IMF: Kudos to Greece

Greece has made progress in resolving structural problems amid a severe and painful social recession, IMF says in its evaluation report of the Greek program. It specifically states:


Progress in fiscal consolidation compared with any international example is impressive, with a cumulative improvement of 10% of GDP at the end of 2013 amid a GDP shrinking over 20%.


The major labor market reforms have helped in adjusting nominal wages and productivity at enterprise level. IMF calculates that the competitiveness gap as measured by cost of production per unit of labor, has been closed by about two thirds since 2010, while the current account deficit has declined cumulatively by about 10% of GDP.


The banking sector stability was maintained despite significant losses associated with debt restructuring and the sharp rise in non-performing loans because of the deep recession. Inadequate structural reforms, however, have led to the adjustment being achieved mainly through recessive channels with unequal distribution of the adjustment burden.
 

According to IMF there are three main problems:

    very little progress has been made in massive tax evasion. The rich and the self-employed do not pay their share, which ultimately led to the program heavily relying on spending cuts and higher taxes for employees and retirees
    although labor market reforms have caused a significant reduction in nominal wages, they have not led to lower prices for products and services, and this because of the failure to deregulate closed professions to boost competition
    although the rebalancing of the economy has led to a surge in unemployment in the private sector, especially among young people, the overcrowded public sector has not suffered at all, mainly because of the taboo issue of layoffs

Financial challenges remain

 

IMF warns that the major fiscal challenges are still ahead. "With no more room for large tax increases or spending cuts, the government has been forced to focus on difficult social cuts, from wages to funds for social policy."

 

According to IMF, "the 2013-14 fiscal program is a testament to the determination of the Greek government to achieve its objectives in the financial sector. European partners of Greece have also responded by agreeing to reduce the mid-term primary surplus target from 6.5% of GDP to 4.5% and prolong the adjustment period until 2016.

 

However, Greece will need to go through further structural fiscal adjustments to achieve these goals.

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The Greek Crisis II: The last attempt

Discouraging is the official figure of the Greek Statistical Authority for the evolution of the Gross Domestic Product.

According to ELSTAT “available non-seasonally-adjusted data indicate that, in the 2nd quarter of 2012, the Gross Domestic Product (GDP) at constant prices of year 2005 decreased by 6.2% in comparison with the 2nd quarter of 2011. The GDP of the 1st quarter of 2012 is revised, based on 1st quarter 2012 data of the General Government accounts (compiled at the end of June), ας well as new estimates of the short term indices”. 

The additional austerity measure include:

-  drastic reduction in the income criteria to be adopted for granting social benefits and welfare benefits to 30,000 euros or even lower at 25,000 (annual income). But then almost half of beneficiaries will lose their benefits from this year

-  halving the lamp sum of beneficiaries, even if they have already gone from their service. However extreme, officials are thinking of the possibility to request from those that managed to get the lamp sum at the last minute this year, to pay back part of it as "additional levy". This is because the economic team estimates that the 24 of the 37 Funds that give a lump sum pay excessive amounts of more than 2% to 83% of the paid contributions

-  a benefits plan under which the annual income that is as a criterion for their issuing, will also include presumptive items instead of the actual acquired incomes. Thus, most homeowners may lose their EKAS too. Officials are also considering of now giving it to pensioners aged 65 and over, instead of the current 60

-  the law that -as revealed by Proto Thema- is being prepared to place under redundancy the public servants involved in corruption or those that have harmed (intentionally or not) the State

The final proposals will be in the hands of the political leaders no later than Monday, August 20, to give them a period of at least 10 days until the arrival of troika.

The Greek Crisis I: The moment of truth

 The Greek Prime Minister Antonis Samaras schedule a  travel to Germany and France, two months after his election. In these countries, the leaders will meet Chancellor Angela Merkel  and President Francois Holland. At the end of September, a European Summit of the Heads of state and Government of the European Union will take place in Brussels. This Summit is expected to have a key theme of the Greek crisis.

European leaders must decide on the future of Greece. The Troika has requested a new package of 11.5 billion euro to continue to provide funding. Analysts say that the new austerity measures are expected to increase even more the depression rates. As a result, Greek government may take additional measures in 2013. 

Thus, Greece will enter in a death spiral that may induce others countries such as Spain and Italy.

At the same time, German politicians discuss publicly for Greece's exit from the Eurozone. Returning politicians and players in Brussels disagree with such a prospect. They believe that such a development would lead to severe risk of complete dissolution of the Eurozone.

Mario Monti, Italian Prime Minister, in an interview with Der Spigel was quoted as saying: "the tensions that have accompanied the Eurozone in the past years are already showing signs of a psychological dissolution of Europe".  Also he notes “If governments allow themselves to be entirely bound to the decisions of their parliament, without protecting their own freedom to act, a break up of Europe would be a more probable outcome than deeper integration"

Observers from around the world expect that developments in Europe will be rapid, after the meetings Samara - Merkel, Samaras - Holland and the Summit.