Greek populism made adjustment worse, EU's Dombrovskis says

TAGS: Politics, Economy, Diplomacy

Greece has had to go through tougher austerity than it would have otherwise been necessary, because of the populist stance of the left-wing government of Alexis Tsipras in 2015, European Commission Vice-President Valdis Dombrovskis said on Monday.

Tsipras, who took power in January 2015, rejected belt-tightening in public finances requested by lenders in exchange for emergency loans and reversed some of the reforms introduced by the previous Greek governments.

As new loans were frozen, Greece defaulted on the International Monetary Fund in July 2015 and had to introduce capital controls to prevent its banking system from collapse.

"Populism doesn't solve problems. Populism creates problems," Dombrovskis told a round-table in Riga in a discussion on the growing support for populist parties in many EU countries.

"We could see that in the ... classic example of Greece. A new government came with a populist stance, that we don’t need any austerity regimes, we will spend as much as we want," he said.

"And, in fact, Greece now implements tougher austerity measures than it would have been necessary if [reforms] of the previous government were continued at the time," he said.

Dombrovskis said that because of the Tsipras government's policies, Greece fell back into recession in 2015 instead of accelerating growth to 2.5 percent forecast had reforms been continued.

In August 2015 the euro zone and Greece agreed on a third bailout package involving more reforms in exchange for new loans and the first review of the reforms, although delayed by six months, was completed in June.