Think tank, IMF urge more speed with Greece’s
debt-reduction program
A slew of global uncertainties and the government’s inability to slash high public debt and spending are already making their impact felt on the Greek economy and could even put a brake on future growth, the Foundation for Economic and Industrial Research (IOBE) warned last Monday.
“There is an air of suspense and indecision in the Greek economy, which is fueled by global uncertainties and domestic factors,” the independent think tank said in its quarterly report on the Greek economy.
IOBE warned that prolongation of the current climate of confusion could “possibly affect growth in the immediate future.”
It said that two of the major problems facing Greece are the high level of public debt and spending, both of which are not being reduced fast enough to help generate a budget surplus.
The criticism came as the International Monetary Fund urged the government to speed its debt-reduction programme.
The IMF’s report on the Greek economy, due to be released today, “stresses the need to accelerate structural reforms, with the key focus on trimming public debt,” Economy and Finance Minister Nikos Christodoulakis said yesterday.
The recommendation mirrors a similar suggestion by the European Commission last month. Reviewing Greece’s structural reforms, Brussels said improving the sustainability of public finances, and in particular the high debt ratio, constitutes a key challenge for the Greek government. In an earlier assessment of Greece’s updated stability and growth programme, it cast doubts on the government’s ability to cut down on spending in the absence of clear binding norms for current primary expenditure.
IOBE said the string of uncertainties were causing businesses to put their investments on hold and dampening demand abroad for Greek products. Domestic demand, the engine of growth for the local economy for the last four years, is also losing momentum.
A survey of business sentiments in January which showed a distinct drop, the lowest in the last four years, only underscored the air of uncertainty.
The think tank also pointed to the structural problems of having unemployment at above EU levels, resulting in a significant number of young people and women without jobs.
On inflation, it said the official target of 2.5 percent “is considered precarious,” in particular imported inflation in the form of high oil prices. Inflation could flare up this year in the event the government does not use its fiscal policy to offset the impact.
IOBE urged the government to seek new sources of funding as the addition of 10 new members to the EU in 2004 could see a drastic cut in community funds even as competition intensifies. “This is the principal challenge for the Greek economy in the future,” it said.
(By Foo Yun Chee, from Kathimerini English Edition, 11/02/03)