The government’s dilemma for the fiscal space

By Chrysostomos Tsoufis

The “healthy” implementation of the budget continued in October with revenue exceeding €290m. Thus, in total, for the 10th month of the year, the Public coffers have received €5.1 billion more money than estimated by the Ministry of Finance.

According to the initial calculations, the state budget should show this period primary deficit of €6.7 billion. And yet, the primary deficit has been limited to just €349m.

At the same time, a Ministry of Finance official admitted that the financial staff is preparing for another upward revision of the growth rate for this year, with the final draft of the 2023 budget to be tabled on Monday, November 21 in Parliament.

Based on all this, it should be considered almost certain that the final primary deficit of this year’s budget will be below the target of 1.7% of GDP, which means that the government will have additional fiscal space at its disposal for support interventions households and businesses.

20 days ago, if you had asked government officials what to do with the extra money, the answer they would have received would have been that they should …keep cellars and close the year with a lower deficit to positively surprise the markets and come closer the investment grade target. However, with the climate having been weighed down by the wiretapping case, there are now considerations for additional support measures before the year changes. Everything will depend on the developments in the matter and of course the decision will be made by the prime minister.

To the question which the government will utilize the resourcesand here things are relatively murky.

Since the start of the war in Ukraine, energy has moved to the top of the government’s priorities and especially electricity.

A combination of factors, from bad weather expected in Central Europe at the end of the week to the fact that US LNG exports to Europe are not expected to resume until December against initial estimates that spoke of November have driven the price of of natural gas in an increase of 30%, again above €127/Mwh.

At the same time despite the de-escalation to $92/barrel, fears of further increases in oil remain with Goldman Sachs talking about a price of $115 before the year is out.

So the course of energy prices in the coming days will determine everything. If things remain as they are, then the government will intervene in the matter of punctuality. “We have to do something to be precise, it’s a big problem” said an official of the Ministry of Finance. In no case, however, will this something be a horizontal tax reduction, “we want to help households directly” clarified a few days ago the Theodoros Skylakakis in an interview with OPEN.

Another priority area for the government is housing loans. The burdens on households are already high from the increases in interest rates that the ECB has proceeded with and which will not be the last. At the Ministry of Finance, they are looking for ways to support households with proposals to bring back to the discussion table the successful measure of the bridge that was implemented during the pandemic.

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