For the Greek economy to recover and the country to enter a period of inclusive growth, the Greek government has to go further than the significant labor market and pension reforms and also implement product market reforms, says Organization for Economic Cooperation and Development (OECD) Secretary General Jose Angel Gurria. He notes that the real challenge is for Greece to recover its competitiveness and in that context underlines the need to reduce oligopolies and monopolies and create an environment of healthy competition with equal opportunities and less bureaucracy. At the same time he talks about the need to reduce the debt burden, which will contribute to the stabilization of the economy and attract investors.
Gurria closely follows developments in Greece. Last March he was in Athens where he presented the OECD's biannual economic report on Greece, while a few weeks ago he received the leader of the Greek opposition, Kyriakos Mitsotakis, at the organization's headquarters in Paris.
After having extensively analyzed Greece, what would you say are the main shortcomings of its economy?
The Greek economy is gradually recovering but is still subject to high uncertainty. Undoubtedly, the prolonged crisis has taken its toll, with unprecedented social costs: Gross domestic product dropped by 26 percent between 2007 and 2015, unemployment remains very high at 25 percent with youth unemployment at 50 percent, anchored poverty – which measures poverty relative to its pre-crisis income level – has almost tripled between 2007 and 2014. It is now imperative to create the fiscal space needed to finance a social safety net.
Greece needs to focus its efforts on the promotion of inclusive growth. Its government has implemented significant labor market and pension reforms, now it’s time to make progress with product market reforms. To promote a more inclusive and sustainable type of growth, Greece needs to level the playing field, strengthen competition and promote entrepreneurship. For that, it will be essential to reduce monopoly or oligopoly power, the regulatory burden and weaknesses of the public administration. Promoting stronger competition in key network sectors, like energy and transport, can have short-term positive effects, making Greece more attractive to foreign direct investment (FDI) and boosting exports. Boosting exports and investment will lead to growth while helping to create jobs, raise household income and better enable the government to tackle the social repercussions of the crisis. It is estimated that the implementation of major product market reforms could add another 4.4 percent to real GDP over 10 years.
What about fiscal policy?
Regarding fiscal policy, we recommend broadening the tax base and strengthening the tax administration. This can provide an important boost to the fight against tax evasion and also enhance revenues to finance social policies and increase fairness. Nonperforming loans (NPLs) are also holding back credit. Our survey suggests improving the bankruptcy framework to speed up the resolution of NPLs and introducing effective incentives and performance targets for banks to monitor their progress in reducing those loans.
What are the main obstacles to a better functioning of the Greek economy? How do you explain the abnormality of prices of goods remaining high despite wages and pensions being drastically reduced in recent years?
One of the reasons could well be a series of structural barriers and excessive administrative burdens that have led to reduced competition within the Greek market. Naturally, these distortions are at the expense of the consumer, who can only benefit from stronger or healthier competition.
This is exactly the scope of the Competition Assessment Project, launched recently by the OECD at the request and with the close cooperation of the Greek government in order to identify abnormalities in selected sectors and help the government to address them. In fact, previous OECD studies reveal that lifting regulatory barriers to competition in key sectors can deliver consumer benefits and higher turnover of about 5 billion euros per year, corresponding to about 10 percent of those sectors’ turnover.
How can Greece recover its competitiveness with a hard currency?
The real challenge is for Greece to recover its competitiveness, period. All our efforts go toward achieving just this. In recent years, the Greek government has made significant reforms and our recently released Economic Survey pinpoints where we believe all efforts should focus. Adopting such policies would be a success of the Greek people, because it will mean that the most important goal, that of inclusive and sustainable development for the country’s economy, has been achieved – with or without a hard currency.
How do you assess the present Greek government's performance?
We believe that the Greek government is making a serious effort to engage the challenges presented by a crisis that is persistent and has extracted a high social cost. Naturally, all Greek governments that have dealt with this unprecedented and profound phenomenon have striven sincerely and devotedly to achieve the best results possible given the adverse circumstances. They didn’t all succeed.
The OECD is your country’s ally in this effort and the full force of our technical expertise is at the disposal of the Greek government. In fact, our collaboration with Greece is at its strongest point. Throughout the whole of 2015 and in the first months of 2016 we launched a Strategic Collaboration, engaging with the government of Prime Minister Alexis Tsipras on a variety of key topics, from improving public administration and tax collection to enhancing equity in the pension system, reducing administrative burden and promoting competition. We are now working for and with the Greek government, in partnership with the European Commission, to address three major structural challenges: enhancing competition in five key sectors (construction, media, wholesale trade, e-commerce and certain manufacturing sub-sectors), reviewing and upgrading Greece’s education system, and strengthening and implementing the National Anti-Corruption Plan. The commitment and collaboration of the Greek government in all three projects has, so far, been notable.
How important is the recent conclusion of the review by the country's creditors?
The successful conclusion of the review in the last Eurogroup meeting is undoubtedly an important hurdle that has been cleared. It also recognizes the importance and scope of the reforms which were passed through Parliament. Hopefully, in time, this result will lead to a much needed boost to confidence, investment and consumption, and the economy can gradually begin to rebound. It is now imperative for the debt negotiations to proceed in order to reduce Greece’s debt burden.
Is Greece still high on the international agenda – you were recently at the International Monetary Fund / World Bank spring meetings – and, if so, why?
Greece is certainly a top concern and priority for the international community and especially for the European Union, for many reasons. First and foremost, because of the historic social crisis the country is facing, with a GDP contraction of 26 percent and levels of unemployment close to 25 percent, which in the case of young people exceed 51 percent. There is no record of an OECD country that has gone through such a cataclysm.
But Greece is also high on the international agenda because of the unsustainability of its public debt and the imperative need to lighten this burden to stabilize and return to a growth path; because of the dimension of its refugee crisis; because of its strategic geopolitical position; and because of its rebound potential.
Greece faces many challenges, but it also has one of the hardest-working labor forces among the OECD member-states, with education levels still above the PISA OECD average.
What are your expectations regarding the OECD’s current commitments in Greece?
As I mentioned before, in March 2015, the OECD and the Greek government agreed to cooperate more closely in areas which are important in tackling both the economic and the humanitarian crises in the country. In addition, following the signature of the Memorandum of Understanding between Greece and the institutions, in August 2015, the OECD has been tasked with providing structural reform support to the Greek government in several sectors.
In January of this year we launched with the Ministry of Economy, Development and Tourism a competition assessment project: “Competition Assessment of Laws and Regulations in the Greek Economy.” The project’s main purpose is to assess the existing legislative framework and identify all potential obstacles to the functioning of markets in construction, media, wholesale trade, e-commerce (a relatively new sector) and some sub-sectors of manufacturing (e.g. chemicals, rubber, electrical equipment). The team of OECD experts, already hard at work, will employ their considerable expertise on the issue of competition policies. The OECD will make specific recommendations for the elimination of these obstacles. The Competition Assessment Project aims to bring tangible benefit for Greek consumers and – ultimately, of course – for the competitiveness of Greek enterprises.
The project has five stages. We started with mapping all relevant legislation in each sector and are currently on stage two, scanning this legislation for potential obstacles to competition. Then we shall analyze the findings of this scan to assess the harm to competition and will make recommendations for the redesign or elimination of all harmful regulations. We are consulting with the public administration and the private stakeholders to gather their input and their feedback on our work.
What is your assessment of other major sectors such as healthcare, education and so on?
We are also actively working with the Ministry of Education on a project called “Supporting Education Policy and Development in Greece.” This project follows on from the work done by the OECD in 2012 on “Education Policy Advice for Greece” and focuses on a more targeted approach by providing technical support in specific areas identified by Greek and OECD experts as the most important, including, among others: the autonomy of schools, universities and other post-secondary institutions, the development of all-day schools, and training and development for effective school leadership. The education project is currently in its initial phase and is expected to be finalized by June 2017.
In addition, we are actively working with the Ministry of Justice, and in particular with the General Secretariat Against Corruption to launch a project which will support Greece in implementing its anti-corruption strategic plan. This is of paramount importance in regaining the trust of the public in government and institutions, and of course in improving the investment climate in Greece and therefore increasing FDI, which remains crucial at this time. The project, “Technical Support for Fostering Integrity and Tackling Corruption,” will focus on specific areas such as strengthening enforcement and public and private sector integrity; enhancing anti-corruption awareness among stakeholders; as well as promoting public and private sector partnership in combating corruption.
Last but not least, when I visited Athens in March this year to present our latest Economic Survey, I held a series of discussions with the prime minister and cabinet ministers during which we explored further possible areas of collaboration. These include work on migration, an innovation policy review, a tourism policy review, as well as an investment policy review.
Let me stress that we have both a formal mandate but also an unwavering commitment to provide support to Greece and to its people so that they can safely exit the crisis they have been experiencing for so many years. Our primary – and common – aim is to bring the Greek economy back to a sustainable path while making it fairer and more inclusive.