European Commission gives thumbs down on Tsipras’ fiscal package

The European Commission in its quarterly enhanced surveillance report on the Greek economy has warned that the stimulus package announced by PM Alexis Tsipras on 8 May (and adopted on 15 may) will cost one percent of GDP and that there are problematic delays in the privatisation programme and in implementing reforms in the civil service and the banking sector.

The report specifies that the cost of the PM’s social benefits and tax cuts will amount to 2.5bn euros in 2019 and 2.7bn euros in 2020.

In particular, there are reservations about a law allowing the payment of delinquent taxes and insurance contributions in 120 instalments as well as about the payment of an annual bonus to pensioners and the rescinding of legislated reforms in the pension system.

Overall fiscal loosening after good start

The report underlines that in general there has been an unwelcome fiscal loosening in implementing reforms agreed to with Greece’s creditors and European partners over the last several months and in particular after the formal completion of the third and last bailout memorandum in August, 2018.

It states that the quality of fiscal measures adopted on 15 May is a source of concern as regards the objective of making public finances more growth-friendly and of increasing social spending on population groups that are closer to the poverty line.

It is stressed that those developments throw the achievement of fiscal targets that have been agreed to into question.

Specifically, the report underlines that the measures announced by the PM jeopardise primary surplus targets for 2019 and subsequent years.

It says the precise divergence from fiscal targets will be specified in the next quarterly report in September, 2019.

Public sector organisation, hiring problems

The Commission also reported delays in the transfer of civil servants to bureaus that lack personnel.

It notes that the electronic organisational plan of ministries and organisations is half-way completed and is expected to be completed within the year.

Moreover, progress with the task of matching civil servants’ posts to job descriptions has been exceptionally limited and inter-ministerial cooperation in this area has come to a halt.

Ceiling on number of civil servants violated

The Commission’s team found that the public sector has violated the ceiling on the number of temporary staff hired and it has demanded that the number be reduced by 1,500 employees by the end of 2019.

It also underlined that recent changes in the wage structure (a hike in the minimum wage and the abolition of the sub-minimum wage for employees up to 25 years of age) endangers the public sector staff and wage law that has been agreed to.

The Commission also expects completion of the digitisation plan for the judiciary and notes that there has not been specific progress with measures to coordinate the battle against corruption.