ECONOMY

Commission urges action to lower debt, unemployment

Greece has only made partial progress in implementing economic and structural reforms and needs to do more to tackle excessive debt, low productivity and high structural unemployment, the European Commission said yesterday. Assessing the pace of structural reforms in accordance with broad economic policy guidelines laid out in 2002, the Commission said that Greece’s inability to address fundamental issues has saddled the country with the second lowest labor productivity in the EU and one of the highest unemployment rates in the region. It urged the government to step up its debt reduction efforts as the aging population is expected to burden the budget even more in the future. The Greek debt-to-GDP ratio ballooned to 105.5 percent last year and to 107 percent in 2001 after EU statistical agency Eurostat reclassified some budgetary operations. Limited progress in curbing expenditure could stoke inflationary pressures, the Commission warned. «The budgetary stance both in 2002 and 2003 may be inadequate to address underlying demand-led pressure on price increases,» it said. Greece ended 2002 with average headline inflation edging up to 3.6 percent and average harmonized inflation soaring to 3.9 percent, significantly higher than the eurozone average and the European Central Bank’s 2-percent ceiling. The Commission was similarly gloomy over labor market and social security reforms which have resulted in Greece having a dismal employment rate and a high number of jobless. The highly segmented labor market coupled with high rates of youth and female unemployment and a large number of long-term unemployed meant that new workers were having difficulty entering the labor force, it said. Part of the problem could be traced to the educational system, which does not address the needs of the labor market, while tax reforms last year did nothing to bring down high social security contribution rates. A flourishing informal economy was also hindering reforms. The Commission also pointed to the shortcomings of social security reforms adopted last year as it cited the failure to link contributions to eventual benefits and thus encourage older workers to remain in work. It noted the slow progress in implementing a knowledge-based economy in line with the Lisbon agenda of making the region the most competitive economy by 2010. The low levels of R&D investment, especially in business, means that Greece is «one of the weakest innovators in the EU.» The Commission expressed concern on the limited liberalization of the energy and electricity markets and said Greece continued to flout EU directives. Greece’s implementation rate of internal market directives was the second lowest in the EU last year, with delays particularly seen in agriculture, environment and transport.