The eurozone's second attempt at reversing Greece's economic fortunes will rely heavily on mass privatisations and brutal salary cuts aimed at transforming the debt-laden country into a competitive, export-driven economy by 2014, EU officials said.
With the ink still drying up on the eurozone's second bailout plan for Greece, agreed in the early hours of Tuesday (21 February), EU officials in Brussels have staged their first attempt at defending the deal, which they claimed, had been misrepresented by the press.
The main objective of the second programme, one official explained, is to boost Greece's competitiveness by shifting the country from a demand-driven economy to an export-driven one, thriving on a competitive private sector.
The first bailout plan, agreed in 2010, had already made considerable achievements "through extremely painful measures" on wages, pensions, taxes and job cuts in the public sector, he said.
But some of the targets were missed, the official admitted, because of "a much deeper recession" and shortcomings in fighting tax evasion, which have kept Greece from much-needed sources of revenue.
35 privatisations in the pipeline
The second bailout plan will seek to address these shortcomings by finding new sources of revenue, mainly via a large-scale privatisation programme aimed at making the Greek economy more export-driven, the official said.
"Privatisation was a very important element of the first programme and will probably become a more important element of the second programme," said one EU official who was debriefing the press on the results of today's meeting of eurozone finance ministers.
Only five Greek companies were privatised in 2011, bringing less than €2 billion to the Greek state, well below the target of €5 billion, the official pointed out. The second bailout plan will seek to speed up this process by creating new institutions, including a "privatisation fund" that will manage the assets and "conduct the transactions in the next years," the official said.
"We see this as a kind of pipe where the assets enter the pipe" and are subsequently sold to private-sector buyers, the official said, indicating that some 35 privatisations are already in the pipeline for 2012, 2013 and 2014. These will be further encouraged by reforms aimed at facilitating investment procedures.
Growth by 2014
If the reforms are implemented as planned, the official said he expected Greece "to resume growth by 2014," adding he believed this to be "a realistic target".
The objective may indeed appear optimistic in the light of a confidential report compiled by the troika – the International Monetary Fund, the European Union and the European Central Bank – which warned that Greece's "fiscal outlook has deteriorated" so much that its debt-to-GDP ratio could still be 160% by 2020.
"Given the risks, the Greek programme may thus remain accident-prone, with questions about sustainability hanging over it," the report stated.
But the official said he was confident that the privatisation measures, combined with reforms in labour and services markets, would return Greece to acceptable debt levels.
The official also noted that privatisation programmes were expected to help Greece raise €50 billion in additional revenue, although he admitted to the slow pace of the privatisation scheme.
"What we have in our figures is privatisation not exceeding €19 billion by 2015. So there has been a significant downward revision in the privatisation plan."
However, he said "we believe the market will show more appetite for Greek assets as soon as the situation stabilises," adding that large privatisation would be expected to resume in June.
Another major aspect of the bailout plan will be to pursue wage-cutting policies to "restore competitiveness" in the Greek economy.
The minimum wage, the official indicated, was already being cut by 22% and even by 32% in some sectors, but this trend would need to continue if Greece's debt was to return to a sustainable path.
"In our projections we have this improvement of unit labour cost by 15% but this will certainly continue because we do agree that the [wages] will have to decline by more than that to restore competitiveness."
Asked by a journalist, the official said he believed unemployment will remain high in the years to come but should start decreasing as of 2014.