2019
01/13

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Greece ordered to cut deeper

Greece won approval for a new slice of rescue funding but the IMF and EU prescribed even tougher action on tax evasion, and waste in health care and state companies to merit another payout.

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They also warned that Greek wages were too high and said the country, saved from imminent insolvency in May, faced potential problems in repaying on time although solutions were available in that case.

The expert auditor from the International Monetary Fund, Poul Thomsen, said: “The programme is at a crossroad.”

The approval for the third tranche of rescue funds had been delayed by a day because negotiations on deeper austerity measures, described as “difficult” by the Greek side, were continuing, just as the European Union was putting in place a rescue for Ireland, the second eurozone crisis in six months.

The EU and International Monetary Fund auditors, saying that Greece was “largely on track” with reforms to correct its public finances, approved the release in December of 9.0 billion euros in rescue funds.

The fourth, far bigger slice of 15 billion euros due by March would depend on progress made with the latest requested measures to fight a massive budget deficit and national debt.

The auditors, speaking after a regular review of Greek public finances imposed under the 110-billion-euro (150-billion-dollar) rescue, did not rule out extending the repayment timetable or providing a further loan to Athens.

The Greek government was determined to move on structural reforms, Thomsen said. “We are largely on track, with small deviations, we are close to targets.”

He said that “the main risks are linked with the possibility that reforms are delayed … This is the key question.”

For the European Commission, Servaas Deroose said: “Reforms have to be done in the labour market in order to restore competitiveness.”

Wages in Greece had doubled between 2000 and 2008, he said. “It’s an excessive evolution.”

The auditors from the IMF, EU Commission and European Central bank, said in a joint statement:

“New measures have been agreed to broaden tax bases and eliminate wasteful spending, particularly in the areas of health spending, which is inefficient relative to other eurozone countries.”

The statement also said that action was needed on “state enterprises, which are a heavy burden on the economy with perennial losses for Greek taxpayers.”

The government has to push on with reforms of tax administration for which new measures to strengthen tax compliance were coming into effect.

Asked whether the May package could be extended, Thomsen noted that the initial loan was for a relatively short time.

“But whether it’s going to be able (to repay the funds and service debt) is admittedly a question.”

However, “we have options of allowing longer repayment periods or to give a follow up loan.”

He added: “We are confident Greece will be able to return to the market before the end of the programme … We hope there is market access so that there is no problem to repay this 110 billion.”

Greece was forced to appeal for help to avert insolvency in May largely because international investors had become so reluctant to lend to it that its interest rate on borrowing had risen to an unbearable level, of about 12.0 percent at one point.

The Greek banking system is now heavily dependent on special cheap financing from the European Central Bank.

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