Parliament’s budget office: Economic recovery remains difficult for Greece

Economic recovery remains difficult for Greece after last year’s six-month confrontation with the country’s lenders, the parliament’s budget office said on Monday in their quarterly report on the Greek economy for quarter July-September 2016, adding that the government must take ownership of the program’s reforms.

In its analysis, the budget office also says it is necessary to have a significant debt restructuring to allow Greece to exit from its debt trap, while it also proposes a restructuring of the policy mix followed by the government in favour of saving costs and reducing taxes which causes recession.

“We share the assumption of many (in the government and the opposition) that the scope for targeted cost savings has not been exhausted, for example in public procurement, public works and the State expenditure,” the report says, adding that privatisations must be implemented with conditions that would prevent the conversion of state monopolies into private ones.

Concerning changes in labour law, the report proposes establishing a system that combines flexibility in decisions with security for employees.

At the same time, the budget office expressed its reservations concerning the forecasts on growth included in the government’s 2017 budget (2.7 percent) and those made by the Bank of Greece and the institutions.

“The government and the Bank of Greece expect an almost exponential growth in 2017, by 2.7 percent of the GDP. The same optimistic forecast is included in the 2017 budget plan (October 2016). In fact, the International Monetary Fund agreed too. However, the data we have available do not allow such optimism,” the office said in its report, but added that if the current forecasts on revenue and other economic targets are met, “it will be possible to avoid the activation of the so-called ‘cutter’ in 2017”, referring to the contingency mechanism.

“In the coming months it will become increasingly important to revise the targets for primary surpluses downwards and achieve a final ‘settlement’ on the debt. The government and the opposition seem to agree on this goal and have as an ally in the IMF,” the report continues.

It also says that compensatory actions, mainly by the government, could significantly reduce the recessionary impact of tax-centered adjustment policy. These actions, combined with a development-friendly (and socially fair) plan to cut primary spending and fight tax evasion, may lead to “expansionary fiscal consolidation”, the report says.