Greece: Reform Agenda Essential for Growth
According to the IMF’s assessment, while the program includes some very difficult measures, reforms have slowly started to deliver results. The economy is rebalancing, and competitiveness is improving. A return to positive economic growth is currently projected for the first half of 2012, with that scenario depending on full implementation of difficult structural reforms.
“Greece’s debt sustainability hinges critically on timely and vigorous implementation of the adjustment program, with no margin for slippage, and continued support from European partners and private sector involvement,” the IMF’s new Managing Director Christine Lagarde said in a statement following a meeting of the Fund’s Executive Board.
In an interview, Poul Thomsen, head of the IMF’s team, explains what has been achieved so far and discusses the challenges ahead for Greece.
IMF Survey online: The prevailing view in the markets appears to be that political and social support for the program is waning. Will the Greek government be able to deliver on its reform program?
Thomsen: There is no doubt that the program has entered a crucial phase―the part where the tough measures are beginning to take effect, and yet the benefits are not yet manifest in a way that everyone can see and feel. And reforms have slowed down somewhat in the face of intense pressure from some vested interests.
That said, the government deserves credit for persevering with a number of difficult reforms during the past year, and the fact is that the program has up to now delivered most of what it set out to do. The economy is rebalancing, according to the most recent data. Exports have increased by 22 percent, and competitiveness is improving, in part because of a decline in labor costs. Inflation, adjusted for taxes, is running well below the euro zone average.
Greece has also made progress on structural reforms that were unthinkable before. Pension reforms are the most far-reaching that virtually any country has done in one step. Labor market reforms are also very comprehensive, and the government has started opening up closed professions.
On fiscal policy, the authorities have met all quarterly fiscal targets since the start of the program, and continue to do so, most recently those for March 2011. There has been a reduction in...
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