Tough measures, though unpopular with the public, will strengthen the country’s credibility and spur competitiveness
The problem with tax collection is that the mechanism is not in place and the necessary people are not there to get results. How can you or the IMF help with this? We and the IMF both have some expertise in tax matters. Moreover, EU member states have more expertise in tax issues so we provide technical expertise and the Greek government has been positively open and receptive to receiving such technical expertise and working together both with the EU and the IMF. It is clear that the government has fallen behind in its revenue collection. Do you think enough has been done, or does it need to do more and faster? You are right that the government is behind in terms of tax revenues and we see that the collection of tax revenues has to go further to become more effective [as well as] that the battle against tax fraud and tax evasion needs to be intensified for the sake of public finances and for the sake of social justice, political etc. We see the overall goal of the program as being about internal devaluation so that Greece becomes more competitive. From your standpoint, is it essential that private sector wages are reduced as well? Is this something you have insisted on or isn’t it a priority? It is important that the wage development in the private sector will enable to restore the price and cost competitiveness of the Greek economy. The private sector is moving toward or has moved in the right direction following the public sector’s reduction of the wage bill. It’s important that the private sector becomes competitive so that Greece will be able to restore its economic growth and provide economic and social welfare to its citizens. Does this mean that private sector wages should be slashed? It is essential for the private sector to become competitive. Costs, of course, are mostly related to wages, but they are also linked to reform and the basic formation of the system – something that appears utopian in Greece today – as introduced in the bill on labor market reform. In this regard it is crucial that the government and Parliament opt for a system that will efficiently facilitate flexible wage settings in order to ensure that productivity and competitiveness are reflected in the formation of wages. As you know, the unemployment rate has risen significantly. What do you have to say to people who are losing their jobs and shop owners who are closing down? They basically believe it is because of your program. The main reason is that Greece, for a long time, was simply living beyond its means. Last spring, Greece was very close to a dead end, and it turned to the EU and the IMF for the loan packages, which were then provided and linked to a program of policy conditionality. In that context there was no other way than to introduce rigorous measures in order to start restoring confidence in the Greek economy. And one part of that, essentially, was to reduce the fiscal deficit, which implied, for instance, a reduction of the public sector wage bill. Structural reforms will help restore the competitiveness of the Greek economy and that will return the country to a path of better economic growth and employment. Are you concerned about the operation being successful but losing the patient on the operating table if the recession deepens further? No I’m not. It is correct that the recession is still going on, but we have light at the end of the tunnel. This is our projection and that of the IMF, and we are both quite careful about doing careful macroeconomic scenarios. Our scenario is that Greece will return to positive growth during the course of next year, let’s say around the middle or second half of next year, and then the following years from 2012 onward should be years of even stronger economic growth, which, of course, is essential for employment and job creation. There has been a lot of talk about efforts being made in the public sector. Will cutting wages, bonuses and so on, and transferring some people internally within the public sector be enough, or will layoffs become necessary at some point? It is an essential part of the reform program that the government pursues a certain degree of privatization of state-owned enterprises. This must be done for the sake of the credibility of the program and also as a way of bringing revenue to the state, but even more so it is important because these enterprises should become more competitive and efficient, and the state should refrain from providing subsidies to these public sector enterprises. Do you think privatization is the alternative to having to lay people off? Privatization is essential to the overall economic program, to make Greece’s public sector more effective and less costly for the taxpayer. And also to make these enterprises more competitive and more efficient. A lot of people believe that the next review in February is critical, and that there is very little time left for the government to do whatever it takes to succeed. What is your assessment? Nobody should underestimate the capacity of Greece to maintain the momentum of the reforms. I do not doubt that. Don’t you see a certain reform fatigue in public opinion? I’m aware that there is a certain resistance to the reforms, which is normal for every country that has lived so significantly beyond its means and has to take bold measures to correct the course of [its] fiscal direction as well as structural competitiveness. Some government officials and public figures believe that there is too much at stake for Greece to fail, that you have already given it too much money and that you can neither stop paying the installments nor get a lot stricter. How do you respond to that? I think it’s simply in the interest of Greece to implement the program according to the agreement we have made. It is a matter of Greek credibility and Greek economic policymaking, so I don’t have any reason to doubt the capacity and the will of the Greek authorities to implement the program according to the memorandum. How about the level of political consensus both within the government and in the wider political system, are you satisfied with that? As I said, Greece, the government and Parliament have been able to pursue a very substantial reform program, which has, if anything, surprised us in a positive manner. Of course it would be preferable to have political consensus over the program because one should always ask for this. There is a question I can’t resist asking. Some ministers seem to be pursuing their own policies of resistance against the memorandum. How are you dealing with this? It is a matter for the Greek government and prime minister to ensure that the government and its ministers are implementing the economic reform program and respecting the commitment of Greece to the memorandum. I have no reason to doubt the commitment of any minister in this government.
