Greece’s prime minister requested to activate contingency loans from the IMF and Eurozone states on Friday, after an awful Thursday in the bond markets. The IMF mission in Athens also released advice on deficit cutting. (See update on this below).
Flashes from Reuters on Friday:
RTRS-GREEK PM PAPANDREOU BEGINS LIVE STATEMENT
RTRS-GREECE ASKING TO ACTIVATE EU/IMF AID PACKAGE – GREEK PM PAPANDREOU
Greek media had broken news of a Cabinet decision earlier on Friday. From the Greek newspaper To Vima:
Eventually the die was cast. After a dramatic cabinet meeting today, Greece has recourse to the IMF…
Ultimately the decision taken by Prime Minister Papandreou was a direct appeal to the mechanism of EU assistance and the IMF. We immediately sent a letter which calls for immediate activation of the support mechanism of the Greek economy.
From Reporter.gr:
At noon, the official announcements are expected, according to information. The Government is expected to announce what everyone expects but delayed for days. The action is in support mechanism. . This information is on the market and abroad, reducing the spreads of bonds and raising the prices of shares on the ASE.
The process is in three letters to the IMF, EU and ECB. The decision was taken yesterday because the path of the bonds and because the banking system has been significantly depressed. Therefore this accelerates the activation and the Government does not expect the elections in Germany.
Meanwhile, IMF advice released by the Greek finance ministery offered a guide to the next steps in the other part of fixing Greece — increasing revenue and cutting the deficit. As Reuters reports:
The IMF has told Greece it must address structural weaknesses in tax compliance and punish big tax dodgers, the Greek Finance Ministry said in a statement on Friday…
“Among the immediate priorities is… a programme of controls including rigorous penalties and persecution in large cases of non-compliance,” the ministry said, citing recommendations by the IMF.
Key bits of its recommendations, via To Vima: – UPDATE: Woops. To Vima seems to have published an old IMF report by error. Pardon our Greek translation skills for not spotting it. Still, the recommendations could have been written yesterday:
Fiscal imbalances have been reduced significantly since 2004 in compliance with the excessive deficit in the EU, the authorities follow a policy of further fiscal consolidation towards a balanced budget by 2010. Indeed, the team of the IMF believes that further adjustment is necessary to achieve surpluses after 2010, given the expected high costs of an aging population. It is a great challenge to gradually improve the financial position of the country…
On taxation policy:
Since the proportion of tax revenue in GDP in Greece is relatively low by European standards and tax evasion is strongly entrenched, the first priority is to continue efforts to simplify the tax system, broaden the tax base and strengthen tax administration. The team would encourage the authorities to phase out distortionary exemptions for all major taxes and simplify the structure of the rates of personal income tax and VAT. On the issue of fiscal management, the recent strengthening of procedures – namely more control and crossings – has yielded positive results but more must be done. The team believes that the incentives offered to taxpayers under the new law on tax avoidance will have little effect on overall compliance efforts. The team would suggest the National Council to focus its attention on improving tax compliance through simplification of tax laws and regulations…
On public sector transparency:
The mission of the IMF strongly supports the government’s plan for greater transparency and accountability in trade and the financing of local authorities, public hospitals and insurance funds by establishing standards established budget and audit frameworks. The efficiency of health expenditure in Greece is among the lowest in the OECD countries. Consequently, an early effort is needed to improve the mechanisms for costing and pricing, introducing better controls in procurement and upgrading the management of public hospitals…
And last, but certainly not least, reforming Greece’s labour market:
Broader labor market reforms are needed to regain competitiveness and further reduce unemployment (which remains among the highest among OECD countries). Despite recent initiatives – the elimination of restrictions on overtime, reducing disincentives to hiring workers, and more targeted employment policies – the Greek labor market is relatively inflexible in international comparison… Therefore, authorities should review their employment protection legislation, especially for temporary employment in order to relax the restrictions. Despite the commendable restraint in the growth of wages in the public sector, real wage increases in the private sector were very high, exceeding the increase in productivity, with adverse effects on international cost competitiveness.
In the meantime — over to you, Eurozone. As for Germany, via Reuters:
RTRS-GERMAN GOVT SOURCE SAYS POTENTIAL DELAYS IN GERMAN PARLIAMENT WOULD NOT JEOPARDISE GREEK AID
Related links:
Guest post: Mohamed El-Erian on the worsening Greek problem – FT Alphaville
The Germans and the Greeks – FT Alphaville