The overly ambitious fiscal targets included in Greece’s bailout programs undermined the debt-racked country’s economic growth, according to a report commissioned by the European Stability Mechanism titled “Lessons from Financial Assistance to Greece.”
The report, which was compiled under the guidance of former European economic affairs commissioner Joaquin Almunia and published yesterday, pointed to the mistakes and shortfalls chiefly of the second and third support programs extended to Greece by its international partners.
Although the “starting positions” of the programs were “dire,” “they managed to preserve the integrity of the euro area, stabilize Greek public finances and strengthen institutions,” the report said.
But the programs “prioritized fiscal targets over growth-enhancing product market reforms that would have required targeting corporatist interests,” the report said, adding that those targets were rigorously imposed while more flexibility was displayed in other reforms that required a clash with vested interests.
Further, although the tough fiscal targets stopped Greece’s debt burden from growing, the report said, they undermined the growth required to significantly reduce the country’s debt to gross domestic product ratio and put the economy back on the path to recovery.
The report also criticized the process of disbursing loan tranches to Greece, saying that it was driven more by Greece’s liquidity needs than by reform implementation.
At the outset, Greece’s creditors “failed to fully grasp the root causes of weak ownership,” the report said, noting that the rationale behind reforms and their long-term benefits were not well explained to Greek stakeholders and people.