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Growth and jobs for Greece – FAQ
Commission Européenne - MEMO/12/255 18/04/2012
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Brussels, 18 April 2012
Growth and jobs for Greece – FAQ
Q1. What is the main objective of this Communication?
Greece recently signed a Memorandum of Understanding leading to a Second Economic Adjustment Programme. This Programme will take three years to deliver its full results, during which time the Greek authorities will implement major reforms necessary to transform the economy. In this context and in order to trigger economic growth in the near term, the Communication presents a series of actions that, if implemented by the Greek authorities by the end of 2012, will contribute to getting the economy growing and creating jobs. This shows that results are possible in the short term.
Q2. Why is the Commission adopting this text now?
The Commission has decided to issue this Communication now because after many months of uncertainty, the main framework for recovery is in place. Agreement on the Second Economic Adjustment Programme and the recent reduction of Greek debt owed to the private sector provide an opportunity to create a new dynamic to speed up the badly needed structural reforms. Resolve in pursuing the Adjustment Programme will be essential for the credibility of reform and for success. The short-term actions set out in this Communication can set Greece on a new trajectory by quickly unblocking growth, creating jobs and mitigating the social impact of the crisis.
Q3. Is the EU doing enough to support Greece?
The European Commission and Greece's EU partners are providing unprecedented support to Greece in solidarity with the people of Greece at a very difficult time. The Commission will continue to support and assist with the implementation of the programme. The total package of assistance, including loans from the EU and financial institutions, write-downs on privately-owned Greek debt and EU funds in the form of direct grants adds up to € 380 bn in recent years. This is equivalent to 177% of Greek GDP. This level of assistance is unprecedented. The European Commission also created a Taskforce to mobilise and channel technical assistance to Greece (see below).
Q4.Does this Communication not contradict the Memorandum of Understanding (MoU) signed with Greece recently?
No. The Communication is fully in line with the policy commitments agreed between Greece and the Troika and enshrined in the MoU of the new Adjustment Programme. As you can see, the Communication highlights some of the actions that appear in the MoU in each of the areas of the Adjustment Programme and shows how the EU can support Greece in implementing them to deliver growth and jobs.
Q5. Have you discussed this with the Greek authorities beforehand?
There is a continuous dialogue between Greece and the Commission - first and foremost in the context of the Troika, but also in the framework of the several technical assistance work streams, as well as in various other fora - and this Communication naturally builds on those exchanges.
Q6. Of the actions listed in the Communication, what is the top priority?
The Second Economic Adjustment Programme must be delivered in full, but this will take time. In its Communication the Commission highlights three broad areas (all part of the programme) where action taken by the Greek authorities during 2012 can be expected to show promising results by the end of 2012. These are:
The Communication lists concrete actions to be undertaken in each of these areas and shows how the EU can help with financial and policy support and through technical assistance.
Q7. How is the EU helping to overcome the social hardship? How is it supporting greater cohesion and a more equitable society?
The deterioration of the social situation in Greece – as illustrated by the high levels of unemployment and growing poverty levels – requires an urgent response, and the process of adjustment may also create additional social pressures. The Adjustment Programmes have been designed to turn the situation around by reforming the economy so that the benefits of future growth and employment are enjoyed by all.
In the short term, the EU is helping to overcome the economic and social difficulties: the European Social Fund (ESF) has been mobilised to provide funding to promote youth employment and training, active labour market policies and investment in education and training.
Social considerations have also influenced the design of the Adjustment Programme - an aspect that is not always perceived:
Q8.The Commission has set up a dedicated Taskforce for Greece: what is it doing exactly and what is meant by technical assistance?
Since its creation mid-2011, the Taskforce has worked intensively with the Greek authorities to frame technical assistance to support implementation of many of the key reforms promised in the Adjustment Programme. The technical assistance provided mainly by Member State experts and coordinated by the Taskforce represents a vast and complex change management process, covering many of the principal functions of the Greek public administration.
Technical assistance, coordinated by the Taskforce, typically involves:
Details on the technical assistance provided by Member States are available in the second quarterly report published in March 2012 (IP/12/242).
Q9. What has it delivered in its first months of existence?
The overall assessment of the progress made can be found in the first and second quarterly reports presented by the Task Force in November 2011 (IP/11/1360) and March 2012 (IP/12/242). Both of them are based on concrete actions and clear deadlines.
Through the Taskforce, comprehensive programmes of technical assistance have been finalised with the Greek authorities in the following 4 areas:
In addition, the Task Force is working intensively with the Greek authorities to develop technical assistance projects in the following areas:
In these cases, there has been extensive preparatory work to diagnose problems and discuss reform options (for example through the organisation of workshops or specialist support for immediate legislative changes).
Q10. Is this technical assistance having an impact?
The technical assistance usually involves profound change of administrative structures or regulatory frameworks to remove the conditions which have led to bad public administration. It is generally too early for these reforms to result in measurable impacts.
In the case of public finance management and tax administration where the reforms have been underway slightly longer, there are some promising signs that the reform is starting to produce its hoped-for effects.
In the case of business reforms or other areas where the focus is on removing pure cost or unnecessary complexity and interference in business decisions, significant impacts could be hoped for in relatively short space of time.
Q11. Why is Greece in crisis in the first place?
Greece's strong growth in the decade 2000-10 was based on unsustainable factors. Growth was built on the strength of domestic demand, fed by wage increases out of line with productivity and with developments in competing economies, excessive credit growth, low real interest rates and loose fiscal policy. Domestic and foreign direct investment was hindered by a poor business environment, which protected the incumbents and generated rents, a complex and unstable tax system and an inefficient judicial system. The difficulties came when, in the context of the wider global financial crisis, investors lost confidence on the ability of the Greek State to honour its financial commitments: when the risks to the sustainability quickly metamorphosed in liquidity difficulties.
Q12. What are the objectives of the Adjustment Programme?
Since the beginning of the first Adjustment Programme in Spring 2010, the aim is to help Greece put sustainable economic and social policies in place. This means getting public finances under control and reforming the state administration and business environment to improve growth and employment prospects in Greece. There will be neither robust growth nor good job prospects if the unsustainable macro-economic imbalances are not fixed. This means reducing the government deficit-to-GDP ratio and bringing the public debt back to a sustainable path, and restoring competitiveness.
Q13. Is the Adjustment Programme responsible for the recession?
Greece is undergoing a major change, in the course of which the economy has contracted and unemployment increased. However, it would be a mistake to conclude that this results from the measures that have been adopted to wind down unsustainable macroeconomic imbalances. The current economic difficulties are the result of inappropriate policies and developments, which were implemented for a decade or more. Without the financial assistance received and the adoption of measures to reduce fiscal and external deficits, the costs for Greece, and for the whole of Europe, would be incalculable.
Q14. What were the alternatives to the Adjustment Programme?
There are no viable alternatives to an adjustment programme that fixes unsustainable balances, even if the necessary measures may be politically and socially difficult in the short term. Fiscal expansionary policies to promote domestic demand would be bound to fail. At most, a fiscal stimulus of domestic demand would increase activity for a very short period. It would render government debt even more precarious and unsustainable, further delay the prospect of Greece returning to the markets to an even more distant future, and require even more painful action in the future. Greece would keep losing competitiveness, investment opportunities would decline rather than increase. Employment would suffer, thus creating new pressures to reduce wages to restore cost-competitiveness.
Q15. Are the Greek fiscal accounts sustainable now?
Greece has already substantially reduced its fiscal imbalance thanks to expenditure and tax measures. But its deficit is still above sustainable levels and additional effort is necessary. Additional efforts to reduce the government deficit, together with scaled-up official financing at low interest rate, and the recent exchange of debt held by the private sector improve debt sustainability prospects. If the programme is implemented in full and on time, Greece will be able to reduce its debt ratio to about 117 percent in 2020. The debt ratio will remain high for many years and, therefore, be susceptible to adverse domestic and global developments. In particular, a weak programme implementation would be detrimental for growth which would adversely impact debt dynamics. The debt ratio that is currently projected for the end of the decade is still very high thus indicating that the effort of reducing the debt will have to extend for a longer period. However, a declining debt ratio that results from the consistent implementation of sound policies will increase Greece's credibility in the markets and allow it to finance itself in the market at an affordable cost at the end of the period of official financing.
For more information:
IP/12/377 Commission highlights priority actions for Greece to unlock growth and create jobs