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Anti bankruptcy plan including measures against expenditures, reforms

19 June 2011 / 19:06:30  GRReporter
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Greece, which reached to be a step away from the precipice of bankruptcy, was now urged to implement the plan that was negotiated with the troika by the government before the political storm erupted. This plan which we should note, was accepted also by New Democracy on all points except thetax measures, provides for draconian measures for the limitation of the budget spendings and strict supervision so as for key reforms related to the labor market, goods and services to be carried out, as well as the agreed privatization in the amount of 50 billion euros with a clear timetable.

The Sunday edition of the newspaper "Vima" published today the report of the troika, which the finance ministers of the eurozone also have. They will gather in Luxembourg to endorse the political conditions and criteria for the granting of the fifth installment of 12 billion euros to Greece, in order to avoid the first bankruptcy of a country member of the eurozone.

And all this because in the conclusion of the report (dated June 8) which states that "the financing of Greece should be reviewed. The next installment could not be granted before the issue is resolved."

So now everything falls into place: the secret negotiations in Luxembourg of the former finance minister in order to reach to an agreement, the pressure on the government and the lawmakers adopting the new measures to voting on the medium-term program and the political game of poker of the opposition, which pushed the Government along with the economy towards the abyss.

The report however reveals how we got here, after everything was running smoothly and the memorandum was implemented well before the end of 2010. As noted in the report drawn up after the second for the year examination the critical factors were the stagnation in economic reforms, the failure to tackle the tax evasion and the inability of the government to limit the spendings.

In particular, the report notes the following: "After a strong start in the summer of 2010 and the reduction of the deficit by nearly 5 percent of the GDP in 2010, the efforts for the reforms remained stagnant for the following quarters. This stagnation is due exclusively to the "political risks" and the "management ability" to implement the program. "In addition to this, the Troika believes that the "intervention" is needed to ensure that the budget deficit will not remain too high, but also a critical mass of structural changes is needed that will enhance the economic recovery.

The Troika provides that two more quarters, the economy will remain in recession as it will be affected by measures to reduce the deficit and the limited liquidity. This year the economy will shrink by 3.8% but it will grow again in early 2012

Yet, what is recognized by the technocrats is that the key to return to growth is the restoration of the normal conditions of liquidity in the economy.

Of course, it is noted that "the mission agreed with the comments of the opposition about the great importance which the limitation of delays in payments to suppliers of public sector have as well as the recovery in the fastest possible way of the investment of the taxes in the economy" but also the need to intensify the efforts to accelerate the absorption of funds from the EU structural funds. Finally, the troika wants to make a thorough inspection of the banks so as to establish their actual capital needs and addressing the ministers from the eurozone, states that "the development of the sector is closely linked to the viability of the Greek debt."

The major weaknesses

The inspectors, namely Poul Thomsen (Representative of the IMF), Matthias Morse (Representative of the EU) and Klaus Mazuh (representative of the ECB), stressed in their report on the deviations in the revenue section (despite the revision of the original downwards estimates), attributing them exclusively to the inability of the government to deal effectively with tax evasion.

Also it indicates the inability to limit primary spending. Attention is drawn to the large variations in subsidies to state institutions, organizations and hospitals.

In particular the Troika noted that the deficit is increasing with each passing month, and stressed: "If nothing is done, the government deficit will remain close to the levels it was in 2010, ie over 10% of the GDP." It noted that for this difference to disappear and the deficit to fall to 8% of the GDP this year (which is the new goal) measures are necessary for about 3 percentage points of the GDP, ie almost 7 billion Euro.

The Troika to the government and New Democracy: Consent for a new tax reform

"You need to work together»

The Troika made bridges between the government and the opposition by actually considering proposals of the opposition leader Samaras to reduce the tax burden to be unrealistic, however, urged both sides "to work together in the fall for the new tax reform."

Tags: Troika report structural reforms foreign debt medium term program
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