Press Release: Statement by the EC, ECB, and IMF on the Second Review Mission to Greece

IMF News, November 23, 2010

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Canonical URL: Press Release: Statement by the EC, ECB, and IMF on the Second Review Mission to Greece

Publication date: November 23, 2010.
Staff teams from the European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) visited Athens during November 14-23 for the second review of the government’s economic program.
The program is supported by a EUR 80 billion loan from Euro area countries and a EUR 30 billion Stand-By Arrangement with the Fund.
Overall assessment: the program remains broadly on track; the end-September quantitative criteria have all been met.

Program objectives:
- Restore fiscal sustainability.
- Safeguard financial sector stability.
- Boost competitiveness to create conditions for sustained growth and employment.
- Maintain fairness in the program.
Outlook:
- The economy is expected to begin turning around in 2011.
- Wage and price inflation is beginning to moderate, setting the stage for improvements in competitiveness.

Achievements and challenges:
- The deficit reduction by 6 percent of GDP in 2010 is larger than the initially targeted change.
- Data revisions for 2009 and weaker-than-projected revenue collection mean an extra effort will be needed to meet the deficit target of 7.5 percent of GDP in 2011, which the government has reaffirmed.
Agreed new measures to broaden tax bases and eliminate wasteful spending, particularly in:
- Health spending—which is inefficient relative to other euro zone countries;
- State enterprises—which are a heavy burden on the economy with perennial losses for Greek taxpayers; and
- Tax administration—which has instruments now coming into place to strengthen compliance.
Medium-term fiscal anchor:
- The government’s fiscal policy remains anchored in reducing the deficit to below 3 percent of GDP by 2014.
- The government’s medium-term budget strategy paper, to be discussed in the next review, will specify time-bound action plans for crucial structural reforms needed to achieve the remaining fiscal adjustment, and to do so in a socially balanced way.

Program effectiveness:
- The program has been effective in supporting stability.
- Activation of the EUR 25 billion expansion of the government program to guarantee bank bonds, adopted in August, will contribute to support the liquidity position of Greek banks.
Market developments and capacity:
- Some private banks have had some success recently in raising funding as well as capital in the markets.
- While the banking system remains under some pressure, capital is adequate.
- As envisaged under the program, the Financial Stability Fund is now available to provide support, if needed.
Government actions:
- The government has analyzed options for banks under its control and devised a program to address their stability and efficiency.
- Banking and insurance supervision are being strengthened.

Purpose: secure Greece’s competitiveness, reinvigorate output, and increase employment.
Progress: significant progress has been made, with some landmark reforms—including pension reform.
Critical juncture: many necessary reforms to transform Greece into a dynamic and export-driven economy require skillful design and political resolve to overcome entrenched interests.
Next-stage reform agenda includes:
- Aligning wages more closely with firm-level productivity, including through reform of arbitration and collective bargaining systems.
- Opening up access to services, trades, and professions.
- Unlocking the potential of Greek industries by cutting red tape and barriers to entry, and privatizing state assets.
Summary judgment: the reforms needed to return Greece to robust economic growth are underway, but structural issues must be dealt with to make the adjustment sustainable.

Approval of the conclusion of the second review will allow the disbursement of EUR 9 billion (EUR 6.5 billion by the euro area Member States, and EUR 2.5 billion by the IMF).
The mission for the next program review is scheduled for February, 2011.

Statement by the EC, ECB, and IMF on the Second Review Mission to Greece, November 23, 2010.