The Houses of Representatives characterize the Commission’s proposals for a new fiscal system as positive for Greece’s assessment as it sends a “safety” signal to markets and investors, with economists stressing that the proposed new rules are less restrictive and more realistic than previous ones. those that take into account policies to stimulate growth and provide opportunities for investment, even if they are combined with a “whip” of tougher sanctions in case of default.

Market experts even talk about critical decisions for Greece for three main reasons:

• First, Greece is now being given the opportunity to present investors with a specific country control system so that they do not have to worry about the possibility of a fiscal crash after the end of enhanced supervision, especially at a time when the investment level has not yet been reached.

• Secondly, this single structure is based on general principles and is no longer a country-specific stigma as it will be applied universally.

• Thirdly, Greece has become familiar with the implementation of adaptation programs, very tough ones at that, and therefore it is expected that its comparative advantages will appear in this process. After all, Greece already has a basic primary surplus obligation of interest, so if it needs to be renewed every four years, it’s not a problem for the country.

Although the Commission’s proposals are only the basis and starting point in a long road of discussions that will take place before a final decision is made on a new Stability and Growth Pact that will enter into force in 2024, analysts characterize them as a step in the right direction.

The new fiscal system sends a “safety” signal to markets and investors, the houses say.

In essence, the Commission’s new structure keeps the 3% deficit and 60% debt targets unchanged, but allows more flexibility and additional adjustments depending on each country’s “special situation”. EU countries they will have to submit four-year debt reduction plans, and a three-year extension can be granted upon request. These plans then need to be agreed with the European Commission and then approved by the European Council. This is very similar to the national reform programs that governments had to submit to qualify for the Recovery Fund.

The debt reduction rate will no longer follow the 1/20 rule of mandatory annual debt reduction above 60% of GDP, but will be replaced by a country-specific approach, depending on its needs and capabilities, which will also include a debt sustainability analysis. .

Under the Commission’s proposal, there will be a clear focus on public spending as an indicator of fiscal policy and securing a downward trend in debt. In this regard, interest payments and unemployment-related costs are expected to be excluded from the expenditure track measurement. However, contrary to expectations, the Commission did not propose a new “golden rule”, that is, the exclusion of certain government spending from the calculation of the deficit and debt. Instead, he opted for a more indirect approach, giving countries more time to reduce public debt if they are committed to growth-enhancing reforms and investment. By allowing more time for public debt reduction and opening the door to more flexibility and investment, the European Commission has clearly offered a carrot to the fiscal doves.

This, however, involves the use of a very strong “whip”: the so-called Excessive Deficit Procedure, which is tightened on debt. So far, sanctions have been imposed only on countries with a budget deficit above 3% of GDP, and not on debt exceeding 60%. Now, when the state deviates from planned spending, a procedure is activated with penalties that provide for the suspension of funding from the structural funds and the Recovery Fund in case of failure to take corrective measures, as well as sanctions for non-compliance – compliance is agreed.

However, from the point of view of rating agencies, this offer of the commission is credit-positive, which is important for Greece. As Dennis Sen, director of Scope Ratings, points out in K, the fact that key elements of the fiscal framework will be reintroduced is positive for creditworthiness, as it gives rating agencies greater confidence that European oversight of macroeconomic and the fiscal management of EU member states this will ensure long-term sustainable debt reduction and deficit sustainability. With regard to Greece in particular, they support and ensure sustainable debt reduction: Scope estimates that it will be 146.5% of GDP by 2027, compared to 193.3% in 2021.

The new rules proposed by the Commission are far less restrictive than previous ones and take into account policies to boost medium- and long-term growth, with reform and investment playing an important role, said Philip Goodin, chief economist at Barclays. “Therefore,” he emphasizes to K, “this is good news for countries with high levels of debt, such as Greece. Now we need to see if Germany and the thrifty EU countries can survive. they will accept them.”

Karsten Brzeski, chief economist at ING, also characterizes the Commission’s proposal as positive for Greece, as it “allows more time for a realistic debt reduction while leaving room for investment.” This, as he points out in “K”, definitely marks the end of the austerity recipe since the euro crisis. At the same time, it could also mean that high-level debt stabilization alone is no longer enough, and that countries must reduce debt.