European budget inspectors are expected in Athens next week in a challenging post-bailout review for the country. Greece's Finance Ministry wants to get the green light to tax cuts and changes to the pension system but is facing a change in mood at Brussels that got stuck into Portugal a few days ago over its 2020 budget plans.
There has been a sharp turnaround in the political environment since the previous budget review was completed in Greece, which remains under heightened supervision from the European Commission. On the one side, there was a recently elected administration, with brought many hopes for a sharp improvement to the economy, versus a more relaxed commission that was led by Jean-Claude Juncker and former economic commissioner Pierre Moscovici, who was not the toughest of supervisors
This time around there is a clear German influence after European Commission President Ursula von der Leyen took over last month. The new president looks determined to change the rules of the game regarding the supervision of member state finances, in a bid to silence criticism, mainly from Germany, regarding the soft treatment of those violating budget rules.
Indicative of the mood, was a harsh line adopted by the commission against Portugal on Wednesday, because of insufficient progress in reducing its structural deficit. The opinion is a blow to Portuguese Finance Minister Mario Centeno, who chairs the Eurogroup of finance ministers, who had been credited with overseeing a sharp improvement in the country's finances.
Officials in Athens will be sitting down at the table with EU officials on Monday, hoping to relax fiscal restraints. Greece will have a solid case to build as it pushes for the largest tax cuts among all eurozone members in 2020, credit rating agency Moody's said a few days ago.
Finance Minister Christos Staikouras and his peer at the Labour Ministry, Giannis Vroutsis, will need to prove how they can squeeze tax cuts into the 2020 budget without putting at risk the primary budget surplus of 3.5 percent of GDP, and that there is room for changes to the social security system, even after court decisions that reverse reforms introduced by the previous government.
A fresh cut to the ENFIA property tax reaching 8 percent is expected to be one of the easier measures to get past inspectors as budget revenues will get a boost from upcoming revisions to figures used by the tax office to value properties.
Things will get tough for Greece when it presents a reduction in the Solidarity Tax, estimated to cost 200 to 300 million euros, in a move aimed at providing a boost to the country's middle class. The same applies for a cut of up to 30 percent to a business tax, introduced at the peak of the crisis, that will cost the state some 150 million euros.
Talks on changes to the social security system are considered to be the most difficult. Any improvements to pension payments and cuts to contributions made by the self-employed must be completed without adding to deficits created by pensions.
Beyond state finances, other thorny issues that will be addressed include talks on the country's financial system and the energy market. The commission has yet to be convinced that enough has been done to reduce the market share held by the Public Power Corporation and its lignite monopoly. Brussels also wants changes aimed at shoring up the country's bankruptcy rules that must come into effect in May, as soon as the previous law on the protection of primary residencies expires.
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