"New measures will be needed for 2013-2014", according to the Troika

"Θα χρειαστούν κι άλλα μέτρα για το 2013-2014" λέει η Τρόικα

The additional measures to be imposed in 2013-2014 will be known in early 2012...

The additional measures to be imposed in 2013-2014 will be known in early 2012, as announced by the Troika. In a joint statement issued earlier, after the saga-like developments on the sixth tranche, the emissaries of the IMF,  the ECD and the European Commission stated that:

- The deficit reduction target for 2011 will remain unattainable.
- The recession in our country has exceeded expectations
- Receipts from privatizations this year will be “clipped”

However, according to the announcement:

- Likely measures for 2013-2014 will be announced before the second quarter of 2012
- The government insists that they will have earned 35 billion’s worth of revenue from privatizations by 2014.

Specifically, the EC, ECB and IMF’s fifth assessment is as follows:

The task officials of the EC, ECB and IMF have completed their fifth assessed visit to Greece, which aimed to discuss recent economic developments. The mission ended in an agreement between representatives and the Greek government, on the financial and economic policies required for the government’s economic program to return on the track of implementation.

Regarding the economic outlook, the downturn is expected to be stronger than forecast in June, while recovery is not expected before 2013. There is no improving the confidence of investors or investment growth. This is partly due to the momentum of reform, which has not reached the needed level in order to start changing the business climate.

However, exports are recovering, albeit at low levels while the strengthening of the export sector, combined with continued moderation of labor costs per product unit, is expected to lead to a balanced and sustainable development in the medium term. Inflation has fallen dramatically during the last year and is expected to remain at levels below the Eurozone average inflation in the near future.

In the financial sector, the government succeeded in reducing the large deficit in the period after the medium term plan began, despite intense recession. However, the achievement of a fiscal target for 2011 is no longer attainable, partly due to further GDP reductions but also due to differences in the implementation of certain pre-agreed measures.

Regarding 2012, we believe that the additional measures announced by the government, combined with the decisive implementation of the updated Medium Term Fiscal Strategy Framework, will suffice to return the fiscal program to the correct track and ensure the achievement of a deficit reduction to 14.9 billion euros.

Concerning 2013-2014, it is possible that additional measures must be taken in order to achieve the program targets. These measures must be taken in the context of updating the medium term plan of financial strategy before the second quarter of 2012. In order to ensure that the program will promote development, and in view of the optimistic angle on improving the taxation and revenue collection mechanisms, which have already been integrated within the medium-term plan, it is of vital importance that these measures focus on the aspect of expenditure.

On the issue of privatizations, there has been progress in establishing a privatization fund with excellent management. However, the delays noted in the preparations of privatization of assets and, to some extent, the market’s deterioration, have resulted in significant loss of expected revenue in 2011. The government, however, insists on its commitment to revenue of 35 billion by the end of 2014. The main ingredient of achieving this program is to maintain the independence of the privatization fund from political pressures.

Banks have strengthened their capital base through tools based on markets. As was made clear after Proton Bank’s reorganization during the weekend, the recent amendment to the banking law ensures that non-viable banks may be liquidated while having their interests and those of their depositors protected, thus maintaining financial stability.

In the area of structural reforms, there has been progress made in transportation, licensing procedures and the regulated professions. The overall progress was uneven and as such, the reinforcement of reforms is the main challenge that Greek authorities face. In this context, the decision to suspend the mandatory extension of sectoral collective agreements at an enterprise level is an important step, because it would ensure labor market flexibility, which is needed to boost growth and avoid the consolidation of high unemployment.

Overall, the Greek authorities continue to make significant progress, particularly as regards fiscal consolidation. In order to ensure further deficit reduction, a socially acceptable way is to create conditions which will allow for recovery, and thus the Greek authorities must insist more on making structural reforms in the public sector and the economy as a whole.

The program’s success continues to depend on securing adequate funding through private sector involvement (“PSI”) and the public sector. The ongoing discussions on the private sector’s participation, in conjunction with assurances given by European leaders at the July 21st meeting, will ensure full funding of the program.

When the Eurogroup and the IMF Executive Board approve the conclusions of the fifth assessment, the next 8- billion tranche (5.8 billion from EU member-states and 2.2 billion from the IMF) will be available, probably in early November.

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