Greeks face challenges to carrying out reform, warns commission

Sat, Mar 17, 2012, 00:00

THE EUROPEAN Commission has warned of significant “implementation risks” in the second Greek bailout, saying the continuation of emergency aid can only be expected if policy implementation improves.

Days after euro zone member states finally endorsed the new EU-International Monetary Fund programme for the country, the commission said in two separate reports that Greek leaders face a daunting challenge as they strive to execute the plan.

Matthias Mors, commission mission chief to Greece within the EU-IMF-European Central Bank “troika”, said the reform effort will have to overcome bureaucratic delays, the resistance of lobbies and break entrenched taboos.

In a report on the second bailout, Mr Mors said this will require determination on the part of the government and consensus throughout Greek society.

The economic projections in the new plan assumed labour market reforms will be followed by “equally important” reforms in the goods and services markets, said Mr Mors’s report. “The success of the second programme depends chiefly on Greece,” it added.

This hinged on the full and timely execution of fiscal consolidation and growth-enhancing structural reforms in the rescue plan. “The determination of the Greek authorities to stick to the agreed policies will be tested already in the coming months when the deficit-reducing measures to close the large gap for 2013-2014 need to be identified.”

Horst Reichenbach, the German head of the commission task force charged with helping Greece to reform its tax system, said many months may pass before evidence that recovery is under way. In a group interview, Mr Reichenbach said the second bailout and debt-restructuring deal were seen within Greece as a turning point after uncertainty.

“There is now the feeling in Greece that there is the basis to really advance,” he said.

Concern remained, however, about the immediate outlook.

“Nobody sees really the end of the tunnel and I fear that they are right that there will be further months, maybe further quarters, that will not see a decisive recovery,” Mr Reichenbach said.

The single greatest challenge was to improve tax collection, long marred by rampant evasion and corruption. “It has to be a fairer system, it has to be a simpler system, a more transparent system and it has to be a more sustainable system,” he said.

“Some things are moving but other things are not moving. In particular, the audit of the high wealth and large taxpayer people isn’t making the same degree of progress as in other areas. Clearly there is an unwillingness to decisively tackle these matters.”

He said the direct relationship between tax inspectors and taxpayers was too close, adding that keeping the two at arm’s length was a crucial aim of the current reform drive.

Mr Reichenbach said Greek officials were generally receptive to the task force, which has placed European officials in government departments. He acknowledged, however, that this had to be done in a “wise” way.

“There is enough noise in any case that this undermines sovereignty and I’m coming there as a new German protectorate and things like this,” he said.

“So it is really important to play the ball back to them and say it’s your country, it’s your responsibility.

“In the end it’s you who will have to bear the consequences – we are there to support you.”

Mr Reichenbach has been likened in some Greek media to a Nazi gauleiter, as the party’s senior officials were known. However, he said the questions he was asked at a press conference this week in Athens were more factual than before and less aggressive.