ECOFIN agreement to revise economic governance framework: ‘A success for Greece’

The agreement by EU Finance Ministers (ECOFIN) on Wednesday to revise Europe’s economic governance framework (Stability and Growth Pact) is a success for Greece, the National Economy & Finance Ministry said, as it includes an exemption of defense expenditures and special treatment for debt interest rates in 2033.

In a statement, the ministry said that Greece’s basic priority requests were met at the meeting which was held online – the exclusion of defense expenditures from public debt calculations, the special provision for interest rates of the Greek public debt in 2033, the protection of investments, and the gradual decrease of public debt so that development and social cohesion is not threatend.

Greece was represented at ECOFIN by National Economy & Finance Minister Kostis Hatzidakis, who stated that “a long European negotiation was concluded today with success for Greece. A long-term request of successive Greek governments for the exemption of defense investments from the calculation of excessive deficit has been accepted for the first time. At the same time, there is explicit reference in a positive way to the issue that will arise in 2033 in relation to the calculation of interest on loans of the official sector on the Greek public debt, thus relieving Greece of a headache in terms of the EU’s fiscal rules.”

The minister added that Greece’s goal in these negotiations was “to guarantee the greatest possible combination of politics of fiscal stability and economic development. However, our consistent commitment was and remains an economic policy that leaves behind it the last decade, yet sets the foundations for a Greek economy that will continue to surprise pleasantly, combining strong fiscal foundations with the country’s fast development.”

The new framework goals are to safeguard fiscal stability and public debt sustainability with high rates of economic development over the following years, two intertwined and complementary goals, the ministry said.

Greek goals met

According to the ministry, the positions and aspirations of the Greek government have been adequately covered, including the following issues:

a. Greece’s long-standing request for special treatment for defense spending is met. Specifically, the agreement provides that if a member state has higher investments in defense than the European average, or makes a significant increase in its investments for defense, it is possible to exclude these expenditures when calculating whether a member state should come under the state of Excessive Deficit Procedure. The defense investments category is the only expenditures category with this new and explicit provision.

b. The reduction of public debt will be gradual, in order to protect the momentum of the European economy’s recovery. Under the current rules, member states with a debt that is 60% higher than its GDP are obliged to reduce their debt annually by 1/20th of the excess amount. In practice, this would mean for Greece an annual debt reduction of 4.5%-5% over the next few years. Under the new rules, the required debt reduction will be calculated on the basis of each member state’s characteristics, while the minimum threshold for countries with high debt (over 90% of GDP) such as Greece, the annual average debt reduction is set at 1%.

c. It ensures that the inclusion of interest on official loans in government debt, which is scheduled for 2033, will not be taken into account in the calculations of the evolution of Greek government debt, with regard to the implementation of the new fiscal rules.

The basic provisions for member states’ fiscal debt of (3% of GDP) and public debt (60% of GDP) remain unchanged. However, significant changes are expected in the way in which national governments monitor compliance with fiscal rules and in the way the so-called Excessive Deficit Procedure is triggered and will operate (that is, a state’s entering a ‘surveillance regime’).