Moscovici: Greece cannot handle more austerity measures

15 December 2016
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European Commissioner for Economic and Financial Affairs and Customs, Pierre Moscovici wrote an op ed piece in financial newspaper “Financial Times” outlining the reasons why Greece should not be subjected to more austerity measures after 6 consecutive years. From FT.com:

Greece is again on people’s minds as we approach the halfway point of the €86bn rescue programme agreed in August 2015. Important decisions lie ahead and they must be made in the general interest of Greece and the rest of the eurozone. The elections being held in Europe in 2017 will not make these any easier but procrastination would be irresponsible. The first programme review was successfully completed and the eurogroup last week agreed on short-term debt measures. Staff from the European institutions and the International Monetary Fund are now working with the Greek authorities to reach an agreement on the reforms and fiscal measures needed to conclude the second review. This agreement could be reached soon — if all partners engage constructively.

The European Commission remains committed to doing so. Unfortunately, others sometimes appear to prefer engaging in a blame game as a way of defending their positions. This attitude risks undermining confidence and progress made so far. That would be unfair given the efforts of the Greek people and the financial support from European partners.

In this era of so-called post-truth politics, it is important not to let certain claims go unchallenged. Let us start with the assertion that Greece is not delivering on its commitments. Greece has made unprecedented efforts on fiscal policy, including major reforms of the pension, personal income tax and VAT systems. Action has been taken to underpin financial stability, address non-performing loans, tax fraud and evasion, and improve revenue collection. The state has paid off more than €3.5bn arrears.

As a result, the Greek fiscal deficit is set to be below 3 per cent of gross domestic product this year. It is expected to outperform the agreed primary surplus target of 0.5 per cent for 2016 and to meet the target of 1.75 per cent in 2017. Economic growth hit 1.8 per cent in the third quarter on an annual basis. Unemployment is falling, even if it is still unacceptably high. In short, by implementing a demanding programme, Greece is at last turning the page.

Then there is the suggestion that Greek pensions are at German levels. Data from EU member states show that average public pensions in 2013 were €1,233 per month in Germany, 45 per cent higher than the €846 per month in Greece. Recent reforms mean that newly awarded pensions in Greece are substantially lower. And remember, Greece does not have a well-developed social safety net: in many families, pensions are the only source of income.

What about the claim that half of Greek taxpayers are exempt from income tax? This ignores the fact that the overall tax rate on income, including social security contributions, is above the EU average. And this year’s income tax reform has expanded the tax base significantly. Finally, is the commission being too lenient on Greece in contrast with an ostensibly more realistic IMFposition? Of course not! While it has worked tirelessly to help Greece build a sustainable recovery, it has also pressed the authorities there to respect their commitments. The commission has been an honest broker, representing the interests of the eurozone as a whole.

The next step is to conclude the second programme review, which hinges on an agreement to bring the IMF on board. This cannot happen as long as positions are defined by dogma or short-term political tactics with no regard for the social effect of the measures proposed.

It is vital that agreement on credible fiscal targets for the years beyond the programme is arrived at swiftly, and that these targets do not overestimate Greece’s ability to meet them without undermining growth. They should not be too high for too long — Greece cannot be condemned to austerity for ever — but nor should they be based on deliberately pessimistic projections or tied to demands that are politically impossible, economically undesirable and socially unacceptable.
Let us not play shadowy games with Greece’s future. The technical work is almost done. The political leaders of the eurozone and of Greece’s creditor institutions must take the initiative. Decisions are needed in the common interest, so that the second half of the programme can prepare Greece for a sustainable return to capital markets and a stable future in the eurozone. We need all partners to share the responsibility for achieving this and respecting commitments made.

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