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Greeks to expect new measures in case of failure of the programme for fiscal consolidation

18 December 2012 / 17:12:35  GRReporter
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The European Commission's annual report on Greece reported a boom in credits "in the red", exported capital in foreign banks and the need for recapitalisation of Greek banks, which led to cuts in private sector involvement (PSI).

The authors of the report warn that, if the government continues to yield to the pressure of social protests, and fails to implement these measures, aimed at collecting 13.5 billion euro for the Treasury, it will have to impose new ones. Although European experts admitted that the recession in Greece was 8% higher than that foreseen by supervisory Troika representatives, their report stated that it would have been even higher without fiscal adjustments.

Moreover, another prognosis suggested that, in case of a failure to implement the budget, privatisations and achievement of rapid economic development, in 2020, the national debt might reach 147% of GDP instead of 124%, as envisaged in the programme. However, if conditions are favourable, the most positive outlook of the European Commission is that the debt may reach 106% of GDP.

Meanwhile, days after the contract for the distribution of the next tranche of aid and the new measures on debt reduction, experts found that, in 2014, a gap in state funding would be expected, amounting to 1.1 billion euro.

The report harshly criticised political and social reactions, which were the main cause for the deepening recession and delays in implementation of reforms. Nonexistent progress in the privatisation programme was defined as "disappointing".

However, EU officials who presented the report pointed out that, in recent years, Greece has achieved significant budgetary consolidation in the extremely difficult economic environment of a recession which was eight-fold higher than that anticipated in 2010.

They stated that it contributed to the deterioration of the situation concerning foreign government debt, and reported that, not only estimates of the Troika for Greece, but also those of the whole Eurozone were not accurate in relation to economic growth. Negative effects were also caused by turbulent political events that led to the fall of George Papandreou's cabinet, his statements for a referendum on keeping Greece in the Eurozone and two subsequent elections. "These were factors we could not have predicted at the time," said the representative of the European Commission.

According to him, the failure of the privatisation programme is mostly due to political considerations. Europeans still believe that, after the preparations in 2013, privatisations will be triggered.

Experts reported progress on many issues. "The new government has managed to make up for lost time, but there are many dangers," said the representative of the European Commission and listed among these "organised interests, political resistance and groups exerting pressure and not allowing implementation of reforms." "There are also macroeconomic risks," he said, adding that, if changes are implemented, including tax reform, the situation in Greece will improve.

Equally critical is the report by Horst Reichenbach's Task force. The main criticism in it is focused on controlling authorities which, according to the experts, are not effective in their actions against tax evasion. According to estimates, authorities investigated only a third of wealthy taxpayers, and, as a result, only half of the foreseen 2 billion euro overdue taxes were collected. The fact that, by the end of October, tax authorities had inspected just 467 of 1,300 wealthy Greeks is indicative of their slow actions.

According to Task force experts, the delay in the tax system started during the two elections in May and June this year. The business trips of many technical teams were interrupted and a permanent Secretary of the Directorate of General Taxation and Customs has not yet been appointed.

They also criticised changes in the Code of trade registers and stated that "the decision the government chose does not correspond to the most efficient international practice suggested by the Task force and the International Monetary Fund's consultants."

At the end of their report, the European Commission experts paid attention to the situation in society and noted that high unemployment created dangers for the programme. Their recommendations are for the implementation of specific employment policies and a job market stimulating tax policy.

Tags: Politics Economy European Commission Task force report on Greece
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