Treading carefully

Posted by Antonis D. Papagiannidis 18/06/2019 1 Comment(s) Economia Blog,

While the campaign for the July 7 general election in Greece looked set to turn acrimonious – especially so in pending judicial cases that may well jeopardise overall public confidence to the judiciary – there has emerged a belated, yet potentially salutary touch of realism in the main contenders for power. It has to do with the new front that looms over available fiscal space that may, or may not, make it possible for some relaxation of (almost ten-year-long, unrelenting) austerity Greeks have lived under. This front could cause wounds that might fester, if the main parties in Greek politics faced it off over relaxing austerity - if need be causing a new rift in relations with Greece’s European creditors.

 

Prime Minister Alexis Tsipras made it clear that “in the July 7 election two concepts, two plans, two worlds will be facing each other”. Largely symbolic measures taken just before the election bandwagon got rolling were legislated in Athens with scant consultation with the European institutions that (even in a post-Programme configuration) should remain in the loop of decision-making.

 

From the Opposition benches, from where as opinion polls constantly indicate the next Government may well be issued, the order of the day consists mainly of tax cuts: the levy on land-and-home ownership, business taxation, Social Security contributions, VAT rates, household income tax – you name it! – all would be cut. The idea is that such a move would kick-start the economy, with higher tax collection arising out growth. Still, the immediate consequence would unavoidably be for a gaping black hole to emerge in fiscal terms.

 

Still, unpleasant noises coming out of the Brussels system – ESM, EuroWorking Group and so forth – and reminding Athens, albeit in low tones, that pacta sunt (after all) servanda have caused the Greek political system to tread more carefully. Tsipras has refrained from taking to clear a position personally, letting Finance Minister Euclid Tsakalotos engage with ESM head Klaus Regling. More importantly, opposition chief Kyriakos Mitsotakis went out of his way to make it absolutely clear that no change in the fiscal component of the policy mix would be expected before the 2020 Budget got underway.

 

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