Greek reform ‘slowing down’

11 Jun 19

Greece’s post-bailout reform efforts have slowed in recent months, leaving it at risk of missing fiscal targets agreed with EU lenders, the European Commission has said.

Brussels commending “reasonable” progress since Greece exited close supervision under the three-year rescue package last August but suggested some reform efforts did not fully match Athens’ commitments to eurozone partners.

The Commission took aim at a tax and social spending relief package introduced by Alexis Tsipras’ government last month, which it estimates will cost more than 1% of GDP in 2019 and beyond.

“The time has come for Greek peoples’ sacrifices to receive justice,” the prime minister said after announcing the reforms, which included an annual allowance to pensioners amounting to €300m.

Weeks earlier Athens rankled its eurozone creditors and the IMF in early May by lowering its annual primary sur targets to 2.5% of GDP from 2020-22 from the 3.5% it had agreed to.

The government’s relief measures have been linked to snap parliamentary elections set for July 7. The ruling left-wing Syriza party has struggled to close a significant gap behind conservative opposition New Democracy, who swept both last month’s European elections and local elections on Sunday.

The warned the relief will increase Greece’s public spending on pensions - already the highest as a share of GDP in the EU - and counteracts measures in the existing budget to direct a higher share of benefits towards “young people and working-age population who face much higher risks of poverty”.

“The adopted measures on pensions and VAT are targeted at consumption and will absorb a considerable amount of fiscal space that was envisaged in legislation adopted in 2017 for growth-enhancing reductions in labour and corporate tax rates,” the Commission added.

Any change to the annual primary sur targets “would need to be discussed at the Eurogroup in the context of an updated debt sustainability analysis”, it insisted.

The report also expressed alarm over the Greek authorities’ projections for the economy’s annual primary sur. Greek estimates exceeded the Commission’s by 0.4% to 0.7% for the entire 2013-2023 period forecasted.

The Commission attributed these “considerable” differences to Greece’s “more favourable” view of its macroeconomic standing as well as accounting decisions that deviated from “standard practice”.

The IMF’s first report on Greece’s post-bailout progress commended its strong growth but also called for it to push ahead with unfinished reforms.

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