The European Council announced that the closure of the excessive deficit procedure for Greece after eight years, in a decision taken at a meeting of the General Affairs Council on Monday. According to the announcement, Greece’s finances have stabilised, leading the Council to repeal its 2009 decision about the existence of an excessive deficit.
“The Council has closed the excessive deficit procedure for Greece. It confirmed that the country’s deficit is now below 3% of GDP, the EU’s reference value for government deficits. On 25 September 2017, the Council repealed its 2009 decision on the existence of an excessive deficit,” the announcement said.
“After many years of severe difficulties, Greece’s finances are in much better shape. Today’s decision is therefore welcome”, said Toomas Tõniste, minister for finance of Estonia, which currently holds the Council presidency. “We are now in the last year of the financial support programme, and progress is being made to enable Greece to again raise money on the financial markets at sustainable rates.”
From a deficit of 15.1% of GDP reached in 2009, Greece’s fiscal balance has steadily improved, turning into a 0.7% of GDP surplus in 2016. Although a small deficit is projected for 2017, the fiscal outlook is expected to improve again thereafter. Greece’s debt-to-GDP ratio peaked at 179.0% in 2016 and is expected to decrease over the coming years.
In the light of this, the Council found that Greece fulfils the conditions for closing the excessive deficit procedure.
Greece will now be subject to the preventive arm of the EU’s fiscal rulebook, the Stability and Growth Pact. Monitoring will continue until August 2018 under its macroeconomic adjustment programme, and post-programme monitoring will follow. The Greek authorities have committed to maintaining a primary surplus of 3.5% of GDP until 2022 and a fiscal trajectory after that that is consistent with EU fiscal requirements.
When the excessive deficit procedure was opened in April 2009, the Council called on Greece to correct its deficit by 2010.
In February 2010 the Council stepped up the procedure, having found that Greece had not taken effective action. It set out a timetable of measures to be taken and extended the deadline for correction to 2012.
However, the deterioration of its financial situation led the Greek government to request financial support. In May 2010 the Eurogroup agreed on the provision of bilateral loans from the other eurozone member states, in conjunction with assistance from the IMF. A loan facility agreement was signed and the deadline for correcting the deficit was extended to 2014. Since March 2012, eurozone support has taken the form of loans from the European Financial Stability Facility (EFSF).
In December 2012, the Council granted Greece a further two years to correct its deficit. It set a new deadline of 2016 and relaxed the annual adjustment path previously set. This followed an agreement between the Greek government and the ‘troika’ of international creditors (Commission, European Central Bank and IMF) on the disbursement of further tranches of financial assistance. Despite having taken effective action, Greece again faced a worsening economic scenario and a deteriorating outlook for its public finances.
In July 2015 Greece requested further financial assistance, this time from the European Stability Mechanism that meanwhile had been established to take over from the EFSF. Agreement was reached on the provision of up to €86 billion in loans. A third macroeconomic adjustment programme started the following month and is scheduled to run until 20 August 2018. Its main aim is to secure for Greece a return to sustainable economic growth. And under the excessive deficit procedure, the Council issued a recommendation setting out a new timetable of measures to be taken. It extended the deadline for correcting the deficit by a further year, to 2017.
Greece’s general government balance has steadily improved since the peak reached in 2009. The deficit declined to 5.9% of GDP in 2015 (3.2% of GDP if the net impact of financial sector support is excluded) and turned into a 0.7% of GDP surplus in 2016. The deficit reduction was driven broadly equally by expenditure restraint and fiscal consolidation.
Taking into account measures agreed under the third macroeconomic adjustment programme, the Commission in its spring 2017 economic forecast projects a 1.2% of GDP deficit for 2017. Based on a no-policy-change scenario, it projects a surplus of 0.6% of GDP for 2018. Measures outlined in Greece’s 2018-21 fiscal strategy are expected to improve the fiscal outturn for 2018 and the medium term. Thus the deficit is set to remain below the 3% of GDP reference value over the forecast horizon.
In the light of this data, the Council concluded that Greece’s deficit has been corrected.
The decision was taken without discussion at a meeting of the General Affairs Council.