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02 May 2010

The Economic Adjustment Programme for Greece


This report by European Commission staff provides an overview of the challenges faced by Greece, discussions with the authorities, and the objectives and design of the economic and financial programme.

Sustainability-enhancing fiscal consolidation is urgently needed. The immediate priority is to contain the government’s financing needs and reassure markets on the determination of the authorities to do whatever it takes to secure medium- and long-term fiscal sustainability. Consolidation should rely on measures that generate savings in public sector expenditure and improve the government's revenue-raising capacity. In parallel, measures are needed to reassure on the durability of the fiscal adjustment, including by specifying and locking in consolidation measures for 2011 and 2012, reforming the pension system and strengthening the fiscal framework. The programme should also consider flanking structural policies, such as public administration reforms and measures to fight against corruption and tax evasion.

Financial sector policies need to maintain stability of the system. An urgent task is addressing the tight liquidity conditions in the Greek banking system. Banks have lost access to international money markets and their funding since end-2009 has increasingly relied on Eurosystem credit operations. In order to avoid deposit outflows, credible measures and good communication are needed to provide reassurance on the stability of the system. In parallel, it will be important to strengthen monitoring of liquidity and asset quality (including nonperforming loans), with a view to preventing problems in individual banks.

The medium-term programme objective is to improve competitiveness and alter the economy’s structure towards a more investment- and export-led growth model. In parallel with short-term anti-crisis fiscal measures, there is a need to prepare and implement an ambitious structural reform agenda to strengthen external competitiveness, accelerate reallocation of resources from the non-tradable to the tradable sector, and foster growth. Structural reforms that boost the economy’s capacity to produce, to save and to export are critical for the success of the programme and recovery of the economy. Reforms are, in particular, needed to modernise the public sector, to render product and labour markets more efficient and flexible, and create a more open and accessible business environment for domestic and foreign investors, including a reduction of the state’s direct participation in domestic industries. The deep structural reforms foreseen in the programme, including reform of public management, will not only help address current challenges but will also boost growth prospects in the medium and long run.

An overarching objective is to durably restore Greece's credibility for private investors. The poor track record of Greece in terms of delivering on commitments and promises, and a history of unreliable fiscal and macroeconomic statistics are major additional burdens on the programme. Greece needs to improve its signature through positive track record in data reporting and policy implementation. This is critical for the success of the programme because Greece will need to raise some €60 billion in financial markets both in 2014 and in 2015 – after the end of the programme – to finance its public sectordeficits, roll over its debt and also repay maturing liabilities to euro area partners and the IMF.

Full document



© European Commission


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