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Maria S. Topalova

Stability program is being implemented in general, the country will receive the third tranche of the loan, there are doubts if it will be able to settle with the IMF, the European Commission and the European Central Bank in time. This is the conclusion of the second mission of the Troika’s experts from the above mentioned institutions that were on a visit to Greece from November 14 to 23. The experts were properly punctual at the closing press conference, in the same good mood regardless of the late talks with the Greek government yesterday and regardless of the protests in central Athens streets. Hilton Hotel, where they met with journalists, was guarded by the special riot units and the center of Athens was closed for cars because of left organizations demonstrations.

The good news is that targets set to September are met and the next tranche of the loan will be paid in time, said Poul Thomsen, Deputy Director of IMF European Department and Head of the Mission to Greece. He said that a 6-percent drop in the budget deficit was achieved in an economy that shrank by 4 percent. There are still many challenges - the taxes are not collected as provided in the Agreement, there is much wastefulness in the public sector and especially in healthcare, stressed the expert. And the goal of the Troika is to leave Greece after three years having modern health care, modern state structures and strong fiscal discipline. Poul Thomsen determined these reforms not only as binding for Greece's economic recovery, but also as important in terms of social justice. He also said that the program is at a crossroad - it will only succeed if the reforms are implemented firmly. They are well balanced socially, concluded the expert.

As for the fiscal part, it appears that the budget deficit reduction of 6 percent is greater than in the program, but the revised deficit for 2009 and the very low tax collection require additional measures to be taken to achieve the 2011 goal - budget deficit within 7.5 percent of GDP. According to the representative of the European Commission Servaas Deroose, additional measures of around 5 percent of GDP are set for the period 2012-2014. He stressed that the Greek government is determined to continue with the second wave of reforms in three fields – health care, which is very expensive and ineffective compared to the Eurozone’s average, in state enterprises that heavily burden the economy and bring permanent losses for taxpayers and tax administration.

Servaas Deroose divided the reforms that lie ahead into two categories. The first group affects the financial stability of Greece and there he put the modernization of health care, the public sector reduction, the privatization of unprofitable enterprises and the tax reform. The second group of reforms he described as stimulating the Greek economy competitiveness and it contains the opening of closed jobs and reforming the labour market as well as measures to promote tourism and trade.

The representative of the European Commission explained that after the very successful pension reform a reform in the health care sector is to be implemented. Greece currently spends 6 percent of its GDP on health. This is well above the average for the Eurozone. Health care costs should be not more than 2 percent of GDP. Of course, this is a medium term objective that is not possible to be achieved within a year.

Dennis Blank, Senior Adviser at the European Central Bank, assured that the banking system in Greece is under pressure, but its capitalization levels are good. And the fiscal stability fund is also available in case there is a need of it. Greek banks' liquidity is closely monitored by both the European Central Bank and Bank of Greece. In his opinion the relatively good condition of the financial institutions is due to the activation of 25 billion euros in state guarantees in August. He stressed that the Troika appreciates the course of some private banks to enter the market and to secure funding and capital. Another positive sign is the enhanced banking and insurance supervision. Dennis Blenk paid particular attention to state-owned banks included in the rescue plan the government has presented. These are the Agricultural Bank of Greece and the Postal Bank.

This is how the three experts, who in fact manage the Greek economy, assessed its current state. What are the forecasts for the future and what lies ahead? According to Poul Thomsen, additional measures are necessary to be taken to achieve the 2011 targets that will not only offset the larger 2009 deficit but also will fulfill the commitments contained in the Agreement between the Greek government and the three institutions. The IMF representative said that the levels of GDP in Greece in 2010 and 2011 will move generally in the expected values. According to him, there are no serious risks. The most serious risk is to delay the reforms. Structural reforms will have an enormous contribution to the economic growth of Greece, stated explicitly Servaas Deroose. He recalled that it was in the range of 3.5 to 4 percent of GDP before the crisis and after the three-year program it is expected to be around 2.5 to 3 per cent.

Journalists, cameras and photographers that were crowded in the hall, however, want to learn more about what ordinary people should expect from the coming months and years. The experts are painfully clear and precise. Poul Thomsen said that the public sector is bursting with employees. This is the truth and their number should be reduced. He noted that details for the reorganization of unprofitable businesses or for the health care reform were not discussed. This will happen during their next visit in March. The Greek government should have prepared proposals until then, said he.

Servaas Deroose was more specific. He said that wages in Greece were two times higher than the Eurozone average in the last 10 years before the crisis. This made the Greek economy extremely uncompetitive. One reason for the disproportionately large salaries is the collective labour agreements. They must be changed. Their mandatory renewal should be cancelled and a more flexible legislation is needed in the initial bargaining, advised the expert. He clarified that it is not about reducing the minimum wage. In his opinion, the closed professions are the second reason for the big salaries. The Troika’s recommendation is to seek ways to improve productivity.

The common issue of the Greek debt restructuring was not saved to the Washington, Brussels and Frankfurt technocrats. Poul Thomsen said that the 110 billion euro support is for a period of three years. Under the terms of the agreement, the payment of the loan will begin 1-2 years after completion of the three-year program. It is expected that Greece will return to the markets by that time. Poul Thomsen admitted that it is not clear whether the country will be able to settle with its old creditors and to pay the loan from the IMF, the European Commission and the European Central Bank. According to him, any benefit from the possible rescheduling of the Greek debt will be swept away by the high interest rates of international markets and the collapse of the investor interest. He said that the case now is not what would happen if Greece would be unable to pay its debts. There are many options, according to him, if this happens - it is possible new debts to follow, the program is possible to be extended. But the most important thing for now is the country to restore its competitiveness in the Eurozone, is the opinion of Mr. Thomsen.

Servaas Deroose denied on his part that there are negotiations for additional measures for the 2012-2014period. He confirmed that such measures are necessary. He announced that there will be additional measures, but they are not defined yet. The Minister of Finance will begin to examine them in January, said the expert.