EU and IMF inspectors today approved €15 billion of fresh bailout funds for Greece but warned its recovery programme could go off the rails unless it accelerated fiscal reforms and scaled up privatisations.
Greece has already slashed public spending, frozen pensions and hiked taxes to meet the conditions of the €110 billion rescue and avoid bankruptcy, but it was told it must work harder to turn its economy around.
Adopting a more critical tone than on previous inspection visits, the lenders monitoring the debt-choked country's fiscal progress said Greece needed faster structural reforms in areas such as tax administration and health to secure its recovery.
"The programme is on track but it will not remain on track without a significant, broad-based acceleration of reforms," said IMF mission chief Poul Thomsen. "Reforms have clearly not yet reached a critical mass needed to secure recovery."
In November, when the previous aid tranche was approved, the lenders sounded more positive, saying that although Greece technically missed full-year targets due to statistical revisions, it had made a huge fiscal effort.
The bailout was the first ever agreed for a euro zone member, in a crisis that has sent shockwaves throughout the region, spilling over to Ireland and threatening Portugal and Spain.
The €15 billion tranche must now be approved by euro zone finance ministers and the IMF board. Greece has already received €38 billion in aid.
The lenders set an ambitious target for privatisation proceeds, saying €50 billion should be raised in 2011-2015, including €15 billion in 2011-2012. The government's previous target was for €7 billion in 2011-2013.
"We see there are three very important sources for privatisations - listed and unlisted companies, the assets the government has in these companies, and commercial real estate," said the EU's mission chief Servaas Deroose. "To help reduce public debt and support higher investment and growth, it is essential to scale up privatisations."
Economists said pressure for proceeds from state selloffs to pay down debt was increasing.
"The only new thing is the insistence on a more aggressive privatisation programme," said Gikas Hardouvelis, economics professor at Piraeus University. "It's a tough target but not unreasonable as it's the only way to reduce the country's huge debt quickly."
Privatisation proceeds go directly to paying down debt, expected to reach 159.5 per cent of GDP in 2013. Some analysts believe Greece will buckle under its debt mountain when the three-year bailout ends and will resort to some restructuring.
Greece and its partners have thus far ruled out restructuring but agree that something needs to be done to help Athens tackle a borrowing hump in 2014/2015. They are examining various options, including extending bailout loan repayments and helping Greece buy back its debt.
The mission officials urged Greek banks to sell core assets, cut costs and explore strategic alliances, while it told the government to make state-controlled banks more efficient.
Shares of state-controlled banks rose about 10 per cent before markets closed on investor hopes restructuring ahead of privatisations would add value.
The mission said the government would provide guarantees of up to €30 billion for its Greek lenders.
The main conservative opposition New Democracy party said the mission's conclusions showed the government's policy mix was not effective.
"The government is weak and lacks planning on structural reforms and especially privatisations. Not a single one was done in 16 months in power," said Christos Staikouras, opposition shadow finance minister.
Reforms have prompted heated public protests although the ruling socialists still lead in opinion polls. Striking urban transport workers rallied in central Athens on Friday as the EU/IMF mission concluded its visit.
"The government has a tough job in its hands, as opposition towards its reforms programme is likely to be considerable," said Diego Iscaro from IHS Global Insight.
Reuters
