Troika insists reforms in Greece at a standstill

 

FINANCIAL STABILISATION:GREEK EFFORTS to stabilise public finances and push through reforms have ground to a halt in the last quarter, according to officials from the IMF, the ECB and the European Commission.

The latest so-called “Troika” report, seen by The Irish Timesyesterday, made a grim impression when presented to German MPs in Berlin yesterday evening.

At a crunch parliamentary party meeting, members of the ruling Christian Democrats (CDU) and Free Democrats (FDP) heard that Greece will require fresh aid from euro zone members because of the “prohibitive” cost of the alternative: returning to financial markets.

“The financing strategy needs to be revised,” said the report’s authors.

“Given the remoteness of Greece returning to the funding markets in 2012, the adjustment programme is now underfinanced. The next disbursement cannot take place before this underfunding is resolved.”

Greece’s debt situation will peak in 2012/13, the troika said, while the financial sector “remains very tense”.

Worse, the report warned that “uncertainty on the functioning of the EU and euro area financing facilities have aggravated the tension in financial markets”.

“After a strong start in the summer of 2010, reform implementation came to a standstill in recent quarters,” said the report. Citing “clear political risks” in implementing the EU-IMF reform programme, the authors warned that “a reinvigoration is necessary to prevent the fiscal deficit getting entrenched at unsustainable levels”.

At macro level, the troika said the Greek recession is “somewhat deeper and longer than initially projected” – with 4.5 per cent economic shrinkage last year and a further 3.8 per cent contraction forecast this year – but that “the quarters of deepest contraction may have already been passed”.

“Positive but moderate growth rates” are expected, rising from 0.6 per cent next year to 2.3 per cent in 2014.

On the fiscal reform front, officials said tax collection “continues to underperform compared to plans even after downward revisions”.

Several implemented tax evasion measures are not yet effective while weaknesses remain in budget expenditure control.

Wide-ranging reforms in pensions, healthcare, labour market “have not yet reached a critical mass”.

Besides tax increases worth €6.08 billion to 2015, the paper identified additional spending cuts to be made in the same period in welfare (€4.18); public sector wages (€2.18 billion) and healthcare (€1.74 billion).