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The Troika is awaiting Samaras’ replies

29 June 2012 / 15:06:24  GRReporter
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Representatives of institutional lenders to Greece will return to Athens next week after a three- month absence. They will inspect how much the recovery programme in the country under the second Memorandum of financial assistance has been delayed and will prepare the report, on which the change in the terms of the bailout agreement depends. The heads of the supervisory Troika are expected to arrive in Athens on Monday and their first meeting will be with Prime Minister Antonis Samaras. The technical staff of the mission will stay in Athens for the whole summer in order to inspect the local finances in detail and to make concrete conclusions about the state of the Greek economy.

After two years of hard work of no specific results, the supervisory Troika of the International Monetary Fund, the European Central Bank and the European Commission insists on a realistic plan and the quick resolving of three main issues in the Greek economy. The first one is the collection of taxes and the fight against tax unfairness. Studies to date indicate that the state loses about 30 billion euro per year due to the inadequately structured and malfunctioning tax system. The second major issue that has been on the agenda from the very beginning of the financial crisis, but about which little has been done, is the public sector reduction.

As far as this issue is concerned, Antonis Samaras’ government has already made a wrong step by announcing in its programme that there will be no layoffs of civil servants, even in the public institutions that will be merged or closed.

"How will you reduce the huge public sector spending, if you do not cut staff?" This will be the first question of Paul Thomsen, Claus Masuch and Matthias Morse, representing the institutional lenders to Greece, which Antonis Samaras will have to answer. So far, government sources have said that a further reduction of wages is being considered but a clear response is expected after the first visit of the supervisors. New Democracy is trying to pass some measures of social nature such as extending the time in which the citizens will receive social benefits. The government intends to extend the right for receiving social benefits from the employment offices from one to two years and to include freelancers, who have stopped their activities due to the crisis, within this framework.

The third major issue that has remained unresolved is the triggering of privatization processes. Here, New Democracy’s government seems more determined and ready to quickly initiate the sale of some organizations included in the public property management fund. First on the list for privatization are the state railways, Hellenic Petroleum, DEPA and DESPA’s gas distribution networks and the ports of Piraeus and Thessaloniki. Russia has expressed its interest in the railways. China also has plans to develop a railway line, starting from the port of Piraeus and connecting it with other strategic infrastructures. The burden of privatization will fall mostly on the Minister of Economy and Development Kostis Hadzidakis, who had already gained experience with the sale of Olympic Air during the government of Kostas Karamanlis.
 
All that is still a plan to be executed and Greece has recently proved that it is good at planning, but very unsuccessful in implementing the plans. A quarterly lack of reforms and structural changes due to the second elections have seriously turned the country away from achieving the goals and the recession is expected to reach 9% of GDP in the third quarter of this year. Data show that the total volume of Greece’s economy may shrink more than expected and GDP may fall below 200 billion at the end of the year. This will make it more difficult for Greece to meet its obligations to reduce the budget deficit, thus making the renegotiation of the terms of the bailout inevitable. According to Greek financial analysts, Greece will surely get an extension of the rescue programme, but the question remains whether it will be one or two years.

Head of the Institute of International Finance (IIF) Charles Dallara said that extending the period for Greece is necessary because of the deepening crisis. In an interview with Die Zeit, he determined Germany's position towards the countries of the European periphery as too strict and said that Greece would need another 20 billion euro to extend the recovery programme. Dallara was clear that given the amounts already allocated for resolving the debt crisis, 20 billion euro would not be much. However, he believes that the money cannot be allocated free of charge and there should be new loan terms.

 

Tags: EconomySupervisory TroikaGreeceMemorandumDiversion
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