EU Says it Can Help Greece Return to Growth, But It Comes With a Price

European Commission President Jose Manuel Barroso told the European Parliament in Strasbourg on April 18 that Greece could return to growth if it sticks to reforms demanded by international lenders, a formula similar to what interim Prime Minister Lucas Papademos said would work, but only if the European Union provides more help. Speaking of the Growth for Greece program, Barroso said serious problems could be tackled if it is put into effect.
“The set of priority actions it proposes range from promoting youth employment to tax reform, and investing in education to smarter regulation,” he said. “These actions, if properly implemented, should quickly unblock growth, create jobs and mitigate the social impact of the crisis.”
He said that Greece’s European partners are providing it with more assistance than any Marshall Plan could muster.
“There have been many calls for greater solidarity, for a kind of Marshall Plan for Greece,” he said. “Let us recall that the assistance provided under the Marshall Plan amounted to around 2.1% of GDP of the recipients. The total package of assistance to Greece, if you consider the funds, grants from the structural fund, the loans, the write-off of private debt, the total package of assistance to Greece is equivalent to 177% of Greek GDP.”
Papademos earlier in the day sent Barroso a letter asking for EU help on a number of key policy areas he said could rejuvenate growth and employment in the debt-wracked nation. Greece is surviving on two bailouts from the EU-International Monetary Fund-European Central Bank of $352 billion, but those have come with attached pay cuts, tax hikes, slashed pensions and other cuts that have deepened a recession, created 21.8 percent unemployment and closed more than 111,000 businesses.
Papademos, a former ECB Vice-President, will leave office on May 6 after elections to select a new leader and replace the government he oversees of PASOK Socialists and New Democracy Conservatives, bitter rivals on most issues but who both support austerity. They have seen their popularity plummet so fast and so far in polls that New Democracy leader Antonis Samaras is pledging to try to renegotiate the measures he supported, but which he previously opposed.
Papademos essentially asked for aid in reversing some of the same measures he imposed and supported, including ways to increase unemployment, especially for young people under 25, half of whom are without work. The minimum wage for them has been cut 32 percent and unemployment benefits reduced to $125 a week before taxes. Papademos said Greece needs EU financial help for small and medium-sized enterprises (SMEs), advancing major infrastructure projects, reducing youth unemployment, implementation of the privatization program, policies in the energy sector and, finally, the absorption and effectiveness of EU structural funds.
He acknowledged that successful implementation of fiscal consolidation and structural adjustment demanded by the country’s international creditors requires staying the course on reforms that the government had previously resisted and on which it is still dragging its feet, such as a lagging program to privatize state enterprises and sell or lease state-owned properties.
“The long-standing structural weaknesses of the public administration and, more broadly, the general government sector have been a source of misallocation of resources, diminished effectiveness of policy implementation, impediments to private sector entrepreneurship and, indeed, social injustice,” he said in the letter, describing state reform as a top national priority.
“The implementation of these policies will be complementary to the growth-enhancing structural measures of the second economic adjustment program,” Papademos said of the kind of measures previous governments did not implement, adding, “the mutually reinforcing nature of this two-pronged strategy should bring forward the recovery of the Greek economy and forge the foundations for sustained growth.”
Barroso’s 41-page report listed problems still remaining in the failed Greek economy, which is essentially bankrupt, despite the bailouts and a $134 billion debt write-down gained by imposing losses of 74 percent on investors, including small investors who bought Greek bonds, many of them from the Diaspora who wanted to support their homeland but got burned despite promises they would be exempt.
“Greece suffers from a lack of capacity to implement policy, manage public finances, collect taxes, open markets to competition, make public procurement work efficiently and innovatively, pay suppliers, or offer timely judicial review to its citizens,” according to a draft document seen by Reuters, a long laundry list that poses problems for the next government, which must also either raise revenues or make an additional $15 billion in cuts.
(Sources: Kathimerini, Reuters)