Greece’s Response To The Financial Crisis

— Recent Developments —

[As of August 24, 2010]

Highlights

1.    cut deficit by 40% (compared to the same period last year);

2.    enacted new legislation:

  • (in July) to increase retirement age to 65 and reduce benefits;
  • (in May) to shrink its bloated public sector;
  • (in April) to attack tax evasion (and is using IMF expertise for tax collection);

3.    cut public sector salaries by 15%, cut pensions by 10%, and froze public sector hires for 2010;

4.    ending corrupt practices by passing new laws and creating a commission to weed out past corrupt practices;

5.    “exceeded the deficit-cutting benchmarks set by the IMF” (New York Times, 7/8/10);

6.    “on track” according to IMF/EU Interim Review (July 6);

7.    “strong start” according to IMF/EU First Quarterly Review (August 5)

  • “important reforms are ahead of schedule
  • impressive progress is being made on structural reforms”
  • “landmark pension reform is far-reaching by international standards”
  • vigorous implementation of the fiscal program”
  • “end-June quantitative performance criteria have all be met
  • “authorities have kept spending significantly below budget limits at the state level”

8.    the July 8 passage of pension overhaul legislation is “further evidence for skeptical investors that Greece is committed to pushing through painful overhaul measures that will restore fiscal stability.” (New York Times, 7/8/10);

9.    in effort to end corruption and tax evasion, on August 2:

  • released list of 70 companies found in serious violation of tax law, including 15,000 violations in June and July;
  • in response to public complaints received on the new government phone line, announced dozens of audits of public sector entities, including hospitals, municipal authorities, as well as tax and customs officials;

10.   polls today show that 55% of Greeks back the program:

  • Protests have been relatively restrained since…early May – a sign perhaps that Greeks, while angry about the sacrifices forced upon them, understand that they have little choice but to tighten their belts.” (New York Times, 7/8/10);

11.   important recent quotes by Prime Minister Papandreou:

  • I do not care if this is my only term as Prime Minister.  I have done what I thought was necessary to save Greece from disaster.  And I will do what it takes to move my country forward and out of the crisis.” (6/11/10)
  • Today is the first time when I can look to the future with optimism.  We have taken difficult decisions, tough but necessary decisions.  And we are now witnessing the first signs that we are turning the corner. (6/11/10)
  • “The common denominator in all that we do is transparency everywhere. All our choices are aimed at one goal, to permanently change Greece. To enable it to stand firmly on its feet and emerge from the crisis into which it was led by the old, bankrupt, untransparent and clientelist political system.” (6/30/10)

Quote of the Day

July 29, 2010 – To end a debilitating strike that left most of the country without fuel and fresh milk, Prime Minister Papandreaou signed an order – enacted only a few times in the last 35 years – forcing back to work 35,000 Greek hauliers protesting plans to open the market to thousands of other truck drivers. Finance Minister Papaconstantinou said:  “No special interest group has the right to hold Greek society hostage. No one has the right to paralyze this country. No one.”

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More Details

Tough Measures Taken

  • A cut in public sector salaries by an average of 15% in nominal terms;
  • A cut in pensions in the public and private sectors by nearly 10% — while protecting those on lower pensions;
  • Horizontal cuts in public sector expenditure of 10%;
  • Freezing hires for 2010 in the pubic sector;
  • A 4-point increase in VAT;
  • A 30% increase in excise taxes – for alcohol, tobacco, and petrol.

Early Results

  • In the first 5 months of the year, the deficit is down 40% compared to the same period last year;
  • Revenues are up, and expenditures have been severely curtailed;

Steps to Shrink a Bloated Public Sector

  • recently enacted legislation to radically remake the country’s government structure:
    • reducing the number of states (prefectures) from 60 to 13
    • reducing the number of counties (municipalities) from 1,034 to 370
    • reduced layers of local administration from 5 to 3
    • abolished over 4,000 public sector entities

Greece is “On Track” IMF/EU Review Concludes

Greece’s economic reform “is on track and policies are being implemented as agreed” concluded a June 14-17 review and:

  • “pension reform is advanced;”
  • “fiscal developments are positive…[and] the state budget deficit was lower than was projected;”
  • “other structural reforms are also progressing;”
  • “in the financial sector, good progress is being made;”

Steps to Correct Tax Evasion

  • a complete overhaul of the tax system;
  • legislation passed in April makes the system more fair and effective and attacks evasion
  • passed a tax law which is asking the richer to pay their share of the burden for this crisis;
  • publicly shamed tax-dodging doctors;
  • using IMF expertise to guarantee best practices in tax collection;
  • a newly established Hellenic Statistics Authority now has full operational and administrative autonomy.
  • so people can see where their tax money goes, Greece tabled a law that requires every single money-related signature in the public sector – from the Prime Minister’s to a civil servant’s – to be on the Web.  As the Prime Minister said, this “is a huge, a huge change in creating a strong impediment for any kind of corruption.”

Steps to End Corruption

  • passed new laws concerning corrupt practices of public servants including politicians;
  • created commissions to weed out past corrupt practices where multinationals – such as Siemens – and public officials did deals under the table at the expense of the public good;
  • televising cabinet meetings;
  • full transparency and meritocracy in hiring and promotion in the public sector;
  • even top political posts were advertised through the “Open Government” system on the Web;
  • started investigations of low-level Finance Ministry officials who own homes worth more than $1.3 million, though they earn only modest salaries.

Steps to Overhaul Pension System (New York Times, 7/8/10)

  • “Greece took a big step toward overhauling its debt-plagued economy by forcing through a pension bill that would sharply pare down the country’s welfare state by increasing the retirement age and reducing benefits.”
  • “[this] represents the beginning of the end of the cradle-to-grave state compact.”
  • “In Greece’s generous pension system, many employees retire before they turn 50 and earn the right to rich payouts…[This] bill would unify the retirement age at 65 for men and women and would reduce payouts…”

New Business Development

  • Over the last few weeks, Qatar, Abu Dhabi, Libya, Azerbaijan, Turkey, Russia and Italy have signed strategic energy agreements that would make Greece a significant energy hub;
  • China is planning to pump hundreds of millions, perhaps billions, of Euros into Greece to make Greece’s port of Piraeus China’s link with consumers across Europe and North Africa.
  • simplifying doing business in Greece so that, as the Prime Minister says, a company can be started in Greece, “not in forty but in one step;”
  • passed laws to encourage investment in green technology, as wind, sun and geothermal energy are abundant in Greece.

For more details on the information above, please see the following:

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