With the clock racing before Eurozone finance ministers meet on July 8 to decide whether to approve a delayed 8.1 billion euro ($10.46 billion) installment, envoys from international lenders said they had agreed to sign off because the government was making reforms, but cautioned some were taking too long.
The report from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) paves the way for release of the critically-needed funds and allowed Greece to once again dodge a bullet and get more time to make reforms that have been delayed for years.
They added that the Greek authorities have “committed to take corrective action” to ensure that they are although the government typically had done just enough to get release of loans before settling back into complacency, critics have said.
The finance ministers of the 17 European countries that use the euro meet in Brussels later and are now expected to approve the release of another installment of the rescue funds that Greece has been relying on since May 2010. They will also assess the employment policies in the Greek public sector and overall reform.
Despite a six-year-long recession worsened by harsh austerity measures the Troika has insisted on in return for $325 billion in two bailouts, the report said that Greece’s reform program remained “broadly in line” with projections and that the economy could return to growth next year, contradicting the evidence that shows the Gross Domestic Product continuing to shrink.
The Troika noted that “policy implementation is behind in some areas” and that the Greek authorities have said they will do more to ensure delivery of the fiscal targets for 2013-14, noting in particular efforts to restrict overspending in the health sector.
The government has also “committed to take steps to bring public administration reforms back on track,” including pushing through plans to reduce the number of civil servants, one of the required measures that has been among the most contentious — and delayed — in Greece’s reform program.
The government must put 12,500 civil servants on administrative leave by the end of 2013, with the possibility of dismissal. Those targeted include 2,200 school security personnel, 3,500 members of the Athens municipal police, which will be disbanded and most of its members absorbed into Greece’s police force, at least 2,000 local government employees, 1,500 teachers and several employees of various ministries.
The report, released early on July 8, said that Greek authorities have “committed to take corrective action” to ensure budget targets are met for 2013-14. In particular, they noted that concrete steps are needed to gain control over health sector overspending. Greece has made similar promises but never lived up to them.
They also say Greece’s economic outlook remains “broadly in line” with projections and that growth should emerge next year, contradicting its own reports that show the economy is continuing to contract. The government, however, failed to persuade the lenders that the Value Added Tax (VAT) should be reduced from 23 to 13 percent for restaurants to help during a record tourist season.
The Troika’s Report:
Staff teams from the European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) have concluded their review mission to Greece. The mission has reached staff-level agreement, ad referendum, with the authorities on the economic and financial policies needed to ensure the programme is on track to achieve its objectives.
The mission and the authorities agreed that the macroeconomic outlook remains broadly in line with programme projections, with prospects for a gradual return to growth in 2014. The outlook remains uncertain, however.
While important progress continues to be made, policy implementation is behind in some areas. The authorities have committed to take corrective actions to ensure delivery of the fiscal targets for 2013-14 and achieve primary balance this year. These actions include concrete steps to gain control over health sector overspending. The income tax, property tax, and tax procedure codes are being reformed, and the autonomy and efficiency of revenue administration is being strengthened.
The authorities have also committed to take steps to bring public administration reforms back on track, such as by completing staffing plans by end-year, placing staff in the mobility and reallocation scheme, and meeting the agreed targets for mandatory exits. With the recapitalisation of the banking sector nearly complete, the authorities have committed to further steps to safeguard financial stability, including through the sale of two bridge banks and completion of their strategy for a four-pillar banking system.
These reforms are a further important step towards facilitating adjustment and enabling growth. The mission also discussed with the authorities progress in strengthening the social safety net, including through targeted employment and training programmes supported by the EU and a programme to provide access to primary health care for the uninsured.
The government is preparing the necessary legislation in support of its programme and will table an omnibus bill shortly before Parliament. The authorities are also preparing ministerial decisions and other legal steps to implement their commitments in the coming days. The staff-level agreement does not assume a temporary reduction in the VAT rate on restaurants and catering, but this issue of importance to the authorities will continue to be discussed with staff of the EC, ECB and IMF.
The Eurogroup and the IMF’s Executive Board are expected to consider the request for approval of the review in July.
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