EU Bailout: Have the Greeks Done Enough?

If we are to judge by Greece’s current fiscal environment, the Papandreou government has not made the efforts required both by its European neighbors and the IMF to help solve its burgeoning debt crisis.

After having reduced the government deficit by 5% of its GDP between 2009 and 2010, the economy has shut down and, even worse, since early 2011 the fiscal objectives necessary to keep Greece on track for recovery are not being achieved anymore.

During the first semester of this year, the budget deficit reached 12.7 billion euros instead of the 10.3 billion expected. The reason for this seems to be both the increase in public spending – up 8.8% over the first half of 2011 – and the decrease in revenues, which are down 8.3%. In wake of this, many officials in EU member states have justifiably felt Greece is not doing its part to help its own economic recovery. Christine Lagarde, Executive Director of the IMF, recently lamented: “the Greeks are not  making enough of an effort.”

Not Greece’s fault?

Another reading of the statistics may suggest that the fiscal objectives imposed upon Greece are too strict and will, in any case, take more time to bear fruit.

The Greeks have embarked upon a broad and comprehensive reform of their economy. In addition to reducing the wages and pensions of civil servants, public sector employment has been downsized. VAT was increased by 4% and Greece has engaged in a merciless battle against the phenomenon of tax evasion within its borders.

Moreover, a privatization law that aims to provide public revenues of 50 billion euros by 2015 and that seeks to remove barriers to competition in regulated professions was passed. The Greeks’ territorial administration has been completely revised and the pension system has been reformed.

Still, in spite of all this, it will take time to feel the effects of these changes in fiscal policy and Greece’s creditors are worried and in a hurry. That is why the power struggle between Athens and its creditors continue to intensify and currently no one knows who will win.

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