IOBE likes steps but market wary

Recent austerity measures will be enough to help Greece meet this year’s fiscal goals but the government needs to deregulate its labor markets to tap the economy’s growth potential, a think tank said yesterday. The Foundation for Economic and Industrial Research (IOBE) said in a quarterly report yesterday that the 4.8 billion euros’ worth of measures were «absolutely necessary» to help assuage the economy’s problems and get it back on a growth path. «The measures will be sufficient to achieve the lowering of the deficit to 8.7 percent of gross domestic product in 2010, despite the expected contraction in GDP of 2.5 percent and higher interest payments for public debt,» it said. The Socialist government introduced tax hikes and spending cuts earlier this month in a bid to calm market concerns over the risk of default and the country’s ability to meet borrowing payments. However, investors remain unconvinced about the sustainability of the measures, keeping funding costs high even after last week’s decision by European Union leaders to help Greece if it runs into trouble in rolling over its debt obligations. The premium investors demand to buy Greek debt rather than German Bunds rose to its highest in a week yesterday, with the 10-year bond yield spread reaching 336 basis points. IOBE also said that the deregulation of labor markets would make the economy more competitive, particularly if combined with privatizations and the better management of state assets, boosting key sectors such as tourism, renewable energy and shipping. According to IOBE’s calculations, the deregulation of professional groups, such as taxi drivers and pharmacists, could add more than 10 percentage points to Greece’s GDP over the long term. The government has said it intends to soon launch talks with different professional groups on opening up their sectors to competition. [email protected]

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