Greece may have made significant progress in its fiscal streamlining and in the recapitalization of its four systemic banks, but it is also plagued by considerable delays in key sectors of its adjustment program, according the report issued by European Commission on Monday in Brussels, which effectively constitutes an update to the memorandum of understanding between Athens and its international creditors.
In the report Brussels reiterated that the economic contraction this year will amount to 4.2 percent, with the economy returning to growth in 2014, at a rate of 0.6 percent, growing to 2.9 percent in 2014 and 3.7 percent in 2016. Public debt will peak this year at 175 percent of gross domestic product before dropping gradually to 120 percent in 2021.
Problems have been detected regarding the delay in the submission of income tax declarations, the multiple regulations regarding the new property tax to apply from next year, and the execution of the budget in terms of social expenditures. The repayment of state arrears is also off target.
Crucially, the report extends the application of the so-called “extraordinary” solidarity tax for another year, through 2016. A Finance Ministry official explained yesterday that the decision is aimed at covering part of the funding gap for that year. The report reiterates that no further extensions can be given for income tax declarations.
The updated memorandum further provides for the reduction of rates or the abolishment altogether of the property transfer tax, changes to corporate tax regulations and the submission in Parliament in September of a bill including incentives for investments. Athens will also have to sell “a substantial share” of state-controlled Eurobank Ergasias to a strategic international investor by end-March 2014.
Regarding the number of public sector layoffs, the Commission says that the target of 15,000 agreed for this year will be achieved, but will not be enough for the reduction of the civil service by 150,000 employees in the period from 2010 to 2015 to be met. Brussels admits this is because the estimate for the actual number of civil servants has now been revised upward, adding that a permanent and constant assessment system must be introduced in the public sector, with the first round to be completed by December 2014.