IMF calls for fiscal prudence

The Greek government is expected to present its resolute policy for economic streamlining

IMF calls for fiscal prudence

An International Monetary Fund report this week issued recommendations to overindebted countries in the eurozone, with Greece being the main recipient of the advice, regarding a return to fiscal prudence as soon as recovery is consolidated.

The heavier blow felt by Greek bonds in recent days, compared to other eurozone states, served as a reminder of how vulnerable the bloc’s most indebted country is, alone in not being rated as investment grade. Therefore recommendations such as those by the IMF in its report on eurozone policies on Monday are of special significance. Alfred Kammer, the Fund’s European Department director, made special reference to that at Tuesday’s European Parliament session. He said the overindebted countries in particular should start creating fiscal cushions, and present their fiscal streamlining strategies now.

In a similar recommendation, the European Central Bank’s mission chief in Greece, Martin Bijsterbosch, told Bloomberg Tuesday that Greece ought to continue with its reforms even after the end of the enhanced surveillance process: “The procedure for recovering investment grade can be supported by a consistent strategy for tackling the imbalances that persist in the Greek economy,” he said.

In other words, Greece is expected to present immediately a resolute policy for fiscal streamlining, which coincides with messages from analysts, saying that exercising sensible fiscal policy is more important than ever at the moment.

A source has told Kathimerini that the market is concerned because despite being the most indebted eurozone country, Greece has applied the most expansive policy, increasing its deficit until last year and to a certain extent continuing this year too. 

At the same time the threat of political risk, due to the upcoming election, is approaching. This usually entails fiscal easing with handouts, as well as the possibility of the formation of a new government, given the election law in place.

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