“An agreement with the institutions is urgent and possible,” writes the quarterly report from the Parliament’s Budget Office which also warned that the economy is in danger of slipping back into a deep recession.
The report describes as ‘idiosyncratic’ the new mix of taxes, spending and structural reforms brought in by SYRIZA which it says are neither part of a broad development strategy, nor is it clear how they will be paid for ‘despite the optimism of the ‘working text’ for new revenue between 4.7 and 6.1 billion euros’.
An agreement is urgent, the economy is relapsing
The Budget Office supports its view that the economic situation is rapidly deteriorating with a number of arguments.
For one the economy had already returned to a recessionary trajectory from the final quarter of 2014, thanks in part to the political uncertainty. Deposits since last November have shrunk by 26 billion euros while in the first quarter of 2015 indicators of the economic climate were on a sharply downward trajectory.
“The drastic worsening of conditions in the economy feeds a new generation of non-performing loans while businesses face financing difficulties and a huge problem with foreign clients and suppliers,” the report writes while adding that the outstanding debts to the state increased by 3.47 billion euros in the first quarter.
The current situation is now threatening even healthy businesses according to the report which highlights following:
- The high levels of uncertainty in the economy which was triggered by the snap elections in January has continued as Greece remains in limbo.
- The uncertain future of Greece within the euro, the report writes, has been further compounded by the government’s inability to reach an agreement with the country’s lenders, uncertainty over the future of the reform program and contradictory statements from government minsters. These in turn have caused a drop in investments in the market which, combined with contradictory characteristics of the policies of the previous government, saw the economy return to a recessionary trajectory from the final quarter of 2014.
- The negative economic climate is not only threatening businesses on the brink, but even those which prevailed during the crisis years and which invested, kept wages down, paid taxes and avoided layoffs. Even healthy business activity, in other words, is under threat.
- According to the Budget Office it would be a historic mistake for Greece to leave the Eurozone just as monetary policy in the Eurozone is moving in a direction favourable to Greece.
- As long as Greece remains cut off from borrowing on the markets, it requires the financial support of mainly European institutions and that requires an agreement over a program of fiscal adjustment.
- Only an ultimate agreement with Greece’s partners in the Eurozone will remove the uncertainty and provide impetus to growth.
The report is damning for the new SYRIZA led government which is showing its inexperience and lack of a comprehensive strategy. "In short, the fiscal adjustment which is being attempted is an idiosyncratic mix of new taxes, new spending and institutional changes and, to a large degree announcements of often contradictory planned changes. For certain measures (eg debt restructuring via 100 instalments) the long-term consequences are undetermined. Despite the short-term benefit, this mix increases the uncertainty which characterizes the present situation.”
On Spending
The report writes:
'On the side of spending there is a lack of clarity with regards to its development. Different announcements take place disjointedly. The lack of clarity arises from the fact that many of the measures that have been announced have not been legislated for, but also from the disjointed character of many announcements which do not create the sense of a continuous and stable plan. The level of spending and, mainly, the trajectory of different allocations depend on the measures which have already been decided or announced and create new spending: the new defense procurements, the reinstatement of the 13th pension payment to low income pensioners, the elimination of the zero-deficit clause in social security funds, the emergency assistance to the Hellenic Sugar Company, etc.'
'The pros and cons of every one of these measures can be debated, but all together they do not form a plan for growth, nor is it clear how they will be ultimately funded, despite the optimism of the ‘working text’ for tax revenues of 4.7 to 6.1 billion euros, nor ultimately are they based on data-backed analysis of indirect, long-term consequences on the behaviours and expectations of citizens.”
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