By Tom Ellis
Greece will have to move ahead with an abrupt fiscal adjustment as that is the only way it can regain the confidence of the markets, a senior International Monetary Fund official told Kathimerini on Tuesday.
Although the IMF recommends that countries with significant debts and deficits apply a gradual fiscal adjustment -- that being the optimal way of reducing the impact of an economic recession -- in Greece’s case, the complete lack of trust on the part of the markets means a stricter approach is required, the head of the Fund’s Fiscal Affairs Department, Carlo Cottarelli, said on the first day of the IMF’s annual congress in Tokyo.
“The fiscal adjustment should be gradual if the economy can take it, if it is not under pressure from the markets. But if the markets will not lend it any money, then the adjustment will unfortunately have to be much more front-heavy,” Cottarelli told Kathimerini in explanation as to why there is no milder adjustment being made in Greece’s case.
The Fund’s fiscal director said the adjustment will have to be constant, otherwise markets would start to dispute its fiscal sustainability, but warned that without a streamlining effort, the recession would be deeper due to doubts over the government’s ability to solve its fiscal problems.
“The target of the program in Greece is the return to sustainable budgets and to growth through a combination of structural reforms and fiscal adjustment,” Cottarelli stressed. He urged for safety clauses for the weakest sections of society which, as he said, are increasingly bearing the cost of the streamlining as unemployment increases.
The director of the IMF’s Research Department, Olivier Blanchard, said that for countries like Greece, the effort constitutes “a marathon race and not a sprint,” and acknowledged that although an adjustment is necessary, there is no doubt that it has consequences on demand and output. His deputy, Joerg Decressin, stated that “the objective for Greece is a program that is viable, that will help the Greek people and gradually see the economy out of recession.”