ESM: Reforms in Greece have borne fruit bringing country back to growth

The structural reforms implemented by Greece have borne fruit and Greece is returning to growth and running a very substantial primary surplus, the Chief Economist of the European Stability Mechanism (ESM), Rolf Strauch, said in an interview with Spanish news agency EFE published on Thursday. 

“The situation today is very different from early 2015. Different, as in better. This government received a clear mandate in the 2015 election to implement a package of sound policies to secure the ESM financial assistance program. Thus, there is not a stand-off as early in 2015, where the entire adjustment agenda was called into question. Greece has since implemented additional structural reforms in the context of the ESM program. These reforms have borne fruit: Greece is returning to positive growth and it is now running a very substantial primary surplus,” he told the news agency. 

Asked about the ongoing negotiations between Greek authorities and the institutions, Strauch said progress has been made in many areas, particularly in the financial sector, but there are still a number of issues such as labour market and pension reforms. 

“These are traditionally difficult reforms for all countries, but we have been discussing them for several months now and we need to bring these discussions to a close as the delays are starting to damage the economy. To move these matters forward, the Eurogroup asked the institutions this week in Brussels to intensify talks with Greece. The ESM is working hard on this and I hope all parties are prepared to move so that we can conclude the review quickly,” he said.

Greece has already accomplished the most difficult part of the adjustment, he noted, adding that to attain the 2018 3.5 percent fiscal surplus that the program requires, the European institutions believe that the county already has agreed to the necessary measures, and is implementing them. The new steps on income taxation and pensions, which are currently under discussion, should result in a more balanced and growth-friendly Greek budget that provides the fiscal space for some social measures. 

“Greece also committed in the Eurogroup to keeping to the program’s primary surplus target over the medium-term after the program ends in 2018. Discussions on finalising the second review may set a more precise timeframe for this medium-term period,” he explained. 

He also cautioned that delays in concluding the review creates uncertainty which in turn hurts confidence and reminded the big 7.4 billion-euro debt repayment Greece has lined up for July.

“There is indeed a big repayment deadline approaching in summer but this is not the only important issue. The greatest damage from delays in concluding the review is the resulting uncertainty. These delays to the second review are proving costly to the economy, with both private investment and consumer confidence suffering,” he said.

“In addition, Greece needs to avoid accumulating new arrears, which experience shows us have a destructive impact on growth and employment. A positive review conclusion will reassure investors that the program is continuing. The government must show ownership of the reform measures for Greece to return to the markets.”

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