Uncertainties both at the fiscal level and in terms of the growth rate of the Greek economy are generated by the devastating effects of the fires and floods of the last few months, according to the estimates of the State Budget Office in the Parliament.

The course of the economy to date is compatible with the forecasts, but the fires and floods create economic uncertainty, notes the second quarter report of the State Budget Office in the Parliament. As pointed out, the final cost of these disasters is not limited to compensation and support measures, but also includes the long-term loss of production capacity. As far as the financial costs are concerned, the GPKB emphasizes that the reconstruction should be covered as much as possible by European funds and that the compensations should not be burdened only for a single year.

As the Budget Office report states, the Greek GDP growth rate in the second quarter was 2.7%, setting an average annual rate in the range of 2.3%-2.4% in the first half of 2023. Private consumption , investment and service exports were the key components of growth. Taking into account the path of short-term indicators and expectations so far, the path of the economy is compatible with the projections made by the Budget Office in its report for the first quarter of 2023.

Harmonized inflation stood at 3.5% in August, down significantly from August 2022 (11.2%) while core (excluding energy and unprocessed food) fell to 6% (from 7.2% last year ). The reduction of producer and import prices in the industry is also important. The current account deficit has narrowed to 7 billion (from 10.6 billion last year and 7.2 billion in 2021). Unemployment stood at 10.8% in July 2023 compared to 12.5% ​​in the same month last year as employment rose 2.6% and the wage cost index registered an annual nominal increase of 4.3% in the second quarter.

Regarding fiscal developments, the primary result of the first seven months of this year is improved by approximately 1.3 billion compared to last year, while the yields of the ten-year Greek government bonds show a relative stabilization reducing the differences (spread) from the corresponding securities other Eurozone countries. In this context, a particularly positive development is the recovery of the investment grade of the Greek public debt by the rating agency DBRS Morningstar, which made Greek bonds eligible for the ECB’s monetary policy without the need for a waiver and at the same time increases the liquidity that can be raised by Greek banks using Greek government bonds as collateral.

The upgrade is a recognition of the resilience and prospects of the Greek economy which was further strengthened by the positive evaluations that followed (R&I, Scope and Moody’s), notes the GPKB. As a consequence of the upgrade, the base of buyers of Greek government bonds is expected to expand, while, in the medium term, the risk premium of private investments in the Greek economy will be reduced. It is noted, however, that the Budget Office does not expect any significant effect on the borrowing rates of the Greek government as it seems that the upgrade was already discounted in the government bond markets.

Natural Disaster

Nevertheless, economic developments are characterized by uncertainty, taking into account the devastating effects of the summer fires and extreme rainfall in Thessaly that highlighted weaknesses of the state apparatus to cope with serious challenges. In the final assessment of the impact on the economy, in addition to the compensation and support measures for the affected areas included in the supplementary budget, the wider cost in terms of the destruction of productive factors should be taken into account, which combined with the possibility of abandoning some areas will cause long-term losses of production capacity, it is emphasized.

From a budgetary point of view, the two crucial conditions in order not to undermine fiscal stability are on the one hand the maximum possible coverage of reconstruction from European funds and on the other hand the temporal distribution of the compensations so that they are not concentrated entirely in a single year. Otherwise, additional sources of income, regular or extraordinary, should be sought in order to cover the relevant costs without deviating from the fiscal target and burdening the public debt, notes the GPKB.

The fiscal and broader economic challenges of natural disasters are partial aspects of the broader existential challenge posed by the climate crisis. The expected increased intensity and frequency of extreme weather phenomena requires strengthening the role of the state as the protection of life and property of citizens is its fundamental obligation, it is noted. In addition, it is doubtful how private insurance companies, despite their significantly positive role in covering and dealing with risks, could fully cover disasters of this scale.

And the issue is not only the amount of expenses that will be required for the necessary public investments and infrastructures but also their effective utilization, management and organization. Our country is not lagging behind either in terms of equipment, nor in personnel, nor in general expenses for civil protection, but it seems that there is much scope for improving their effectiveness.

It is noted that the role of the state is not limited to reparations and the restoration of public infrastructure, but concerns the broader planning and, ultimately, the financing of a pattern of development that will be more resistant to natural disasters.

It is therefore necessary to ensure that the new European fiscal framework provides for special treatment for public investment, but also overall expenditure for dealing with natural disasters and transition costs due to climate change, the report points out. Finally, since the Mediterranean region is at the heart of the climate crisis, additional common European resources are needed to finance the necessary costs in the most affected regions.