Time to take a hard look at debt sustainability, says OECD chief
A few days after Greek Parliament approved a number of reforms proposed by the Organization for Economic Cooperation and Development, the secretary general of the Paris-based institution, Angel Gurria, spoke to Kathimerini about the report on the Greek economy, the sustainability of the nation’s debt and predictions about growth over the next 20 years.
The latest OECD report sees growth returning to the eurozone in 2014 but unemployment remaining at high levels.
Growth is still growth. And this is the result of a number of things. Some of the measures have started to have an effect and we are having results. Countries that were under [adjustment] programs or were under market stress now practically have current account surpluses and it has been a very important transformation in terms of their trade results. Take Spain for example: Of the 600,000 jobs created in Europe, 300,000 were in Spain. Unemployment has stopped growing and over time it will start going down. Exports are also growing faster on average in the European context.
When were you asked to compile the so-called OECD ‘toolkit’ for Greece?
We have been working with Greece on structural issues for many years. We prepare a full economic report on the Greek economy every two years. But it happened that when we got the competition toolkit, the International Monetary Fund and the European Commission saw it and said why not follow the recommendations of the OECD which took two years to produce? It is a good thing that the Greek authorities were seeking ways to make Greece more competitive. In coordination with the Greek government and, in fact, at the request of the Greek government, we did this work and we were useful at this stage for the disbursement of the 10-billion-euro [tranche]. We just delivered a report on regulations to [Administrative Reform Minister Kyriakos] Mitsotakis which has to do with reducing the administerial burden of 13 different sectors of the Greek economy. It covers everything from bread to the tourism industry – quite a wide range.
Was there something that struck you particularly in any of the two reports?
What struck me most was that Greece was a relatively closed economy and that Greek consumers did not have at their disposal enough options for goods and services because of the lack of competition. Therefore we took a very, very, thorough and in-depth look at the question of competition. And competition helps in many ways, not only in terms of empowering the consumer. It brings with it investment, management skills, access to other markets; it helps combat corruption. What you will find, which has inevitably and invariably been the case, is that one measure will count for one, but two measures will count for three, and three for 25. Measures are mutually reinforcing, they don’t work in isolation. Put good competition and a good regulatory framework together and you will have a big impact on growth – you can have an increase in growth in the next 5-20 years of between 5-20 percent of GDP.
Greece recently ratified 80 percent of the OECD’s recommendations. Do you think it correct that they were all passed together in a single multi-bill?
I frankly believe it was possibly the only way to get it done and I congratulate the Greek government and the Greek Parliament. I know it did not enjoy 100 percent support from all legislators but in these days you don’t get 100 percent for anything.
Some economists say that we need to cut wages more in order to become more competitive. Would that be a solution for growth?
I don’t think this is the way to approach it. What is true is that Greece increased wages more than [it increased] productivity. Eventually this created a huge gap in competitiveness. Now that is being adjusted. Greece is bringing down unit labor costs and becoming more competitive, and you are now seeing some of these results. Is this enough? No. What is necessary is to go into different areas which will make for greater productivity and which is the way that Greek workers will get better wages. So, do it the other way around. Don’t say that you need to reduce wages, say that you need to increase productivity. Otherwise you will have the same situation that you had the last 15 years and which, by the way, you also had in Spain, Italy, Ireland and Portugal.
Do you think that growth can return without a debt reduction?
I have proposed that the question of debt reduction should be analyzed on the basis of a very realistic and sober analysis of sustainability. You are not growing at 6 percent, therefore the convergence from 170 percent to 120 percent, on which the assumption was built, is not happening. You have to take a hard look at the question of debt sustainability.
