«Greece must surely continue reducing its budget deficit, but society and political support have their limits and we»d like to make sure that we strike the right balance between fiscal adjustment and reforms,» Thomsen said.
Debt-laden Greece and its international lenders must focus less on deficit reduction and more on reform because there are limits to what society can tolerate, a senior IMF official said today.
With a long-awaited debt swap deal with private sector creditors almost secured, Athens’ focus is now squarely on its 130-billion euro (108 billion pound) bailout talks with the IMF, the European Union and the European Central Bank – its public-sector lenders collectively known as the troika.
Structural reforms and spending cuts are the main sticking points in the negotiations, which the EU and Greece want to complete by the end of this week. If they fail, Greece will plunge into a chaotic default that may spill over to other debt-laden countries such as Italy and Portugal.
«We will have to slow down a little as far as fiscal adjustment is concerned and move faster – much faster – with implementing reforms,» Poul Thomsen, the head of the IMF’s inspection team for Greece, said in an interview with newspaper Kathimerini. His remarks were published in Greek.
More reforms and slower deficit reduction would be a policy shift compared with the country’s first 110-billion euro bailout, which relied heavily on tax increases and less on spending cuts and which some economists blame for social unrest and the country’s worst post-war recession.
«Greece must surely continue reducing its budget deficit, but society and political support have their limits and we’d like to make sure that we strike the right balance between fiscal adjustment and reforms,» Thomsen said.
Despite an unprecedented tax onslaught, Greece has been consistently missing its deficit targets. Its budget shortfall is expected to have narrowed slightly last year to 9.6 percent
The minimum wage may have to be lowered and holiday bonuses cut to make Greece’s firms more competitive, Thomsen said in the interview. Greece may also have to fire civil servants, he said, adding however that the vast bulk of savings in the public sector payroll will come from retirements.
Greece’s lenders have demanded it make extra spending cuts worth 1 percent of GDP – or just above 2 billion euros – this year, including big cuts in defence and health spending.
«Talks about the programme will be completed very soon, it is a matter of days,» Thomsen said.
«We need assurances that whoever is in power after the election and reasonably wishes to make some changes in economic policy will be in line with the targets and the basic framework of the agreement,» Thomsen was quoted as saying by the paper.
Greek banks should not be nationalised as part of efforts to recapitalise them. «We don’t want the state to run banks,» he said.
buenosairesherald.com