BRUSSELS (MNI) – The financial bailout package for Greece agreed by
Eurozone leaders and the International Monetary Fund last month should
ease Greece’s fiscal pressures in the medium-term, but decrease the
country’s debt burden only slightly, said the OECD in a report Tuesday.
The E109 billion deal, which will lengthen the profile of Greece’s
public sector debt and lower its interest repayments, should buy enough
time for the country to see its tough fiscal and structural reforms bear
fruit, the rich countries’ think tank said.
The ambitious programme that began last year to bring the country’s
finances back in order and address structural weaknesses in the economy
could see Greece’s debt to GDP ratio peak in 2013 and bring it down
below 60% over the next 20 years, said the OECD report.
“The programme can succeed,” even under conservative economic
assumptions, the report says, noting, however, that “clearly, the key to
success will be in implementation, which will have to be impeccable.”
Although many tough measures will still need to be taken, Greece
has made impressive progress so far, the report noted. In 2010, Greece
slashed its budget deficit by about 5% of GDP. “No other OECD country
has achieved such a fiscal improvement in a single year over the past
three decades,” said the report.
In order to reach its goal of a sustained general government budget
balance of between -1.5 and 1.5% of GDP from 2015 onwards, Greece will
have to proceed rapidly with its plan to privatise E50 billion of
state-owned assets and continue with structural reforms to boost its
growth potential.
Meeting the privatisation target equivalent to 22% of GDP by 2015,
could lower Greece’s debt to GDP ratio by 40 percentage points by 2035,
compared to a baseline scenario, due to lower debt servicing costs,
according to OECD estimates.
Greece will also have to seriously tackle “widespread tax evasion”
in order to achieve the “hefty increase in tax revenues” that the OECD
said are necessary for the “significant fiscal adjustment” that the
country needs.
Income tax revenues are more than 5% of GDP below the euro area
average even though rates are not especially low, the OECD noted.
Improving the efficiency of its tax collection practices in line
with the average of other OECD countries could raise tax revenues by
nearly 5% of GDP, the report estimated.
Measures the government could take to achieve this could include,
“naming and shaming” tax evaders, stopping the practice of granting
amnesties for tax evasion, simplifying the VAT system, lowering the
tax-free threshold for personal income taxes and combining certain
administration functions, the OECD suggested.
Structural reforms to boost productivity are also essential to
improving the economy, the OECD report said. In particular, Greece needs
to tackle labour market defects such as informal employment, too-high
public sector wages, and wage bargaining practices with unions. More
competition is also needed in closed and highly protected professions,
such as pharmacists and lawyers.
The country should also fully apply EU laws for the energy market
and consider separating ownership of electricity and gas generation,
transmission and distribution networks, the report said.
Greece’s banking sector, however, still needs delicate treatment,
the OECD suggested. “Until greater market confidence can be achieved,
continued reliance on ECB facilities to maintain sufficient liquidity
seems inevitable. Attempts to reduce banks’ dependence on ECB liquidity
thus need to be approached with caution, as they could trigger a
liquidity crunch,” stated the report.
Bank mergers, including possibly foreign banks, could be “one
option to increase access to market liquidity”, said the OECD,
recommending that “authorities should refrain from imposing
protectionist impediments”.
— Frankfurt bureau: +49-69-720 142; email: frankfurt@marketnews.com —
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