The Tsipras government is reportedly banking on four initiatives over the last two months of 2018 to boost liquidity in Greece’s still feeble markets, and by extension, to raise end-of-year private consumption and guarantee that the GDP target for the year is met or exceeded.
The GDP goal for the current year, as set by the EU commission and the IMF, is a moderate – by Greek standards – 2 percent. Nevertheless, given that the goal for attracting foreign investments will be missed, and with the Commission even referring to a reduction in gross fixed capital formation (investments), private consumption looms as the one remaining indicator that can deliver the GDP growth target.
In total, some two billion euros – roughly 1 percent of Greek GDP at present – will be funneled to private citizens, for the most part, as well as to businesses waiting to be paid for services and goods already provided to the state.
The first “injection” of liquidity will be approximately 820 million euros returned to some 300,000 military officers and other professionals listed in the state’s “special wage scale” categories, such as medical staff, judicial officers as well as university lecturers and researchers.
The development stems from a landmark Council of State (CoS) decision, which ruled that a pay reduction in 2012 in state special wage scales was unconstitutional. Additionally, as in the two previous years, the leftist-rightist coalition government is expected to dole out a “holiday bonus” to low-income citizens, cash mostly accumulated from over-exceeding a primary budget surplus target for the year – itself the product of higher indirect and direct taxation as well as a myriad of surcharges and levies imposed in a 2016 “tax tsunami”.
The lump sum welfare spending is expected to hover at between 700 to 800 million euros, with new arrears to the state – primarily annual property taxes, income taxes and end-of-year road fees – not projected to severely dent the primary budget surplus. While not fixed as yet, the most probable scenario is that the country’s long-term unemployed, low-income pensioners and citizens under the poverty limit, based on their income and asset declarations, will be first in line for the benefit.
Another liquidity boost is an effort to accelerate tax rebates and covering of arrears owed by the state to the private sector. The target, according to reports, is to reduce the state’s arrears below two billion euros, down from the current 2.5-billion-euro figure, based on September 2018 data.
Nevertheless, the initial target was for zero arrears to the private sector by the end of the year, another goal that appears to have stumbled on ubiquitous Greek public sector “red tape” and foot-dragging. The fourth liquidity “injection” is psychological in nature, with the Tsipras coalition government “guardedly optimistic” that European creditors will acquiesce its pressing appeal to avoid pre-legislated social security spending cuts set for Jan. 1, 2019.
Announcing that up to quarter of Greece’s current pensioners will not have their monthly benefits clipped after all, is expected to improve consumer confidence and coincide with the late December-early January holiday shopping season. With just more than six weeks left in 2018, the Greek finance ministry continues to forecast GDP growth for the year reaching 2.1 percent, along with a 1 percent hike in private consumption, compared to 2017.
Investments for 2018 are forecast to increase, compared to 2017, by a marginal 0.8 percent. The biggest fillip for GDP growth is a projected rise in exports, by 7.5 yoy. On its part, the Commission forecasts an increase of 0.8 percent in Greece’s private consumption, for the year as whole, but public sector consumption of 1.2 percent, compared to only 0.2 percent predicted by the finance ministry for 2018.
The Commission says investments in the country will be lower in 2018 than in 2017, by 2.1 percent, whereas Brussels is more “bullish” on exports, saying the sector will increase in 2018 by 8.4 percent, compared to 2017.
