Bank Of Greece:Executing Plan Key To Avoid Debt Restructuring
ATHENS (MNI) - Whether Greece can prove markets wrong and avoid restructuring its debt will ultimately depend on the country's ability to execute the austerity plan to which it has agreed, and to return to economic growth as quickly as possible, the Bank of Greece said in its interim report, released Tuesday.
The report, significant portions of which were revealed by Market News International on Monday, also warns that the government has no more room for increasing taxes. From now on, future fiscal adjustments must depend primarily on spending cuts, it says.
The report urged the government to step up the fight against tax evasion, warned against once-off revenue measures, and said future growth in Greece could no longer be based on domestic consumption.
Not that there would be growth anytime soon: the report forecasts a 4% contraction in Greek GDP for this year.
The Bank of Greece acknowledges the hard times that still lie ahead as the country tries to recover economically and regain the good graces of financial markets.
"Regaining market confidence cannot be imminent or automatic," it says. "Today, five months after the signing of the lending agreement, markets view Greek bonds with reluctance, despite the fact that the climate has been improving lately."
It said that a key for regaining trust will be "continuity, consistency and persistence in the implementation of the [EMU/IMF] lending agreement." And that must be "continuously confirmed," the bank said.
It noted the abundant market analysis saying that for Greece "debt restructuring is unavoidable," that growth will be "very low," and that as a result, "Greece will not be able to service its huge debt."
The IMF, the European Commission and the ECB have already rejected this hypothesis, saying that debt restructuring is "not necessary, desirable, or possible," the Bank of Greece notes.
"However, in the final analysis, it is up to us, and the responsibility lies in our hands to actively respond in two ways," the report continues. The first way is "a strict implementation of the terms of the lending agreement. These terms wherever possible must send a clear message that fiscal consolidation is on a fast track," the bank argues.
"Second, with the fast implementation of a new growth and action plan, which will convince the markets that the Greek economy can at first recover quickly and then grow at a fast pace, based on healthy foundations," the report adds.
"Only if the fiscal targets are achieved, and also sustained for the next two years, can we create the capabilities to increase exports and attract foreign investments, boost growth, and convince the markets that the debt dynamic can be reversed," it says.
"The Greek growth capabilities are huge. Already, the situation shows improvement, but the road is long and we have no room for relaxation," the central bank concluded.
(imarketnews.com)
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