Greece urged to seize chance for economic progress now

Greece has been urged to seize the opportunity presented by its membership in the eurozone to speed up structural and economic reforms, vital for sustaining growth and ensuring real convergence. In a report on Greece, the outcome of a 10-day visit that ended last week and which was made public yesterday, the International Monetary Fund (IMF) said the country has reaped economic benefits from monetary union but it should also see membership as «a window of opportunity to move forward with economic reforms.» In an assessment of Greece’s structural reform efforts last month the European Commission said only partial progress has been made in key areas, such as debt reduction, spending guidelines and price increases. Echoing Brussels’s criticism, the IMF said «the agenda remains far from complete» on the structural reform front, while fiscal consolidation appears to be slowing down despite high public debt. The Washington-based agency warned that delays in making the adjustments could stunt growth, increasing the risk that reforms would then have to be undertaken under much less favorable circumstances. It also called on Greece to note a raft of downside risks, notably a war in Iraq which could have an adverse impact on oil prices and the tourism industry, and the drag on competitiveness brought on by the euro’s appreciation and high inflation. The IMF said fiscal policy should address three key concerns, reducing public debt before the costs of an aging population kick in, redressing emerging macroeconomic imbalances, and improving the quality of public sector services. Despite strong economic growth, Greece’s targets toward this end, as outlined in the 2003 budget, are «insufficiently ambitious» and it could even miss them «by a considerable margin,» it said. It proposed setting specific, binding expenditure ceilings for a multi-year period over all levels of the public sector to trim expenditures and also applauded the planned introduction of part-time employment in the civil service as a cost-effective measure. On pension reforms adopted last year, the IMF said the changes «largely failed to address the projected rapid rise in public pension expenditure over the longer term,» with the costs as a ratio of GDP projected to almost double by 2050, the largest increase in the EU. It suggested «reducing unwarranted public sector interference» to improve Greece’s low level of foreign direct investments. Problems in the labor and product markets were also singled out in the IMF report, in particular the high unemployment rate among the young and the relatively extensive employment protection which was keeping workers in the informal sector. It said structural reforms in these sectors were «pivotal for the convergence of living standards.»