Envoys from international lenders are set to return to Athens on June 4 to conduct yet another review of Greece’s books, at the same time that the International Monetary Fund admitted the country’s first $152 billion bailout plan was messed up from the beginning.
The inspectors from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) will review the size of the potential fiscal gap for 2015-16 ahead of a new midterm fiscal plan being drawn up in September, the bank recapitalization process and the resolution of failed lenders.
Also up for a look are the privatization process and whether the target will be reduced from 2.6 billion to 2 billion euros, the firing of civil servants and structural reforms that include changes to the energy market, which is one of the “prior actions” required before the next tranche of 3.3 billion euros ($4.28 billion) is released.
Poul Thomsen, the head of the IMF’s representation in the Ttroika, and the other top officials from the European Commission and the European Central Bank are not expected in Athens until June 11, after other examiners begin work.
The IMF’s executive board met late on May 31 to approve the disbursal of 1.74 billion euros ($2.25 billion) to Greece as Managing Director Christine Lagarde gave a mixed appraisal of the country’s efforts, which noted that fiscal targets are being met but that some reforms are lagging.
“Greece is well under way to complete its ambitious fiscal adjustment plan, and is on track to meet its 2013 fiscal targets,” she said. “A critical priority is to tackle tax evasion by pressing forward rapidly with reform of the revenue administration to improve operational independence and make the burden of adjustment more equitable.”
“Efforts continue in earnest to address external imbalances and restore competitiveness, notably through far-reaching labor market reforms, which have increased wage flexibility,” the IMF head added. “Broader structural reforms to enhance productivity and improve the business environment need to be accelerated, including the liberalization of regulated professions and other product and service markets.”
Lagarde, however, nixed any idea that Greece will be able to cut some taxes, including the 23 percent Value Added Tax (VAT) that is killing many restaurants and foo sector businesses. “Pressures to reduce taxes using the space from any fiscal over-performance should be resisted,” she said. Prime Minister Antonis Samaras also wants to cut the corporate tax rate to lure investors so that the country won’t have to keep cutting pay, raising taxes, slashing pensions and relying on aid to survive.
During the three-hour meeting, three reports on Greece were reviewed, including one that IMF officials have been compiling over the last few months in an effort to assess the mistakes of the first Greek bailout, agreed in May 2010.
Kathimerini said that the report identifies several major mistakes in the agreement, including a failure to implement an early debt restructuring and basing it on incorrect macroeconomic assumptions. The report also criticizes the IMF’s own analysts for mistakes and describes 2011 as being a “lost year.”
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