ECONOMY

ECB’s Asmussen warns of Greek program risks if ownership is missing

Jorg Asmussen, a member of the executive board of the European Central Bank, has told MEPs that Greece?s fiscal adjustments program could fail if the country politicians and civil servants do not embrace change more wholeheartedly.

?Delayed fiscal consolidation, lower privatisation proceeds or slower structural reforms: such scenarios would translate into weaker economic growth and worsen again debt sustainability,? he said, highlighting that Greece?s debt might not fall to 116.5 percent of GDP, as one of the scenarios in the debt sustainability reports by the troika suggests.

?Without a regime-change in policy implementation and a much broader political consensus in favour of painful, but necessary reforms, there is a high risk that the programme derails. Therefore, political courage is more needed than ever.?

Asmussen was speaking at the Committee on Economic and Monetary Affairs of the European Parliament as part of the first public hearing for troika representatives.

Asmussen insisted that there were no alternatives to the current austerity program Greece is going through.

?Calls for loosening the fiscal stance are illusory. Greece could hardly face larger financial constraints than at the moment: it has lost market access and can only draw on a fixed envelope for official support,? he said. ?There is only one way forward: restoring fiscal sustainability and competitiveness, which will, in turn, bring back sustained growth.?

The ECB official acknowledged the progress that has been made in some areas, such as the reduction in the general government deficit and the implementation of some reforms but stressed that Greece?s public sector remains too costly and that too much emphasis has been placed on revenue-raising measures. He called on Greek politicians to take on vested interests.

?Looking ahead, further progress in fiscal consolidation requires the implementation of difficult structural fiscal reforms. Closing the large fiscal gap for 2013-14 (5.5 percent of GDP) will be a litmus test for the government?s commitment to the programme: without the government?s willingness and ability to design and implement the difficult structural fiscal reforms, such a large adjustment cannot be achieved,? said Asmussen.

?I call on Greece?s political class to push through these difficult reforms by confronting vested interests. Otherwise the critical mass of structural fiscal reforms necessary to close the medium-term fiscal gap may not be reached.?

The central banker added that it was vital that Greece reform its taxation system.

?Progress in this regard has been rather disappointing so far: in many cases, wealthy Greeks still contribute less than possible to the overall adjustment effort, partly on account of tax evasion,? he said. ?Strengthening revenue administration and fighting tax evasion are crucial. Not only are they needed to increase revenue; they could also improve the social acceptability of the adjustment program.?

Asmussen said that Greece needed to make further strides in improving its competitiveness through labor market and structural reforms.

?Labour market reforms must be complemented by a liberalisation of product and services markets, for example in closed professions,? he said. ?Political willingness is a key ingredient to overcome the resistance of vested interests in these areas.?

The ECB official also stressed the importance of the bank recapitalization program so Greek lenders can become more active.

Asmussen ended his statement by underlining the need for Greece, particularly its politicians, to take responsibility for implementing the reform program.

?An absolute prerequisite for the adjustment to succeed is strong political ownership,? he said.

?The Greek people are not reforming their economy and their state to please the troika; they are not carrying out sacrifices to please country X or Y in the euro area. They are going through this adjustment process for their own good.?