Greece needs to carry out genuine reforms
The European Commission’s representative on the troika, Matthias Mors, tackles questions about the team’s role in Athens
The government needs to focus on a complete overhaul of the public sector and not on across-the-board cutbacks in staff, according to the European Commission representative on the troika, Matthias Mors, who told Kathimerini that Greece’s creditors have not demanded that collective labor agreements be scrapped. However, Mors notes, given that minimum wages in Greece are above those in other European Union member states with a similar economic level, there is a need to explore whether this represents an obstacle to competitiveness and employment, especially for low-skilled workers.
The EC representative further clarifies that the mix of policies being implemented in Greece to reduce the deficit are the choice of the government, though he believes that emphasis should be put on containing public spending over the next few years.
Mors estimates that additional measures generating 5 billion euros for the 2013-14 period need to be announced by the government within the next six months, while in regard to the sustainability of Greece’s debt, he appears guarded, saying that nothing has really changed since the troika’s analysis last June, when it concluded that it was sustainable. He does however add that the sustainability of the debt is judged first and foremost by the government’s ability to maintain a specific economic policy.
What has changed since the troika’s last assessment? Is the sustainability of Greek debt still in question?
I would say two things have changed since the last assessment. First of all the recession is much deeper than we thought, so we revised the GDP projections downward. Secondly, there have been delays in the implementation of some of the consolidation measures we had agreed before the summer break and therefore a fiscal gap has emerged. We have discussed ways to close this gap in the last few weeks.
In terms of debt sustainability, I would say the situation has not fundamentally changed compared with our analysis in June.
Do you think there is a need for a bigger haircut?
It is clear that the debt level in Greece is very high, higher than in any other EU member state. But there is no simple yes/no answer regarding debt sustainability.
For the debt to become sustainable, it depends on future developments. It depends on whether fiscal policy manages to stay on track toward budgetary consolidation and high primary surpluses. It depends on future growth rates and therefore on whether the government implements more structural reforms in order to boost economic growth.
So, when we discuss debt sustainability, we always rely on whether the government of a country can maintain a certain policy stance.
Of course you can just crunch numbers, but this is not an objective assessment as to whether or not the debt is sustainable.
There has been much debate in Greece about the first Memorandum, first and foremost regarding whether the troika made mistakes in its policy prescription. There is also the question of whether the troika dictated the mix of measures or if it gave the Greek government the option of deciding whether to focus more on taxes or spending cuts and so on.
I believe that there was no overall error in the initial setup of the program. It is true that we have underestimated the depth of the recession. I would say, to some extent, there are developments beyond Greece that nobody could have foreseen.
On the second part of your question, I would say that the government has a lot of room for maneuver in choosing which way it wants to achieve its budgetary objectives. There have to be initiatives both on the revenue side and on the expenditure side. But we also believe that to some extent, looking at the next few years, more should be done on the expenditure side. Where exactly should be done is a choice of the government. We are not imposing any particular choices on the government.
Public sector layoffs
There is a lot of speculation over whether or not you are insisting on laying off a large number of public sector workers. Is that true? Also, aren’t you afraid that so many measures in such a short period of time are perhaps politically and socially unsustainable?
It is true that we agreed with the government that we need to see a significant downsizing of public sector employment. But we have to recognize that this has to take place over a period of five years. So, we are not saying that there should be large-scale dismissals.
The way I see it, what the government should do next year is really focus on a reform of the public sector; not simply make across-the-board cuts. It should identify those areas, those departments that are overstaffed and then try to rearrange its resources accordingly.
It is true that a lot of measures are coming at the same time. We are aware of the difficulty this implies for the government but also for the citizens. They face the simultaneous effect of the expenditure cuts and the increases in taxes, levies, charges etc. We are fully aware that this is very tough. But I would say that we are at a critical moment, where Greece has to convince the international community and the other euro area members that it is willing and able to reach the objectives that it has committed itself to. Therefore, it is crucial that these measures are implemented.
How many additional measures are required to meet the objectives of the Medium Term Fiscal Strategy?
We look at the MTFS as the starting point. But we should not forget that has not been fully implemented yet. So, the first priority is to fully implement the measures that we agreed in June.
Concerning the next steps, it is important to emphasize the uncertainty -- 2015 is a long way away. So I am not sure whether it would be useful to quote specific figures now. What we have agreed with the authorities now is further measures totaling 5 billion euros. And then, over the next six months, the government has to examine what further measures it needs to take in order to achieve its fiscal targets in 2013 and 2014.
Will the next loan tranche be the sixth of the first program or the first of the new program?
I think it will be the sixth of the existing program. There is no new program yet and we need to achieve this disbursement in the coming weeks.
How do you explain the lack of implementation? Do you think that the government has failed to take ownership of the program? Is it a case of predictable reform fatigue? Or is it because the Greek state is not capable of carrying out the program?
There are number of factors. Over the last 18 months a large number of very important initiatives have been taken. A degree of reform fatigue cannot be excluded. But I have the impression that the government is committed to pursuing the reforms.
As we all know, there are powerful vested interest groups that fight every measure and, therefore, implementation is sometimes not as straightforward as one would hope. Furthermore, it is no secret that there is a problem in the administrative capacity in Greece. So even if a piece of legislation is adopted, it is not implemented at the lower level as it was intended.
Do you think that the lack of political consensus is a problem, and do you believe that elections could destabilize the program?
The lack of political consensus is a problem, for domestic reasons and for international reasons. In the domestic arena, the lack of consensus makes the implementation of reforms more difficult. There are different opinions within the governing party. Moreover, without political consensus it is harder to tackle the interest groups. It’s easier to overcome the resistance to reform if there is a united political front.
From the international side, the key problem is that some euro area member states doubt that Greece is able to deliver the adjustment program. And that is very damaging.
Concerning your question about the elections, I don’t want to get involved in domestic politics. It is a question of the national democratic system.
Do you think that you should strengthen the supervisory role of the troika. Is the system of quarterly evaluations adequate?
First of all, there are technical missions in between. We are here every month or every second month. We also have teleconferences and e-mail exchanges with the Greek authorities. Basically, we are in contact on a daily basis. We have our office here with a colleague who works on the program; the IMF also has an office in Athens. Moreover, there has been a Task Force created in the European Commission that will provide technical assistance for Greece. More people will therefore be coming to Greece to help implement the measures that we agreed. Basically, we will make an effort to be more present in Athens ourselves.
Privatization program
Do you think that the amount the privatization program is aiming to raise should increase?
From my point of view, the privatization program doesn’t just have a revenue-raising aspect, it is an important dimension of economic reform. I believe that the targets set by the government for revenues from privatizations are very ambitious, and I do not think that it is realistic to go beyond that. But it is necessary to reach the targets. Now that the Asset Development Fund has been set up, I hope that the process will accelerate.
Are you concerned about the arrears?
We are very concerned about the arrears because they are not good for the economy. I see two priorities: to make sure that no additional arrears accumulate -- with the important reforms, for example, in the health sector, where there is a significant amount of arrears -- and secondly, we have to do something with the accumulated debt. We have agreed with the government to reduce these arrears with the new funds. Also, we recently introduced the reduction of arrears as a performance criterion to avoid arrears being built up in the future.
Many people in Athens think that the interruption of the mission a month ago was a wake-up call and that if it had happened earlier, there would have been more progress in the implementation. Do you have any regrets that you didn’t make such a move earlier?
In a situation like this, we have to weigh the implications of such an interruption. It creates uncertainty, it has an impact on the markets and on the banking sector. But it is clear that if we believe that our presence here is not helpful, because the authorities need more time to figure out what they have to do, then we will not hesitate to suspend a mission.
Let me say that last time it was in agreement with Finance Minister Evangelos Venizelos. There was no conflict.
Do you believe that the minimum wage in the private sector must be reduced?
There was a lot of noise about that. I regret that there has been so much noise because it has probably been created by deliberate misinformation. It is not true that we asked for the abolition of collective labor agreements.
Sometimes statements attributed by some media to the troika are pure invention and they present us as monsters. What we asked is that the government should start discussions with the social partners to see what can be done in order to improve the competitiveness of companies and employment creation. The minimum wage is one aspect of that.
But there is a broader picture. Greece has an external deficit of about 9 percent of GDP. This cannot continue and the social partners have to discuss ways to improve competitiveness.
Personally, I am very concerned about unemployment among low-skilled workers, for whom it is very difficult to get a job. The downsizing of the public sector will, in my view, lead to more low-skilled workers being out of employment. And we have to make sure that the minimum wage agreement and all the taxes and charges do not create barriers for those people in finding a job. We think that it is good the social partners are discussing all that.
Are you following any standards, such as the minimum wage in Portugal?
No. We want Greece to find the appropriate level for its own economic situation. The economic situation here is worse than in any other member state. The government and the social partners have to see what is needed to pull Greece out of this crisis. The minimum wage in Greece is higher than in other member states with a similar level of economic prosperity, and the social partners have to consider whether it is an obstacle to job creation.
There was a lot of criticism of your intervention in matters regarding the justice system. How do you respond to that?
We have full respect for the independence of justice. We never asked for something which is not compatible with the Constitution. The point is that there is a huge amount of pending cases in the legal system, particularly tax cases. If the people believe that the tax administration system is not in force to collect the revenues or if they believe that they will not be convicted in court, they will not pay taxes. Also, the investors must be confident that the legal system here is functioning, and that they can enforce their property rights. So it is very important that the judicial system is reformed.
At the beginning of this process there seemed to be a sort of coalition of people who wanted to reform this country. They were your allies. Now it seems you are faced with a coalition of the unwilling. Is this making your job harder? Do you think it’s a hopeless case?
I have the impression that the majority of Greek citizens recognize that many things have to change. Overall, I think that the population supports the implementation of ambitious reforms. It is important for the people to understand that it is not realistic to expect a light at the end of the tunnel immediately. Greece has been in such a bad economic situation. It has delayed reforms for a very long time, and now it has to catch up in a very short time. This is very difficult, very painful, but we must make that effort.
Are you worried about many Greeks saying that we cannot bear the measures it will take to keep us in the eurozone?
The people who think so should reflect on the alternative. And personally I don’t believe that if Greece were to leave the euro area it would be better for Greece. Even outside the euro area you wouldn’t be able to continue with an ineffective tax administration, for example. You must make the reforms.
There has been criticism from the European Commission that Greece clearly failed in many of its responsibilities toward the EU in the past. However, there was no adequate surveillance, which was a systemic failure. What do you believe?
I think that there was a clear failure in terms of the established surveillance mechanism in the EU. That has been recognized. And that is precisely why we have now put in place a reformed one, both on the fiscal surveillance and a new one in surveillance of macroeconomic imbalances. These initiatives have been set up to address the failures you are referring to, in order to make sure that it does not happen again. It’s a challenge for all of us.
ekathimerini.com , Wednesday October 12, 2011 (23:09)
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Una lunga intervista a 360 gradi.
