A report released Monday by the International Monetary Fund praises Greece for its efforts to reduce big deficits and improve its competitiveness, but warns that more structural reforms are necessary to help the heavily indebted country overcome a deep recession.
“Greece is making progress in overcoming deep-seated problems in the midst of a very serious and socially painful recession. The adjustment challenges facing Greece in 2010 were daunting,” the IMF said.
“However, insufficient structural reforms have meant that the adjustment has been achieved primarily through recessionary channels, with unequal distribution of the burden of adjustment. Three problems stand out:
- Very little progress has been made in tackling Greece’s notorious tax evasion. The rich and self-employed are simply not paying their fair share, which has forced an excessive reliance on across the- board expenditure cuts and higher taxes on those earning a salary or a pension.
- While labour market reforms are causing a notable decline in nominal wages, this has only to a very limited degree been reflected in lower prices, because of failure to liberalize closed professions and more generally open up to competition. This is another reason for why too much of the burden has so far fallen on those earning wages and pensions.
- While the rebalancing of the economy has been associated with a surge in unemployment in the private sector, not least among the young, the over-staffed public sector has been spared, because of a taboo against dismissals,” IMF added.
Parliament passed last week the omnibus bill of measures agreed with troika inspectors by 168 votes to 123, opening the door for the first wave of public sector layoffs and settlement of €8.8bn of bailout funds.
About 2,000 civil servants will be laid off by the end of May, with another 2,000 following by the end of the year and a further 11,500 by end-2014, for a total of 15,500.
The troika has already approved the payment of €2.8bn in rescue loans. The Eurogroup of eurozone finance ministers will then meet on May 13 to release a further €6bn.