In an article in the Financial Times, Georgeo Provopoulos, the governor of the Bank of Greece, states that “Greece has undertaken painful adjustments and made progress in solving its problems, but the goals it is striving to achieve are taking longer than expected to be reached. The economy is in its fifth year of contraction, the unemployment rate is surging, fiscal and external deficits remain large and Greek borrowers remain shut out of the international financial markets. This is not what was envisaged under the May 2010 adjustment programme agreed with the International Monetary Fund, the European Commission and the European Central Bank, which anticipated a return to growth and access to financial markets in 2012.
As Greece negotiates a new programme, it is important to ask why the previous one went off track, and what are the lessons learnt. The first point concerns the implementation, which for many of the measures in our programme was slow and inefficient. Second, experience shows that programmes aiming for fiscal consolidation that are based on spending cuts lead to a smaller economic contraction than those based on tax increases. In Greece, last year’s adjustment measures were a mix of 60 per cent revenue (largely tax) increases and 40 per cent spending cuts. This mix has had several consequences.”
(source: FT, capital)
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