Brussels to ask Greece for new budget cuts


Greece’s fiscal nightmare is far from over as the European Commission is set to ask Athens for a new round of spending cuts aimed at reducing labour costs, administration and healthcare expenditure, according to a draft seen by EURACTIV.

José Manuel Barroso, the European Commission president, is due to present a document to the plenary session of the European Parliament in Strasbourg today (18 April), asking Greece for “further efforts” in 2013 and in 2014 to bring its public debt around 117% of GDP by 2020, as agreed with the last bailout plan (see background).

In the document, seen by EURACTIV, the Commission makes clear that the new measures should not involve new taxes, but instead concentrate on further cuts to public expenditure, euphemistically called “spending savings”.

“By focusing on expenditure rather than tax increases, the short-term impact on the real economy can be mitigated,” the paper reads.

The new measures should be applied by “whoever wins” Greece's snap elections scheduled in May, the Commission underlines.

'It can be done'

The long to-do-list to be presented to the Greek authorities opens the draft paper and is enclosed in a paragraph under the title: “It can be done”.

Addressing sceptics, Brussels underlines the enormous efforts that have already been made to redress the Greek economy. The Commission’s own estimates of the EU support to Greece put the overall European aid to Athens at around €380 billion, equal to 177% of the Greek GDP, or €33.600 for each Greek inhabitant.

The sum includes loans, write-downs on loans and EU funds delivered to Greece since the beginning of the crisis.

In a boasting mode and without mentioning the delays caused mainly by Germany’s domestic agenda which raised the overall final bill, the Commission compares the EU efforts for saving Greece to the US Marshall Plan to rescue Europe after the Second World War.

“The US Marshall Plan for post-war reconstruction involved transfers equal to around 2.1% of GDP of recipient countries,” says the paper in its initial lines.

But the work is not finished yet. After asking for new general cuts, Brussels calls for a quick recapitalisation of Greek banks that should be concluded by September 2012, in order to facilitate banks’ loans to small and medium enterprises.

Restoring cost-competitiveness is the next priority. This implies dropping “nominal unit labour costs in the business economy by 15% in 2012-2014,” and “reducing social contributions weighing on the cost of labour in a budget-neutral way.”

Liberalisations are also among the priority actions requested from Athens. A paragraph dedicated to these efforts is called “Unleashing competition and freeing prices”.

Military expenses spared by cuts

The overhaul of the public administration takes a chapter of its own, focusing on redistribution, improving tax collection, and on reforming the judiciary. Cutting healthcare expenditure is also part of the public administration reform.

Among the other changes and cuts proposed in the healthcare sector, Brussels calls for “reducing pharmaceutical spending through changes in pricing, prescription and reimbursement of medicines, as well as via the promotion of generic medicines.”

As for pensions, the European Commission suggests that “the reform of the pension system should be finalised through the reform of secondary and supplementary pension schemes and fighting fraud in disability pensions”.

The huge drain on public finances posed by Greek military expenditure seems instead untouched by the reforms prescribed by the European Commission.

No mention is made in the draft paper to this sector which in Greece is relatively bigger than other EU countries – 2.9% of GDP in 2010 compared to 1.7% for all European NATO members, NATO figures show.

Eurozone finance ministers agreed a €130 billion rescue plan for Greece on 21 February to avert an imminent chaotic default after forcing Athens to commit to unpopular budget cuts and private bondholders to take bigger losses.

The bailout will resolve Greece's immediate financing needs but seems unlikely to revive the nation's shattered economy, which has been in recession for five consecutive years.

Under the agreement, Greece will be placed under permanent surveillance by an increased European presence in Athens. Meanwhile, the Greek government has pledged to deal with problems in the fiscal collection system.

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