The Greek economy,Promises, promises

The reform programme is badly behind schedule

 

This way to the reforms

BY LATE July Greece had completed only about 100 out of more than 300 reform benchmarks set by international lenders after their last visit to Athens in February. Two elections this year have not helped to speed things up. And despite two bail-outs since May 2010, left-of-centre politicians are still trying to dilute or delay a raft of fiscal and structural measures needed for Greece to stay in the euro zone and pull the economy out of a five-year slump.

Take, for example, Evangelos Venizelos, leader of the PanHellenic Socialist Movement (Pasok), a junior partner in the six-week-old coalition government led by Antonis Samaras, the conservative prime minister (pictured left, with José Manuel Barroso, president of the European Commission). When he was finance minister, Mr Venizelos pushed through parliament a €11.5 billion ($14.1 billion) package of spending cuts agreed upon in March as part of the second bail-out. They are to be implemented in 2013 and 2014 and the details are being worked out. Yet on July 29th Mr Venizelos, trying to rebuild Pasok’s popularity with Greek voters, defiantly suggested the reforms be spread out over four years, not two (he later backtracked).

Greece has legislated plenty of reforms but failed to implement many of them, say frustrated officials from the “troika” (the European Commission, the International Monetary Fund and the European Central Bank) responsible for overseeing the process. A former government adviser says: “A huge amount of work has been done, yet almost nothing has actually been completed to the satisfaction of our partners.”

The stakes are higher than ever. Greece will not receive any more rescue funding until the medium-term package is in place. Without that money, the government will run out of cash to pay pensions and public-sector salaries in September, if not sooner. A disorderly exit from the euro could follow within a few weeks, warned Yannis Stournaras, the finance minister.

Greece has performed badly on many measures. On privatisation, the troika has set an ambitious goal of €50 billion in revenues. But this year’s target of €3 billion has been slashed to €300m. Only two disposals are likely to be completed by December: the state lottery and the former international broadcasting centre for the 2004 Athens Olympics, now a shopping mall. Almost 80 legislative and administrative measures will be needed before the next six deals can go ahead.

Greece is supposed to raise €19 billion in privatisation income by 2015, and the remaining €31 billion over the following decade. Yet even if the deal pipeline is accelerated by the new chairman and chief executive of the Hellenic Asset Development Fund (TAIPED), the privatisation agency, appointed last month by the coalition government, few investors are likely to appear until it becomes clear whether Greece will stay in the euro zone.

An overhaul of the tax administration, including closures and mergers of 200 regional tax offices, was due to be completed in June. Little progress has been made, and no new deadline has been set. Corruption among tax inspectors is rife, according to the state auditor. Only €10 billion of some €40 billion of outstanding taxes can be collected, a government adviser says. Officials are likely to keep reforms on a back burner, fearing that revenues would plunge if they attempt to transfer or sack taxmen. Several hundred big tax evaders have been identified, yet so far none has been convicted or imprisoned.

Piecemeal adoption of measures and failure to crack down on corruption have left the health system in disarray. Spending on prescription drugs has been reduced, but another €1 billion (0.5% of GDP) of annual cuts have still to be made, as doctors and hospital procurement departments are reluctant to switch from expensive branded drugs to cheaper generic versions. Plans to reduce costs by merging or closing about one-third of state hospitals are running well behind schedule.

Ready, aim, don’t fire

Last year’s target of cutting 30,000 public-sector jobs and transferring workers to a strategic reserve on lower pay was missed by a wide margin. Following pressure from trade unions, fewer than 10,000 workers were sent to the reserve. The medium-term programme calls for shedding 150,000 public-sector jobs by 2015, but with unemployment already at 22.5% the government is trying to find other ways of reducing the payroll—for example, hiring one worker for every ten who retire or leave. This year’s goal of 15,000 job reductions is unlikely to be achieved.

Moves to give teeth to Greece’s feeble competition agency have been delayed. As a result cartels still control prices of many consumer products, and prices are still rising slowly, even though the economy has shrunk by more than 13% in three years. Annual inflation was almost 3% last November, but had dropped to 1% in June.

Corruption is one reason why Greece struggles to attract investors. (One local whistle-blower found an unexploded grenade on his car windscreen last month.) Another is poor legislation. Red tape is still a problem despite two new laws aimed at removing obstacles to investment. Yet more legislation to speed up “fast-track” investment is awaited. Greece, home of the marathon, badly needs to start sprinting.

The Economist