Yesterday’s recommendations signal a return to the fiscal “bridle” due to the adoption of the new Stability Pact. European Commissionbecause they limit the growth of so-called net primary costs in 2024 compared to 2023 at the level of 2.6%.

At the same time, the Commission is calling on the government to address a number of chronic weaknesses in the Greek economy, such as tax evasion, especially among the self-employed, and poor public sector efficiency, while ringing the bell for a widening current account deficit and looming possible absorption difficulties in the Recovery Fund.

In addition, in a separate text of the 2nd Post-Program Oversight Report, the Commission acknowledges the significant progress made in the economy in terms of growth, fiscal performance and the banking sector, but does not lose sight of the delays: while basic pension arrears are almost paid off , for the rest the plan was not fulfilled. Moreover, he harshly criticizes the government’s decision on the new regulation of public debt. He points out that this could undermine the credibility of the fixed fee scheme and damage the payment culture.

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The cap on the increase in net primary spending of 2.6% is partly covered by the Government’s Stability Program, taking into account the additional electoral measures it announced after submitting to the Commission at the end of April. This was reported yesterday by sources in the financial headquarters. It goes without saying that SYRIZA measures go far beyond this.

The importance the Commission attaches to the restoration of fiscal discipline is evident from the fact that its first recommendation to Greece is to lift support measures against energy accuracy by the end of 2023. and actually use the relative resources it saves to reduce the budget deficit. It is clear that the Commission wants any “fiscal space” to be used to improve financial performance, not benefits. If energy prices rise again, he adds, support measures could be taken, but only for vulnerable households and businesses. At the same time, incentives must be created to save energy, he notes, implying that the state cannot absorb all the price increases.

The challenges that the country must face, according to the text of the recommendations, include the following:

1. An increase in the current account deficit. The Commission notes that this is a serious cause for concern. Although it is projected to narrow partially this year and next, “the external deficit is estimated to remain well above the level needed to ensure a sustained improvement in the country’s net investment position.”
2. Expansion of the tax base and strengthening of tax legislation for the self-employed. He cites data for 2021, according to which more than 67% of the self-employed reported an income of less than 10,000 euros. Total reported revenue was 4.2 billion euros against sales of 48.6 billion euros. The commission calls on the government to change the tax system for the self-employed and use electronic payment data to curb tax evasion in this area.
3. Improving the efficiency of the public sector. Incentives are offered for managers to take on additional responsibilities. At the same time, however, it is indicated that spending should be maintained at pre-pandemic levels.
4. Public spending on health is low, at 5.9% of GDP in 2020, compared to the EU average of 8.9% of GDP. Within these low spending, medicines have the highest share in the EU and prevention the lowest. At the same time, Greeks pay out of pocket the second highest amount in the EU for medical treatment. The Commission notes that primary health care reform suffers from a shortage of doctors.
5. Investment remains low despite growth in recent years and a narrowing gap with the country’s European partners. From 10.7% of GDP in 2019, they increased to 13.7% of GDP in 2022, closing the gap with the EU average from 11.5% of GDP to 8.7% of GDP.
6. The business environment continues to be problematic in many areas despite improvements. In addition to difficulties in accessing finance, potential investors face restrictions on entering certain professional categories such as legal services, and the time for filing bankruptcy cases is 3.5 years compared to 2 in the EU. There are also delays in environmental permits.
7. Despite falling to 11.4% in February last year, unemployment remains high, especially among young people, women and third-country nationals. Also among young people and women participation in the labor market is low. Even real wages fell by 4.7% in 2022 due to inflation. The proportion of the population at risk of poverty is 28.3% compared to 21.7% in the EU.

With regard to the Recovery Fund, the report notes that the country will soon face the weakness of local governments, on which the fulfillment of many prerequisites for the next tranches depends.