Government warned over policy mix
Parliament’s Budget Office identifies a series of risks to Athens’s strategy, says reforms are necessary
Parliament’s Budget Office warns of serious risks to the Greek economy in its quarterly report, saying that “the country’s course is not secured.”
The report, published yesterday, describes the social security system and the national debt as being “unsustainable,” adding that increases in taxes and contributions are having a recessionary effect. It calls on the government to reduce its primary surplus targets after 2018 and says that the state is failing to offer any form of security to employees.
The authors of the report refer to “political tricks” that raise obstacles to reforms and privatizations demanded by the country’s creditors, and stress that the only route for a return to growth is the success of the third bailout program.
The report makes particular reference to the reform of the labor market that is slated to begin after the summer and the changes already imple- mented on taxation and social security contributions. On the labor issues, it notes that hampering the flexibility of enterprises does nothing in the way of offering more security to workers or in bringing new employees to production. What the state can do is offer a safety net for employees, it stresses.
On tax hikes, Parliament’s economists say that besides the recessionary consequences, “they put into doubt the achievement of the fiscal targets, thereby generating a new cy- cle of uncertainty.” The tax and contribution hikes also “do not help the country restore its competitiveness, both in the increase of exports and in attracting new investment.”
The authors argue that a rebound of the economy is not in sight, as consumption, exports and investments were on a downward course in the first half of the year. The recovery of the economy, moreover, will be hard to attain due to the policy mix of the new program, as tax measures may pay off in the short-term but the much-needed reforms will take time to count, they say.
Investments, the authors note, are going down and human resources being devalued, while the budget may suffer the impact of the new automatic system of expenditure reduction.
Another problem they see is that reactions to reforms continue and result in more uncertainty, adding the as-yet-unknown impact of the British decision to exit the European Union and the attempted coup in Turkey.