The bailout deal Greece finalized with creditors on Tuesday, worth up to $94 billion, won’t bring significant relief from austerity, contrary to Greek government claims. The government takes credit for winning lower budget surplus targets than in previous bailout proposals, but experts said the changes are designed to compensate for the Greek economy’s continued deterioration, making them neutral at best.
The left-populist Greek government touts lower primary surplus targets in Tuesday’s bailout deal as a major victory against austerity. An anonymous Greek government official told the Greek newspaper Kathimerini that the lower budget targets would spare Greece the pain of $22 billion in budget savings the country otherwise would have had to make by the end of 2018.
Yannis Koutsomitis, a Greek political analyst, celebrated the new targets as a major shift. “Where is the austerity?” Koutsomitis tweeted, after listing the targets from 2015 through 2018. He added in a subsequent tweet, “Creditors [co]sign end of austerity in #Greece.”
And at first glance, Greece does appear to have won looser budget targets, giving it greater economic breathing room. The new financing package from its creditors — the eurozone nations, the European Central Bank and the International Monetary Fund — requires Greece to achieve a primary budget deficit, equal to 0.25 percent of its GDP in 2015, according to Reuters. The country must then attain primary budget surpluses equal to 0.5 percent of GDP in 2016, 1.75 percent in 2017, and 3.5 percent in 2018.
Aside from the 2018 goal, the targets are lower than what Greece and its creditors had agreed upon earlier in the summer. By late June, Greece had accepted primary budget surpluses equal to 1 percent of GDP in 2015, 2 percent in 2016, 3 percent in 2017, and 3.5 percent in 2018. In April, creditors were obligating Greece to achieve a primary surplus equal to 3 percent of GDP in 2015, and 4.5 percent in 2016, where it would remain before declining slightly in 2018.
The budget targets are the focus of widespread attention, because they determine whether the bailout deal will be economically sustainable. Greece’s creditors want the country to generate steadily larger primary budget surpluses — surpluses before interest — to maintain debt repayments, and to gain long-term fiscal discipline. But the quicker the Greek government saves money, the more it must take money out of the economy through spending cuts and tax increases. As a result, budget savings that are too drastic risk setting back the economy even more, which may ultimately prevent Greece from recovering economically and repaying its debts.