In September 2021, from the stage of the TIF, the Prime Minister announced the creation Energy Transition Fund which will finance the energy transformation mitigation policy: “Greece is the first country to immediately set up the Energy Transition Special Fund. This will cover at least 80% of the increase to all consumers. To all consumers. Therefore, we are not only talking about vulnerable households. We’re talking about the entire population.” Contrary to the recommendations of international organizations on targeted subsidies, the government generously distributes allowances with funding from international capital markets, pollution rights auctions and the EU Just Transition Fund. The Prime Minister is expected to clarify at TIF next month the new consumer support measures for the coming months.

Having voted in April in favor of a €2.6bn supplementary budget “to meet the urgent needs arising from the energy crisis”, he is now preparing a second €2bn supplementary budget for the same purpose. Stronger-than-expected tourism results are creating additional fiscal space, which the government appears to be fully committed to supporting households and businesses. In addition, the restart of lignite production units is expected to increase revenues from pollution rights auctions, which contribute to electricity subsidies. “In any case, fiscal space will return to society,” explained Minister of Finance Mr. Staikouras, leaving open the possibility that there will be a Fuel Pass 3 after the end of Fuel Pass 2 in September, and of course that energy cost subsidies will continue.

The winter will be difficult for all of Europe, and the fiscal outlook is especially ominous for Greece. The Eurogroup opposed the expansion of fiscal expansion, which makes it difficult to control inflation. While a general exemption clause from EU fiscal rules will also apply in 2023, heavily indebted member states must run primary surpluses to steadily reduce their debt-to-GDP ratio. Over the past three years, public debt in Greece has grown by leaps and bounds, but the debt-to-GDP ratio has fallen thanks to a significant increase in nominal GDP. This improvement will not continue without achieving a primary surplus when inflation falls and the output gap narrows.

Therefore, the government is called upon to ensure a primary surplus in an unfavorable environment as the eurozone economy enters a recession and energy prices remain high. The ultimate goal is to raise the country’s creditworthiness to investment grade, which is the main requirement for Greece to stop being a “special case” in the eurozone. In addition, the government must find financial means to abolish the solidarity levy for civil servants and pensioners, as previously announced, at a cost of around half a billion euros. A primary surplus, despite loss of income, can only be achieved by containing spending, which is the second-highest in the eurozone after France, according to IMF data (57.9% of GDP in 2021, Fiscal Monitor). A tough bet in an election year!

The European Commission has invited member states to voluntarily cut gas consumption by 15% amid fears that Russia will cut off supplies. The EU supports targeted transfers on a temporary basis for households and businesses most affected by the energy shock, provided they are fiscally neutral, i.e. if other spending is reduced or income is increased. Without a significant reduction in energy consumption, member states will face a serious problem of winter fuel supply if Russia cuts gas supplies.

Having borrowed and spent about 40 billion euros during the pandemic, the government is now pursuing a policy of unconditional subsidies through loans to cover energy costs. With €8 billion spent so far, all that has been achieved is a short-term, not permanent, reduction in energy costs for households and businesses. In particular, in August the tariff subsidy for households without an income criterion for all consumption and for all places of residence (main and holiday homes) is 1.1 billion euros and absorbs 90% of the increase for residential consumers, 100% for recipients of social tax. and 80% for small and medium enterprises. Apart from the climate, the opposition is demanding even more subsidies, with MeRA25 arguing that “weak subsidies for the very few” are being provided (!) If subsidies are problematic, it is because they are too big, not too small, and generously handed out without conditions. A bonus policy that is not accompanied by energy saving measures, by definition, gives only short-term results and leads to a search for resources to continue financing the accounts. What households earn as consumers today, they will pay tomorrow as taxpayers, to the extent that subsidies are financed by loans.

It’s definitely more popular to be Santa Claus than Scrooge McDuck. But the finance minister, instead of reassuring citizens that the financial resources to continue subsidizing will be found, should offer incentives to reduce consumption. For example, those who receive a subsidy must participate in energy saving projects through energy retrofitting of buildings. In any case, only the most vulnerable households should be subsidized. The rest should receive a market signal that energy has become much more expensive, so they should consume less. In winter, we may run out of rationed energy consumption if Russia turns off the taps. This possibility is inconsistent with the government’s generous benefit policy today.

* Ms. Miranda Xafa is a member of the Scientific Council of the Center for Humanitarian Studies (KEFIM).