Transcript Διαφάνεια 1

Greece –
Current state of affairs and the way forward
Business Europe EXCO / March 2015
Bailout programs at a glance
(Start of program till end of 2014)
• € 241,8 bn (107% of GDP)
• € 78 bn (43% of GDP)
• € 85 bn (49% of GDP)
• -24,1% in GDP
• Unemployment from
9,6% to 26,6%
• Nominal
compensation per
employee: -14,6%
• -2,9% in GDP
• Unemployment from
12% to 14,2%
• Nominal
compensation per
employee: -1,1%
• +11,4% in GDP
• Unemployment from
13,9% to 11,1%
• Nominal
compensation per
employee: 2,7%
Greece
(May 2010)
Portugal
(May 2011)
Ireland
(January 2011)
Data base year before program approval. AMECO data
.
Fiscal adjustment results at a glance
Primary budget balance of the general government (% GDP)
Source: February 2015 forecast of the European Commission.
Excluding
one-off
measures
(the middle
data panel of
the table)
and both
one-off
measures
and the
impacts of
the economic
cycle (i.e. the
structural
balance, the
right data
panel of the
table),
Greece has
clearly
implemented
the largest
fiscal
adjustment
among
Eurozone
programme
countries.
Economic & political impact
…of the
Greek
adjustment
program
•A steep increase in unemployment 27% and a
historical fall (-24%) in GDP.
•Significant reforms were implemented but did
not eliminate the regulatory gap with the euro
area average.
•A large fall in (especially) private sector
employee compensation (low by euro area
standards even in 2010) improved much labor
competitiveness but did little to overall
competitiveness.
•Primary surplus has been mainly achieved by
overtaxation and fiscal cuts.
•Political system volatility - 4 elections in 5
years. Complete meltdown of Social democrats
(PASOK) from 44% (2009) to 4,5% (2015). Rise of
radical left SYRIZA from 4,6% to 36%. Rise of
neo-nazi Golden Dawn 7% (2015) and populist
right (Independent Greeks).
•Public support for the euro has increased (7080%)
An unprecedented fall in GDP (over 25%)
and employment
Reforms have been implemented in 2010-14.
Still plenty of room to improve.
Indicative list of reforms 2010-2015
Labour market
and pension
system reforms
• 2012 labour market reforms introduced increased flexibility in the
determination of wages and reduced the minimum wage. This
allowed the adjustment of the economy to shift from cutting jobs to
cutting wages, and ultimately for the increase in employment.
• Consolidation of pension funds and severe cuts in pension expenses
Business
environment
reforms
• It is easier to start a company.
• Significant improvement in the licensing process of smaller
companies and the workings of customs.
• Liberalization of closed professions (fees and excessive entry
restrictions for lawyers, engineers and numerous other professions).
Tax reforms
• Revamping of tax codes
• Restructuring of tax authorities
The tax paradox:
Improved tax revenue for the state came from
overtaxation and not tax evasion
Greece now levels on the EU average regarding tax
revenue. BUT this achieved by high taxes at the individual
level for honest taxpayers.
Tax and social security payment evasion in particular by
numerous smaller companies and self-employed.
This discourages in particular the development of larger
companies that depend on well-paid salaried employment.
Therefore the part of the tax base that is lucrative for the
state is thin and as a result we have:
Modest tax and social security revenue for the state by
squeezing out the few.
The simplest index:
per employee average gross earnings in the Greek
private sector less than half of euro area average.
What has gone wrong in Greece
“It takes 2 to tango”
Troika
Institutions
- Policy design
Greece Implementation
• Lack of experience-expertise in economic restructuring and debt management within a
single currency union. “Haircut” was a dirty word back in 2010 due to incomplete EU
structure.
• Lack of appropriate European mechanism to deal with a sovereign debt crisis.
• “Big problem, little time”. Only suitable analogy with the case of East Germany which took
15 years to restructure.
• Strategic mistakes contracted real economy (e.g. government lending from the
Eurosystem) and growth forecasts never materialized.
• The debt crisis evolved into a financial crisis. Access to liquidity for businesses was not
addressed appropriately and on time. Cost of money still impedes export-led growth.
• Structural reforms should have been key pillar of the program, along with fiscal
adjustment. Not vice versa.
• Greek governments should have opted for “fair austerity”. Instead, due to incapacity, they
opted for horizontal austerity measures and tax increases instead of targeted ones which
a) framed the program as UNFAIR in the mindset of people and b) plummeted any growth
potential for years.
• Political elites and public administration are generally anti-reformists and unsophisticated
in policy design.
• Fragmented social welfare services did not avert expansions of social inequality and
widespread new poverty.
• Institutions and Social Partners are weak and not properly integrated in the reform agenda.
• A stronger emphasis on wage adjustment (where less was to be gained in terms of
competitiveness within a self-employed business structure) and a weaker emphasis on
structural reforms and reduction in administrative burden.
What is at stake now
Greece: squandering of past achievements,
loosening of external pressure to go on with
reforms & strengthening of institutions within
EU principles and values.
EU: increase “fear of currency” in the euro
area, endanger coherence of the Union in the
long term taking also into account the
geopolitical dimension.
SEV priorities
Achieve a successful deal with the EU
Work solutions for private sector financing
Reduce non wage cost to increase salaried employment
Rationalize energy prices for production
Ensure a level playing field in taxation and labor law enforcement
Continue with useful reforms (eg justice, licensing, coordination of audits for
companies) in consultation with Social Partners.
Privatizations as key accelerators of efficiency – ownership does not matter,
management does.
12
Our Way Forward
Further integration to
secure a sufficient level
of common policy
implementation not only
in the financial and fiscal
dimension, but also in
the dimension of
economic (structural)
policies.
Reduce rhetoric tensions
and work together to
remove uncertainty.
Encourage and support
the Greek government to
work in the right
direction with adequate
policy space within a
reasonable timeline.
Effectively, that is,
complete the Single
Market and EMU.
Take away messages
There has been substantial progress on all fronts! We need to
avoid the ACCIDENT.
The agenda of the new Greek government includes some
notable priorities (eg tax evasion, corruption).
In spite of a political slowdown, we the Business Community
have to promote the European agenda on all possible levels –
economic, social, political.