In the shadow of the war and the turmoil in the international energy and bond markets, alarms in the field of fiscal management are starting to ring. Russia’s attack on Ukraine is once again putting the European economy in turbulent waters ahead of the debate over changes to fiscal rules.
The core of the Institutions’ 13th assessment was positive, but at the same time, it had the “scent” of fiscal adjustment – without also omitting the dual sources of uncertainty from the energy and health fronts.
The pandemic added about 32 billion euros to the Greek debt (to 388.3 billion euros last December, from 356 billion euros at the end of 2019) and boosted the deficit to 9.5% in 2020 and 7% in 2021. The interest of this Institution report focuses on the adjustment target: its baseline scenario estimates the primary surplus at 1.5% for 2023 and then 2.2%. In short, the 1.2% deficit this year will require an adjustment of 2.7% of GDP or about 5 billion euros in 2023.
An out-of-forecast escalation in international energy markets and the maintenance of a climate of war may bring about change. Mainly on the “front” of benefits to households and businesses.
In fact, at a time when the financial staff is seeking to ensure the positive ratings of international agencies within the year, which will pave the way for the recovery of the investment grade in 2023. As predicted by the analysts of the rating companies, the catalysts for the upgrade is fiscal adjustment and the macroeconomic outlook. In this light, the warnings of the Institutions are very important in the 13th evaluation, which points out the risk of pandemic and energy prices, where, however, it recommends careful monitoring of the system, so that the account of renewable energy sources does not become a deficit.
Bond issues until the end of 2022
The view that the ECB should continue buying bonds at least until the end of the year to cushion the fallout from the Ukraine crisis was expressed by the Governor of the Bank of Greece Giannis Stournaras in an interview in Reuters in the light of new developments in the Ukrainian.
Mr Stournaras said the ECB should formally remove interest rates from the table, noting that the economic outlook is now “much more uncertain” which means the ECB should be especially careful. He said the crisis is expected to push prices “in the medium to long term” after an initial peak. Investors expect the ECB to announce its intention to end its regular bond buying program (APP) at its next meeting on March 10, paving the way for raising interest rates by the end of the year.
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