Re­cov­ery is frag­ile, PBO warns

Par­lia­ment’s econ­o­mists say mar­ket re­turn will be sus­tained only via re­forms, mile­stone im­ple­men­ta­tion

Kathimerini English - - Focus - BY PROKOPIS HATZINIKOLAOU

Greece’s re­turn to the mar­kets on Tues­day con­sti­tuted a pos­i­tive sign, but if re­forms are not continued and the third bailout re­view is not swiftly con­cluded the coun­try risks slid­ing back into re­ces­sion, with so­cial ten­sion and more prob­lems in ob­tain­ing fi­nanc­ing from the mar­kets, the econ­o­mists of the Par­lia­men­tary Bud­get Of­fice warned yes­ter­day.

In its quar­terly re­port the PBO es­ti­mated the econ­omy would grow by 1.5-1.6 per­cent this year, un­der­cut­ting the gov­ern­ment’s es­ti­mate (1.8 per­cent) and stress­ing that the ap­par­ent re­bound is frag­ile: “To make it clear, [the re­cov­ery] will be in­ter­rupted if the coun­try leaves the path of re­forms. The same will oc­cur in case of po­lit­i­cal in­sta­bil­ity,” the PBO econ­o­mists ar­gued.

They did note that tap­ping the mar­kets could be in­ter­preted as a move ex­press­ing the gov­ern­ment’s in­ten­tion to ful­fill its ex­ist­ing agree­ments (the sup­ple­men­tary mem­o­ran­dum of un­der­stand­ing and the let­ter of in­tent to the In­ter­na­tional Mon­e­tary Fund), thereby paving the way for the per­ma­nent tap­ping of mar­kets af­ter the end of the bailout pro­gram.

The re­port said there are four fac­tors that will de­ter­mine the conti- nu­ity of bond is­sues for Greece: fis­cal sta­bil­ity, sus­tained ex­pan­sion (which re­quires re­forms and the im­ple­men­ta­tion of the bailout agree­ment), so­cial sta­bil­ity and co­he­sion (through the rem­edy of in­equal­i­ties, un­em­ploy­ment and poverty), and po­lit­i­cal sta­bil­ity with the great­est pos­si­ble po­lit­i­cal con­sen­sus.

It went on to warn that the pos­i­tive im­pact of the agree­ment reached last month re­gard­ing the 1.1644 sec­ond bailout re­view could prove tem­po­rary if the gov­ern­ment sends mixed mes­sages about its eco­nomic pol­icy ahead of the third re­view. This would par­tic­u­larly con­cern the im­ple­men­ta­tion of the 113 mile­stones of the ad­justed bailout agree­ment and the let­ter of in­tent to the IMF. The 113 prior ac­tions have to be im­ple­mented by the end of the third bailout in Au­gust 2018, with 95 of them hav­ing the end of the year as their deadline.

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