Economy will not recover ‘automatically’ without the necessary reforms, Parliamentary Budget Office warns

Greece’s economy will not recover automatically unless uncertainty about the future direction of policy is dispelled and the necessary reforms are carried out, the Parliamentary Budget Office (PBO) warned in its Executive Summary Report for 2016. The report was presented to Parliament President Nikos Voutsis by the head of the PBO Panagiotis Liargovas on Friday.

“2016 was not an easy year for economic and fiscal policy. 2017 will not be easy either, given that it has started with new delays in the implementation of the adjustment programme and the completion of the review,” the report said.

In the report, the PBO stressed the need to implement reforms agreed with the institutions and said this will create the conditions needed to avoid consolidating a state of ever-increasing burdens on the private sector, lower incomes in the public sector, restriction on capital movements, flight of businesses abroad, as well as the departure of highly-skilled young people in search of employment and dysfunctional structures.

A permanent solution to the problem of debt sustainability would eliminate a significant factor of uncertainty concerning the future of the economy and fiscal policy that affects investments, the PBO report said. It would also open the way for the country’s participation in quantitative easing, lower borrowing rates and facilitate a return to borrowing from markets, eliminating the country’s dependence on bailouts.

Achieving growth required new investments and these will chiefly come from the private sector since the public sector now had clear limits, while foreign investments will play a key role, the report said.

The report also touched on unemployment, noting that this will be reduced through economic growth on a firm foundation, which will mainly arise by creating a stable framework for private investments on a broad scale. It also warned against further delays in necessary pension reforms, pointing out that the longer these are postponed, the higher the final bill in order to take the system sustainable will be, while reducing the margins for a fair distribution of the burden.

According to the PBO, more systematic intervention policies on the spending side were needed as part of an overall review of their composition, in order to achieve savings and greater efficiency. Spending cuts would have a smaller recessionary effect than raising taxes, it noted, since the latter discouraged work and enterprise and undermined the prospects for recovery.

Other sections of the report highlighted a continued lack of stability in the legal framework, which it said combined with other factors to prevent growth. The causes and symptoms of an “institutional anaemia” or the country’s inability to establish and enforce generally applicable and firm rules in the game, “were not being corrected,” it said.