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EC warns of fiscal derailment, says handouts to cost 6 bln euros

EC warns of fiscal derailment, says handouts to cost 6 bln euros

Greece is faced with the serious risk of a large-scale fiscal derailment, according to the third enhanced surveillance report published by the European Commission on Wednesday. 

The EC’s report stressed that the government’s recent handouts are putting Greece on a course that will jeopardize the achievement of the agreed primary surplus target of 3.5 percent of gross domestic product this year and beyond.

All in all, the total cost of the handouts over the two-year period 2019-20 comes to 6 billion euros.

The Commission also said that the report would have been much harsher if the country wasn’t in the midst of a pre-election period as it is standard practice for the EC not to get involved in the domestic political battles of its members.

In a news conference on Wednesday, Commission Vice President Valdis Dombrovskis lauded the fact that Greece was among the countries which had pushed through the most reforms over the last five years, which led to a rise in employment and an increase in consumer demand.

He stressed, however, that “the reform momentum has slowed in recent months,” and added that 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,” he said. However, the report noted many serious problems with regard to the government’s policies. 

More specifically, the cost of the handouts for 2019 alone is estimated at 1.1 to 1.4 percent of GDP. The cost for 2020 is even higher, between 1.2 and 1.5 percent of GDP, it said. 

“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 the achievement of agreed primary surplus targets,” Dombrovskis said. 

Even Economic Commissioner Pierre Moscovici, who is usually positively disposed toward the government, warned that Greece must be very cautious with regard to the primary surplus in the coming months. 

Discussion about Greece will continue at the next Eurogroup on June 13 even though it is not on the agenda.

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