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Greece's strict fiscal targets will likely be relaxed in 2021 as well, minister says

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Key Points
  • The ongoing coronavirus pandemic has completely changed the economic landscape for Greece, as well as for the wider European Union.
  • The International Monetary Fund estimated in April that Greece's gross domestic product (GDP) could contract by 10% this year.
Two police officers talk front of the Greek Parliament during the Coronavirus (Covid-19) pandemic in Athens, Greece on April 24, 2020.
NurPhoto

Greece might be spared from having to hit strict fiscal targets related to previous bailouts in 2021, a government official told CNBC, given the ongoing health and economic crises.

The country, which has been bailed out three times, agreed in 2018 to reach a primary budget surplus – when a government's revenues are higher than its spending – of 3.5% until 2022. This required level of surplus limits the government's ability to spend, but was agreed with international creditors in return for softer debt repayment conditions.

However, the ongoing coronavirus pandemic has completely changed the economic landscape for Greece, as well as for the wider European Union (EU). As a result, EU policymakers agreed in late March to lift fiscal targets for each member country for as long as necessary, giving them more leeway to tackle the unprecedented economic shock.

Akis Skertsos, deputy minister to the prime minister of Greece, told CNBC Friday that "most likely this will carry on to 2021 as well." 

"It has not been decided yet, but as we progress into the crisis these are the signs, because everybody admits that 2021 will also be a difficult year," he added.

The European Union has already been hit hard by the economic impacts of Covid-19 and contracted 3.5% in the first quarter of the year. However, the latest EU forecasts suggest that the 27-member economy could fall as much as 7.4% this year.

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For Greece, it could be even worse. The International Monetary Fund (IMF) estimated in April that Greece's gross domestic product (GDP) could contract by 10% this year.

The country embarked on tough austerity measures almost a decade ago, when its debt pile became so high that investors were no longer willing to finance its spending. Since then, Athens endured three bailout programs, which ended in 2018.

Its economy has picked up since 2018; GDP growth hit 1.9% last year and the unemployment rate stood at 17.3% — well below the 27.5% seen in 2013, according to data from Europe's statistics office.

"We are moving very carefully in terms of the expenses that we do in order not to overburden our debt and our deficit," Skertsos told CNBC over the phone.

Greece has the highest debt pile in Europe at around 180% of its GDP.

ECB support

The European Central Bank (ECB) has started buying Greek government bonds, even though they do not have an investment grade rating, as part of wider efforts to mitigate the economic shock from the coronavirus. 

This decision was welcomed by Greek officials, who have for some time argued in favor of being included in the ECB's bond-buying program.

Skertsos said Greece "would like the ECB to continue on the same page" in 2021, and played down the risk of losing that stimulus in the future.

"We have a lot of cash reserves which is quite unique… so this gives us confidence that the markets will rate in a positive way the viability of Greece to service its debt," he said.

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