Interview with Poul Thomsen, Deputy Director of the IMF’s European Department and Mission Chief for Greece
Published in Real News, January 27, 2013
Real News: Which are the challenges and risks that Greece is facing in implementing the program? Which should be the government’s priorities in the coming months?
Thomsen: Greece has made considerable progress in its program, particularly in improving its finances, competitiveness and financial stability. And the country’s debt problem is being brought under control with the assistance of Greece’s European partners. Moreover, the pieces are in place to allow Greece to recover. With the resources that have been made available, the country has time to adjust its finances and improve its competitiveness in the euro area. Greece needs to use this time well. The near-term priorities are clear: invigorate productivity-boosting structural reforms, fix tax collection problems, and shrink the bloated state sector by closing or privatizing state entities.
Real News: According to the IMF what should Greece do to deal with tax evasion?
Thomsen: There is no question that there is considerable disappointment about progress with tax administration reforms. Vested interests, a lack of leadership over the last year, and inadequate political commitment have blocked reform efforts. The government has recognized that the lack of progress on tax administration is a serious problem, and their program now includes steps to address it. For example, greater autonomy will be given to the tax administration to protect it from political pressure, and revenue administration staff will be made more accountable for their performance. Stronger internal controls will be put in place, and interactions between the public and the administration will be simplified to limit opportunities for corruption. It will, of course, take time for the results of these efforts to become evident. The program will review progress during the second half of 2013.
Real News: Do you think that Greece will have to take additional austerity measures in order to achieve the program’s targets?
Thomsen: Greece has done an impressive job so far on fiscal consolidation. If better progress with structural reforms helps to promote earlier and faster recovery, and especially if Greece can do a better job collecting taxes, then the government should be able to avoid further wage and pension cuts. It is thus critical that these structural reforms be vigorously implemented.
Real News: Greek society asks for the relaxation of some harsh austerity measures of the bailout program. Do you believe that these requests have a basis and can be discussed?
Thomsen: Of course, we have already seen the fiscal adjustment period prolonged and the target adjusted downward to smooth the impact of adjustment. Still, there is no doubt that some adjustment measures in the government’s program have been socially painful. Cuts in pensions and wages were necessary because the surge in these was precisely the main reason behind the rise in Greece’s fiscal deficit. I would like to highlight, however, that these fiscal adjustment measures and others have been designed with an emphasis on protecting the most vulnerable social segments. Nevertheless, I would reiterate that austerity measures can only be taken off the table when deeper structural reforms—especially to collect more taxes—gain better traction.
Real News: The IMF sees a funding gap of up to €9.5 billion. Do you see the need for a new loan agreement between Greece and the “troika”?
Thomsen: We have estimated additional financing needs to be between €5½ billion and €9½ billion for 2015-2016. What is key is that Greece’s European partners have committed to support Greece during the life of the program and beyond, provided that the country fully implements its program. This funding should be put in place on a timely basis—at least a year ahead of any needs—but the precise modality for how Greece’s European partners approve it is for them to decide.
Real News: IMF says that further measures are necessary to help Greek debt’s sustainability. Which are those measures? Do you believe that a haircut on the bonds of the official sector at a later stage is necessary?
Thomsen: Greece's European partners have said that they will provide additional debt relief if the country meets its fiscal targets. They have said that they will first take stock of the situation in a year or so, and then provide more substantial relief if it is needed, and provided Greece is meeting its program commitments. Now, they have not said exactly how the debt relief would be provided. There are various options including more generous terms on loans or outright transfers. Haircuts are not essential. But the key is that Europe, for the first time, has recognized that Greece’s debt is not sustainable without transfers from Europe to Greece, in one way or the other, and that there is a commitment to provide that.
Real News: Greece signed the first memorandum in 2010. Looking back which are the main mistakes that have been made by both sides (Greece and the “troika”)?
Thomsen: The Troika and IMF have made every effort, from the start, to support Greece during its crisis and help it recover. We realized that it was a difficult program, and we realized that there were substantial risks. Some of these have come into play. For instance, the environment was very different in 2010, with a protracted European crisis and a Greek political crisis not expected, and both have ended up working against Greece’s recovery. Looking back, we would have liked to better perceive Greece’s implementation capacity—the ability of the political system to quickly deliver the needed reforms. That has been less than expected, but it is also important to note that the program has adjusted to this, with the fiscal adjustment timeline stretched out, and with fiscal and privatization targets reduced to levels that we and the government consider to be more achievable for Greece.