No primary surplus overrun in 2019 budget

The state budget to be submitted in Parliament on Wednesday, after the government got the nod from Brussels, will be the first in three years that will not include a primary surplus overrun, as that has already been “spent” on preserving the level of “old” pensions – i.e. those issued before May 2016.

The final draft also includes a package of measures (rental subsidies, a valueadded tax reduction, cuts to workers’ social security contributions etc) worth some 900 million euros that is considerably smaller than the original bundle of so-called countermeasures worth 1.73 billion that would have applied had the pension cuts taken place.

The European Commission agreed – at least in public – that the pension cuts would not be a structural measure and that the primary surplus target can be achieved without it, while the International Monetary Fund continues to describe the cuts as a structural move, but the IMF is no longer actively involved in the Greek program.

Some analysts in Greece express reservations on the growth impact of the decision not to cut the old pensions. They argue that the fiscal space of some 2 billion euros forked out to avoid the cut would have had a greater effect on growth if it was spent on growth-minded moves. “Higher pensions may mean higher demand, but the question for the Greek economy is the strengthening of supply,” one economist points out.