By Sotiris Nikas
The market reforms Greece is expected to promote will lead to the creation of 190,000 jobs over the next five years and see the country’s gross domestic product grow by 5.4 percent, a European Commission report estimated on Wednesday. The reforms which will help to speed Greece’s recovery are those concerning the products market and improving competitiveness.
The Commission’s study, which focuses on the impact of reforms on Greece, Spain, Italy and Portugal, notes that in Greece’s case the above structural changes will not suffice for the local economy to climb to the level of its top European counterparts.
“In Greece and Portugal the total impact of reforms cannot fully bridge the income gap, illustrating that there are other structural rigidities that have not been calculated,” reads the report. The benchmark set is the average incomes in the European Union’s three wealthiest countries (Luxembourg, Austria and the Netherlands), and with the proposed reforms Greece will close the gap by 78 percent, against Portugal’s 67 percent and Italy’s 87 percent.
The products market is the sector where the Greek government needs to focus its efforts, as the changes that can be implemented will bring additional benefits to the economy and employment levels. From the reforms, which will lead to a reduction in profit margins in the final price of commodities, GDP will gain 3.4 percent within five years and 39.3 percent in the long term (of over 10 years). In terms of employment, there will be a 2.2 percent rise over a five-year period and 11.5 percent in the long term. The Commission admits that in the first couple of years of reform application there will be a marginal decline in GDP and employment, but once the market has adjusted to the new conditions (i.e. after five years) the benefits will be multiple.
From the lifting of barriers to starting a business, the Commission expects GDP to grow 0.8 percent in the next five years, while employment will add 0.1 percent.
On the labor market, Brussels argues that the tax on labor must go down while the tax on consumption should increase. It estimates that this would boost GDP by 1.4 percent over five years and 4.5 percent in the long term, with the respective growth in employment amounting to 2.7 percent and 4.7 percent.
Finally, if subsidies to research and development are increased, GDP will decline in the next five years by 0.4 percent but add 1.4 percent in the long term, while the rise in employment subsidies will see GDP grow by 0.2 percent in five years and lose 0.2 percent in the long run.