Greek tax cuts and bonuses for pensioners announced last month pose a risk to fiscal targets agreed with eurozone lenders, the European Commission said on Wednesday in a blow to the Greek government ahead of elections next month.
Commission Vice President Valdis Dombrovskis told a news conference that Greece was among the countries that had undertaken most reforms in the past five years, leading to growth of employment and of consumer demand.
“However, the reform momentum has slowed in recent months,” he said.
Greece, which required three international bailouts between 2010 and 2015 to stave off bankruptcy, emerged last August from economic adjustment programs overseen by its lenders.
Athens last month introduced tax cuts and pension payouts, partially unwinding some of the austerity measures mandated under the bailouts just ahead of municipal and European Parliament elections.
“The package is costly and does not go in the right policy direction. It undoes some elements of important program reforms and these new measures pose a risk to achievement of agreed primary surplus target of 3.5 percent of GDP this year and beyond,” Dombrovskis said.
The package brought by the left-wing SYRIZA administration last month includes an annual payment for 2.5 million pensioners, a reduction in a sales tax on basic foodstuffs and a cut in tax rates on electricity and gas bills.
Greece still needs to meet fiscal targets, including a primary budget surplus, which excludes interest payments on its debt, of 3.5 percent of annual economic output up to 2022.
Greek Prime Minister Alexis Tsipras has said the handouts would not threaten that target. But opposition parties have branded them a crude move by the leftist government to shore up its sagging popularity before a national elections on July 7.
Eurozone finance ministers will discuss the measures at length at their next meeting in Luxembourg on June 13-14 on the basis of the Commission report.
“It is important not to waste the major progress made in recent years. It is a delicate exercise for Greece to return to the markets with public debt of around 180 percent of GDP. There is very little room for mistakes,” Dombrovskis said.