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

IMF News, February 11, 2011

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

Staff teams from the European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) visited Athens during January 27 to February 11 for the third review of the government’s economic program.
The program is supported by a €80-billion loan from Euro area countries and a €30-billion Stand-By Arrangement with the Fund.
Program objectives:
- restore fiscal sustainability
- safeguard financial sector stability
- boost competitiveness to create conditions for sustained growth and employment
- maintain social fairness in shouldering the burden of adjustment

Overall assessment: the program has made further progress toward its objectives, though delays have occurred in some areas.
Major reforms still need to be designed and implemented to build a critical mass necessary to secure fiscal sustainability and economic recovery.
Outlook:
- the recession has to date been close to what was anticipated
- underlying inflation has remained low in the face of rising commodity prices
- downward movement of unit labor costs should support gains in competitiveness
- exports have performed well recently
- continued expectation that the economy will stabilize late in 2011

In 2010 the authorities delivered a 6 percent of GDP fiscal adjustment.
The deficit was reduced to about 9½ percent of GDP.
Budget implementation tensions: shortfalls in revenue collections and problems with spending control.
Government actions:
- begun to specify a medium-term budget strategy to realize full fiscal adjustment through 2014
- reforms cover taxation, health, public employment, and state enterprise reforms
- government is allowing time for consultation with social partners before moving to implementation
- full commitment and resistance to vested interests are identified as critical to success

Government continues to work toward securing a gradual return to bond markets at affordable interest rates.
Strong program implementation, with financial support from the international community, is key to achieving market access.
Important actions requested of the government:
- notably scale up its privatization program
- realize better returns from its extensive portfolio of assets
- establish a comprehensive inventory of the government’s real estate assets and define a phased action plan

Conditions: tight liquidity, rising non-performing loans, and contracting credit are putting strains on the banking system.
Positive developments: private banks have recently enjoyed some success in raising capital.
Required government action: make progress in addressing the stability and efficiency of the banks under its control.
Support mechanisms:
- the Eurosystem has been a key source of liquidity support, allowing banks to move toward a sustainable medium-term funding model
- the Financial Stability Fund is available to provide support to banks in the system, if needed

Progress: legislation covering aspects of the labor market, liberalization of closed professions, health care reform, licensing, and the competition authority has either been passed, or soon will be.
Implementation focus: authorities must ensure new frameworks are effective as soon as possible.
Priority reform actions to secure recovery include:
- reviving the tourist industry
- removing administrative barriers to exports
- strengthening public procurement
Approval of the conclusion of the third review will allow the disbursement of €15 billion (€10.9 billion by the euro area Member States, and €4.1 billion by the IMF).
The mission for the next program review is scheduled for May 2011.

Press Release: Statement by the EC, ECB, and IMF on the Third Review Mission to Greece, February 11, 2011.