OECD: stable public finances crucial to Greece’s emergence from crisis

10 Mar 16

Stabilising public finances and tackling poverty and inequality in Greece are crucial for the debt-laden country’s emergence from crisis, the OECD has stressed.

The think-tank said Greece needs to provide an effective social safety net and negotiations to address debt sustainability if it is to recover from the profound social and economic cost of the crisis, which the OECD said has left a third of its population in poverty.

“Greece has gone through a painful adjustment and is still facing a challenging economic and social outlook,” said secretary general Angel Gurría, presenting the OECD’s Economic Survey of Greece in Athens today.

“Reforms are starting to bear fruit, it is now essential to improve implementation, increase Greek ‘ownership’ and focus efforts on wellbeing and competitiveness.”

The survey predicts the Greek economy will strengthen in 2017 as ongoing reforms and external demand benefit investment and jobs, but notes that major risks remain.

The credit crunch could continue to undermine domestic demand, which is compounded by a slowdown in global trade and softer growth in the rest of the eurozone where a third of all Greek exports are destined.

The OECD said more investment in infrastructure and logistics would help to support exports and sustain the recovery.

Widespread tax evasion, increasing rates of child poverty and homelessness and high accommodation costs also need to be tackled, it said, anticipating this could cost around 1.5% of gross domestic product.

According to the report, resources could be allocated from savings generated elsewhere, such as improvements to the pension or tax collection regimes. In particular, pension reform should focus on better aligning contributions and benefits, reducing special regimes and alleviating the burden on the most vulnerable, it said.

The survey argued that Greece has relied too heavily on fiscal and labour market measures at the expense of product market reforms, which have advanced slowly and been undermined by weak implementation, leaving monopoly power in place.

It also said that European Union structural funds could be used more effectively to invest in education, research and innovation and that reaching an agreement with creditors on extending debt maturities and repayment grace periods would be beneficial given the country’s soaring public debt.

The refugee crisis, recently exacerbated by the decision of a number of eastern European states to close their borders thereby trapping thousands of refugees in Greece, also poses major problems, the survey highlights.

It estimates the cost of the influx of refugees to be around 0.4% of gross domestic product in 2015, and noted that Greece will struggle if EU contributions turn out to be insufficient.

Europe estimates €300m will be needed for the crisis this year, followed by €200m in 2017 and 2018.

Last week, the EU agreed to provide €700m to member states who are overwhelmed by urgent and exceptional circumstances over the next three years. The majority will go to Greece, however other frontline member states will also be eligible.  

On Tuesday, the European Council agreed on an emergency support mechanism to support member states, notably Greece, facing major humanitarian crisis, which will deliver the funds.

The mechanism will not be limited to Greece or to the refugee crisis, but to any member state responding to exceptional crises or disasters with severe humanitarian consequences, such as nuclear accidents, terrorist attacks and epidemics.

Bert Koenders, the foreign minister of the Netherlands and president of the council, described the agreement as a “very rapid and practical expression of the EU’s solidarity with Greece”.

The money will be made available through the fund once EU member states and the European Parliament amend the bloc’s budget to make €300m available this year, and earmark the rest of the funds for 2017 and 2018. 

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