Can Greece Afford Pre-Election Handouts?

09:19 17/3/2025 - Πηγή: Dikaiologitika

As Greece heads into another election cycle, economic policy is taking center stage in the government’s attempt to regain voter confidence.

Kyriakos Pierrakakis, the newly appointed Minister of National Economy, steps into his role at a critical moment, navigating a delicate balance between political promises and strict fiscal realities. With European rules imposing

limits on spending and public dissatisfaction on the rise, the question is not just what the government wants to do, but what it can actually afford.

The fiscal space available for 2025 is extremely tight. According to Greece’s General Accounting Office, the government has just €1.3 billion in budgetary flexibility. This is far from enough to cover the cost of widely discussed policies such as reinstating a 13th and 14th salary for public sector workers (€2.8 billion) or restoring additional pension payments (€5 billion). Even a more modest measure, such as a single extra month’s salary for civil servants, would cost €1.4 billion—nearly exhausting the available funds and leaving little room for other economic policies, such as tax cuts or investment incentives.

The government now faces a critical choice: whether to prioritize short-term handouts to boost its popularity ahead of elections or to pursue policies aligned with EU fiscal guidelines, which emphasize long-term economic stability and growth. Brussels has been clear that any flexibility in spending must be directed toward structural improvements rather than temporary relief. For Pierrakakis, who has no prior experience negotiating fiscal policy with the European Commission, this will be a major challenge.

Despite campaign rhetoric, the economic reality suggests there is little room for large-scale giveaways. Greece’s recent credit rating upgrade by Moody’s was a positive signal for investors, but it came with a warning: the country still needs time to complete key reforms and ensure long-term fiscal discipline.

Much of Greece’s recent economic growth has been fueled by EU Recovery Fund inflows, a source of funding that will not last forever. Once these resources are fully absorbed, growth could slow, placing further pressure on government finances. At the same time, long-standing demographic issues—such as an aging population and low workforce participation—present further obstacles to sustained economic momentum.

Greece’s public debt, despite recent reductions, remains among the highest in the world. Under the rules of the EU Stability and Growth Pact, exceeding the annual spending target by more than 0.3% of GDP would automatically place Greece under an excessive deficit procedure. This would force the government to implement corrective measures within six months or face stricter EU oversight—an outcome that would damage the country’s financial credibility and investor confidence.

The possibility of generating additional revenue through tax enforcement measures also appears limited. The Greek government estimates that efforts to combat tax evasion—such as expanding electronic payments and digitizing tax reporting—may yield at most €300 million in extra revenue, a fraction of what would be required to finance substantial new benefits or tax cuts.

With these constraints in mind, the government’s ability to deliver meaningful financial relief to citizens remains limited. While promises of economic support may play well in the election campaign, the hard numbers tell a different story.

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