Economy needs to be pulled out of ‘vicious circle’

Greece needs to follow up recent austerity measures with structural changes to boost its competitiveness and rescue the economy from the «vicious circle» in which it currently finds itself, according to the central bank. A Bank of Greece report released yesterday said that a lack of necessary reforms between 2001 and 2009 contributed to Greece’s large public debt and falling competitiveness, creating problems compounded by excessive budgetary spending and the global crisis. «A change in the course of the economy will not be easy. A major effort will be needed to break the vicious circle that is pushing the economy toward decay and lower living standards,» said the bank, stressing that «drastic» cuts in the budget shortfall and public debt are necessary. The Socialist government announced earlier this month a series of fiscal measures aimed at cutting 4.8 billion euros through a series of spending cuts and tax hikes in a bid to convince markets it will meet its budgetary goals. Structural changes, however, are also seen as necessary to get the economy back on a sustainable growth path, such as the deregulation of labor markets and cuts to the oversized public sector. Additional measures, such as tight private sector pay hikes will need to follow recent cuts in public servants’ incomes, according to experts. «Wage increases in the private sector will have to be quite moderate [this year], there may even be a need for [pay] cuts. This can help spur export growth,» Diego Iscaro, economist at London-based IHS Global Insight, told Kathimerini English Edition. Talks between employers and Greece’s largest private sector labor group, the General Confederation of Labor, on 2010 pay hikes had started earlier this year but froze as the debt crisis worsened. They are likely to resume after Easter. On the growth front, the central bank said it expects the economy to contract by 2 percent in 2010, but stressed the «uncertainty» surrounding the forecast. Economist estimates on the depth of the recession this year in Greece vary, with some experts predicting contraction of up to 4 percent this year at a time when most European states are likely to show growth. [email protected]

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