Vying for the hearts (and votes) of the middle class

by Antonis D. Papagiannidis

In a partly unexpected move, S&P upgraded the credit rating of Greek paper – to BB, two clicks short of investment grade – also enhancing its outlook to positive. The fact that S&P did so with the Greek economy mired in corona pandemic-induced recession makes this move all the more welcome.

S&P factors in a growth of 4.9% for the Greek economy this year, gearing up to 5.8% for 2020 with express mention of the NGEU-financed reboot of the economy. Optimists in the Greek Government already hope for investment grade to be reached within 2022; those more down-to-earth just anticipate a new issue of Greek sovereign debt within the next days, to capitalize on positive sentiment.

An even more interesting aspect of such an assessment of the Greek economy is that fresh tax breaks were announced just last week by PM Kyriakos Mitsotakis, as part of the Greek Government’s efforts to open the economy after a protracted (albeit not-so-well-observed) lock-down. Cutting corporate tax from 24% to 22% and, even more so, reducing income tax pre-payment to 70`% for corporations and to 55% for self-employed professionals (from a dizzying 100%), atop a 3% cut of social security contributions, is quite generous a move as it comes at the end of the coronavirus crisis.

The Finance Minister Christos Staikouras acknowledged the cost of such measures – which, he pointedly noted, were agreed with the EU enhanced surveillance mechanism under which Greece operates – amounted to 900 mio euros for 2021 scaling to a total of 1.6 bn for 2022. This indicates that the economy should really produce a good growth multiflier so as to absorb the cost.

Some days earlier, mid-April, opposition leader Alexis Tsipras presented “A plan for the restart of the Greek economy” mainly consisting in providing SMEs – widely accepted to constitute “the backbone of the Greek economy” – with extensive restructuring of corona-induced debt with payment in installments or even write-offs, to enhance business liquidity. The price tag quoted for this approach was of 5.7 bn euros.

Such positive thinking over the economy is surely welcome: but vying for the hearts of the Greek middle class may also refer to its voting patterns. Meanwhile , an old friend of Greece – none less than Wolfgang Schaeuble – is on record pontificating that “a debt pandemic” might well take the place of the corona pandemic in the near future.