Differences between institutional creditors and the leftist Greek government over the level of primary budget surplus targets (as a percentage of GDP) remain unresolved, with the divergence of opinions more profound when translated into absolute numbers instead of mere percentages.
It's well-known that the Tsipras government has already signed-off and ratified – via Parliament – a third bailout (memorandum) that mandates primary budget surplus targets through 2018.
The last year of the Greek program, in fact, stipulates a very ambitious target of 3.5 percent of GDP, whereas the current year’s target is a more humble 0.5 percent of GDP.
Beyond the third bailout, however, the current Greek government optimistically predicts that in 2019 the country’s GDP will return to a level of roughly 199 billion euros. That figure is based on annual GDP growth rates of 2.7 and 3.1 percent for 2017 and 2018, respectively.
Therefore, should the 3.5-percent primary budget surplus target remain in place for 2019 and GDP does in fact rise as predicted, then the figure corresponding to the target is 6.9 billion euros.
On its part, Athens has pressed for a more realistic target of 2 percent of GDP, in other words, below four billion euros in absolute terms. The Greek government’s position, at least on the primary budget surplus matter, more closely echoes that of the IMF, which has repeatedly called for realistic targets and debt relief. Conversely, European creditors want the highest possible primary budget surpluses in order to generated as much cash for repayment of Greece’s debts -- most of which are to other Eurozone member-states and the ECB.
The difference, between 3.5 and 2 percent, corresponds to 2.8 billion euros. That figure is the annual revenue sum that the government provisions from the very unpopular property tax (ENFIA). With extra revenue, the leftist government would then be tempted to lower the ENFIA rates and deflect standing criticism against it, given that one of the ruling SYRIZA party’s campaign pledges was to completely abolish the property tax. Instead, not only did it maintain the tax, but essentially expanded its scope.
Looking to far-off 2020, as Greek politics and the economy are concerned, the current government predicts GDP in the country of 205.3 billion euros. That figure would necessitate a 2.6-percent increase in GDP, yoy, from 2019.
If all the variables materialize, especially projected growth rates, then the Greek proposals for an annual primary budget surplus target of 2 percent of GDP – in 2020 -- is 4.1 billion euros in absolute terms. The “European target”, 3.5 percent, means 7.2 billion euros set for “export” to cover debts.
Of course, the differences over targets will be a moot point if projections, predictions and whatever estimates – as in previous years – prove unreachable.
