Galery

1

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."

The full part of the report titled "Looking for a political agreement" states the following: "The mission found that there were some similarities between the economic stability program of the government and the political proposals of the opposition party New Democracy. The opposition supports an expanded privatization program, as there is a match in the concepts of the party with regard to most structural reforms aimed at stimulating the growth. As to the issue of taxation, there also is an agreement on the part of New Democracy to reduce the deficit and to limit the foreign debt to some reasonable level. In addition, a number of measures from the stability program, such as the adoption of a scheme with labor reserves for the officials in excess, the closure or merger of government services, the elimination of tax preferences, the objective criteria for the self insured and the measures to control the waste of funds in healthcare, have been taken from the economic program of New Democracy.

Nevertheless, the mission believes that the greatest reductions in taxes (VAT, income tax for individuals and businesses, fuel excise duties, etc.) in the economic program of New Democracy are unrealistic and incompatible with the overall objectives of the stability program.

Both the government and the opposition should work together starting with the autumn for the adoption of a fiscally neutral tax reform that will seek to broaden the tax base and eliminate tax concessions that could lead to a reduction in labor taxes. "

«Treuhandanstalt» for the privatization

According to the model for the liquidation of state property in East Germany.

Technocrats, taken from the free market - banks, business consultants - and two experts chosen by the European Commission and Εurogroup will undertake the mission to accelerate the privatization program and utilization of state property, so that Greece can receive 50 billion by 2015. The model on which the whole initiative will be based reminds «Treuhandanstalt», the organization which had undertaken the liquidation of state property in East Germany in the early 90s. Then within three years nearly 8,500 state enterprises were sold.

How will the Fund of National Wealth function

1. It will be regulated by the national legislation, it will have a term of six years, it will be managed by a council in which the European Commission and Εurogroup will be entitled to appoint two members.

2. The Council will be composed of individuals (experts) working in the private sector.

3. Every four months it will inform the government, parliament and partners for its activities.

4. The government and the state will transfer the Fund the total "legal and financial" ownership of the state enterprises and their assets that are to be privatized.

5. There will be no right to "return" to the government assets that it failed to capitalize.

6. It will be financed with 30 million euro and by the public investments program, while it receives its first revenues from privatization.

150,000 civil servants less

In support of medium-term program that caused the political storm in the recent weeks as the only solution (basic plan) to exit the crisis, the Troika noted that its purpose is to reduce the deficit to 2.5% of the GDP in 2014 and further more in 2015. In order to achieve this goal, however, it is necessary to take measures that will lead to the increase in revenues while reducing public expenditures by 11 percentage points of the GDP, ie more than 27 billion euros. For this initiative to succeed it is noted that changes must be made across the public sector, starting by reducing the number of civil servants by 20% by 2015 and reducing them to 577,000 from the present 727,000 people.

Labor reserves  

In public organizations, which will be closed a regimen will be applied of labor reserves. As noted  in the report "the additional staff are expected to be left as labor reserves", a proposal made by New Democracy, accepted also by the former Minister of Finance, without however determining the exact number of employees that will be affected by the measure.

To achieve the reduction in the number of employees the principle must be followed for "one appointed for every ten people left", and drastic will be within 5 years also the reductions in wages and pensions in the public sector, and all of its expenses.

Structural changes now

The report acknowledges that there is an improvement in the competitiveness of the economy, which is attributed almost entirely to the reduction of salaries in the private sector. It is emphasized, however, that structural changes have not yet reached to the point where they influence the increase in productivity and its capacity for growth.

Some measures and changes are being prepared to improve the business climate, while the discussion has already begun to reform the judicial system as he stressed in his speech before the PASOK parliamentary group, the Prime Minister George Papandreou.

To advance the structural changes the Troika will provide "technical assistance" by appointing «project managers» in the ministries for the reform of the labor market, the market of goods and services as well as to accelerate investment.

The report stresses that the Government had requested "technical assistance" for changes in health care, social security, taxation and the changes in the Employment Agency, particularly in the section on retraining of personnel.

There is a vacuum in funding

In the negative findings of the report revealing that the implementation of the memorandum "was left in half" and this has led to the failure of the first hard effort is also emphasized: "Greece will not be able to return to the markets in 2012. The funding program that was settled a year ago, is a "distant scenario."

The cost of funding by the markets remain prohibitive. Interest rates will remain high for several more quarters. Skepticism of the markets is associated with the doubts regarding the ability and the attitude of the Greek government and society to continue with the fiscal consolidation and the restoring of the competitiveness."

In addition, the Troika stressed that "Greece's financing should be reviewed. The existin program is currently funded inadequately. The next installment may not be paid prior to solving the problem with underfunding ", referring practically to the lack of a political decision to support the Greek economy by 2014.