Renegotiation of the economic programme is already inevitable, since apart from the political events, it will be dictated by the large deviations, which are already considered in its implementation.
In practice, this means achieving a political consensus for the establishment of an "emergency plan" for a period of 6 months in order to minimize deviations from the set goals. Crucial in this endeavor will be the progress, which will be made, and which will depend on the political developments in the country. The issue of providing extra time for Greece, amounting to at least one year, is already being discussed openly by the Troika, stressing however, that this does not mean avoiding cost cuts and reforms.
Negotiations with the Troika
Immediately after the completion of the negotiations with the Troika, the Government will focus on changes in the programme for this year, given that the objectives of the Memorandum cannot be met, point out economic team members. They add that the extension of the fiscal adjustment is mandatory due to the country's economic situation, but depends on the mood of the European Commission and the International Monetary Fund. They base their opinion on the fact that the deficit cannot be reduced to 14.13 billion Euros by the end of the year, since it is now almost 10 billion Euros and it is possible that the recession may reach 6 percent on an annual basis against the planned 4.7 percent. Meanwhile, reforms and privatization are literally frozen because of continued lack of management.
The expected changes are directly related to the priorities, which the new government will set for itself, but they depend mainly on how they will be perceived by the Troika. A key point for Greece will be if it receives a grant for an additional loan, because the extension of time for fiscal adjustment means that more resources will be needed in order to finance the higher deficits.
Additional measures are unsure
According to sources, the Troika recognizes that a deeper recession will have negative consequences and are willing to discuss extending the fiscal adjustment, but remain firm in terms of public sector reforms, which are set out in the Memorandum (further reducing the income of state basic enterprises, 12 percent decrease of wages in special payroll tables and layoffs of 15,000 employees by the end of the year through the labour pool), as well as accelerating structural change. But even if the extension of one year is approved, this does not mean that there will not be requirements for additional measures to reduce government spending. It is estimated that in this case in 2013 the total amount of reform will fall to 5.5 billion Euros from the originally set 7 billion Euros, something which will, of course, depend on the level of deficit for this year.
The six areas of the economy that the new government will have to tackle
The Ministry of Finance estimates a 1.3 billion Euros revenue slowdown by the end of the year.
In particular, the objective factors that make the changes in the economic programme inevitable are:
- Most probably this year the fiscal adjustment will be much less than anticipated. The objective of reducing the deficit to 14.13 billion Euros is considered impossible, because the first quarter of this year ended with over 9 billion Euros and is now approaching 10 billion Euros. And naturally, the prospect of achieving a primary surplus in 2013 is moving further and further away.
- When it comes to income, the report shows more delays compared to the set objectives. The Ministry of Finance estimates it at 1.3 billion Euros by the end of the year but it is highly likely that at the end it will be much higher. It is enough to point out that by the end of June the tax burden will affect everything at once (income tax, inclusive installment sales taxes, property tax) amounting to nearly 9 billion Euros, but it is doubtful that all households will pay it.
- When it comes to expenses it is certain that the funds for subsidizing insurance funds will have to be increased, which in the first half will end in financial despair.
- Also, measures that according to the Memorandum should be implemented in July (e.g. increasing the tax valuation of property, reduction of wages in special payroll tables, increasing the invoices to the National Electricity Company) and which bring fiscal benefits, in practice should be postponed for later.
- Based on all estimates the recession will be deeper than the one provided in the budget (4.7 percent), as many analysts inside and outside Greece do not exclude it reaching 6 percent, totalling for the first time after many years under 200 billion Euros. It should be noted that in the first quarter when the economic climate was much better than the current one, the GDP shrunk by 6.2 percent. The more prolonged the recession is, the harder it is to implement the fiscal adjustment.
- As regards reforms, their delay was significant even before the elections were announced, and now they have literally frozen. Significant is the fact that the Governing Board of the Fund for the Utilization of Private State Property will not move the procedures for sale of property before a new government is created. The Fund noted that this year the 3 billion Euros from privatization will not be collected because from the beginning of 2012 until today the state funds have not received even a single Euro.