry about Greece now that Italy is turning into a real problem,” one official said.

The government this week said that it will announce 10,000 new state sector jobs in 2019, while a bill was passed in Parliament on Thursday to return some 820 million euros from slashed salaries and pensions to 280,000 civil servants, including police officers, firefighters and judges. Furthermore, the Finance Ministry’s recent decision to grant raises to its employees has been a source of dismay in Brussels, as, officials say, it sends the wrong message.

“That’s clear backtracking,” a source said, adding that these are practices which took place in the country before the financial crisis – namely handing out money without consultation. What is more annoying to European officials is that Finance Minister Euclid Tsakalotos was the first to stray down this path.

As for the government’s promise of new hirings in the state sector, officials said they will make no comment until it is put into law. “We have learned to listen to a lot of noise but react only to things that are implemented.”

Speaking to Kathimerini, Gianluca Ziglio, senior fixed income analyst at Continuum Economics, said that the government’s “overly generous fiscal policies” could be a source of uncertainty for investors.

“Greece is only at the beginning of a very long healing process which is certainly not in the country’s interest to derail with lousy fiscal policies at this stage as conditions allow to conjugate debt reduction with some degree of fiscal relief which should nevertheless be carefully balanced,” he said.

Mujtaba Rahman, an analyst at the risk consultancy Eurasia Group, said warned that a policy of handouts “will be taken extremely negatively by Greece’s creditors.”

“It’s raising the question in Berlin and elsewhere as to whether the parameters of the post-bailout framework can and will hold,” he said.

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