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24 January 2014

OECD: Is Greece at a turning point?


OECD has made policy recommendations and predicts positive figures for 2014 and 2015.

Greece was rescued in extremis by the concerted efforts of the EU, the European Central Bank and the IMF (the so-called Troika). However, the first austerity package failed to turn Greece around, and the country has now experienced the longest and steepest recession anywhere in Europe in recent times, with real GDP contracting for the sixth consecutive year in 2013–by 3.8 per cent, according to the OECD’s latest economic survey of Greece. The consequences for the Greek people have been dire. Salaries have fallen by over a quarter on average, though retail prices kept rising until early 2013. Pensions were reduced by nearly one-third, too, but prices of heating fuel skyrocketed because of tax increases. The unemployment rate now exceeds 26 per cent, and more than half of those under 25 years old are out of a job. Little wonder the Greeks regularly take to the streets to protest against this daily reality.

Inevitably, with the austerity measures exacerbating the recession, the Greek authorities have struggled to raise income tax revenues or bring general government finances under control. But they have nonetheless pushed on with structural reform to redress the imbalances and put Greece on a more sustainable growth path. For the first time, the fiscal accounts are likely to post a primary surplus in 2014, according to the government’s forecast. In addition, among several specific measures, such as a project with the OECD to tackle red tape and reduce the administrative burden on businesses.

Over an 11-month period, the OECD found a total of 555 restrictive provisions that could potentially lead to market distortions, and made 329 individual recommendations for amending or abolishing specific legal provisions. These reforms are not to be taken lightly. Rather, the OECD estimates the total benefit to the Greek economy to be around €5.2 billion, or 2.5 per cent of GDP, stemming from increased purchasing power for consumers and efficiency gains for companies.

Despite its uphill struggle in recent years, Greece may finally be reaching a turning point. Many economists (the OECD among them) forecast a return to positive, albeit modest, growth during the course of 2014 or 2015. The OECD expects the economy to firm up somewhat in the second half of 2014, leading to moderate growth of 1.8 per cent in 2015. Businesses are starting to refl ect this confidence. The forward looking purchasing managers index (PMI) reached its highest level in 51 months at the end of September. Even so, households remain nervous, and to restore strength, the Greek authorities need to pursue their reform programme and lock in the results already achieved.

Cleaning up Greek’s legislative archipelago will make for a better overall investment climate as legal uncertainties are removed and the economic and administrative machinery is oiled. Improving the ability of Greek businesses to compete will benefit not only firms but also consumers, by boosting efficiency, turnover and job creation for years to come. But in order for these benefits to be felt across the Greek economy, the recommendations must be fully implemented. Partial reform will yield only partial results, and Greece’s Olympian efforts at recovery risk becoming a long and painful marathon.

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© OECD


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