Debt cut must come with re­form

Par­lia­men­tary Bud­get Of­fice warns there is no point in eas­ing the coun­try’s arrears with­out key changes

Kathimerini English - - Focus -

If Greece is to exit its fi­nan­cial cri­sis, it will re­quire a re­struc­tur­ing of the na­tional debt com­bined with sub­stan­tial re­forms, ac­cord­ing to the Par­lia­men­tary Bud­get Of­fice, which warned yes­ter­day in its in­ter­me­di­ate re­port on the Greek debt that re­struc­tur­ing alone is not the right recipe.

Ti­tled “The Debt Trap,” the re­port, pre­sented yes­ter­day by PBO head Pana­gi­o­tis Liar­go­vas, stresses that “a debt re­struc­tur­ing by it­self, with­out some deep re­forms, would not help. In a few years’ time Greece would again be on the ra­zor’s edge. There­fore Greece will have to con­tinue with re­forms in cru­cial sec­tors such as jus­tice and com­bat­ing cor­rup­tion and tax eva­sion, and by im­prov­ing state mech­a­nism op­er­a­tion and gov­er­nance. Only in this way will it en­sure that it does not re­vert to a bank­ruptcy sit­u­a­tion.”

The Par­lia­men­tary Bud­get Of- fice’s econ­o­mists have also recorded the course of the Greek debt since the bailout process be­gan in 2010, and the rea­sons the coun­try has still not man­aged to bring it down. The re­port fo­cuses on in­vest­ment re­duc­tion, en­ter­prises’ ac­cess to fi­nanc­ing, and po­lit­i­cal un­cer­tainty.

“While Greece has man­aged to re­duce its fis­cal deficit, and in spite of the PSI hair­cut in 2012, the coun­try is al­ready in its sev­enth year of re­ces­sion, gross do­mes­tic prod­uct has shrunk by about 25 per­cent, the debt has jumped to 175 per­cent of GDP, and the un­em­ploy­ment rate is par­tic­u­larly high,” the re­port reads.

It added that, “at the same time, in­vest­ments – which are ab­so­lutely nec­es­sary for the im­po­si­tion of a new eco­nomic pro­duc­tion model – have di­min­ished sig­nif­i­cantly, and the ac­cess of cor­po­ra­tions to funds is par­tic­u­larly prob­lem­atic. 1.0622 This dis­mal sit­u­a­tion also in­creases un­cer­tainty (on a po­lit­i­cal and so­cial level), gen­er­at­ing a vi­cious cy­cle.”

The re­port’s au­thors es­ti­mate that Greece has been trapped in a “self-feed­ing re­ces­sion­ary spi­ral,” which they at­tribute to the ex­ces­sively high na­tional debt that af­fects key growth pa­ram­e­ters, and the un­cer­tainty as a re­sult of the debt cri­sis and the low qual­ity of the coun­try’s in­sti­tu­tions.

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