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The following is the Executive summary of the OECD assessment and recommendations, taken from the Economic Survey of Greece, published on 31 July 2009.
Greece has initially held up better during the global economic crisis than many other OECD countries. It is unlikely, however, to avoid a recession as confidence, tourism and shipping receipts have all fallen substantially. The financial sector may face pressures from a contracting real estate sector and its exposure to the emerging economies of south–eastern Europe. The authorities have responded with fiscal measures and a plan to assist the financial sector. However, their room for policy manoeuvre is tightly restricted by the high public debt, repeated fiscal slippages and the large external and internal imbalances, which have been reflected in high sovereign interest–rate spreads since the end of 2008 as risk aversion rose.
Fiscal consolidation is imperative, but tightening needs to be carefully timed. As activity slows, budgetary deterioration is inevitable. There is virtually no room for budgetary manoeuvre, and the poor state of public finances justifies the immediate structural consolidation already put in place. However, automatic stabilisers should be allowed to work, even though this will probably widen the fiscal deficit to some 6¾ per cent of GDP by 2010. To boost credibility and avoid adverse market reactions, a strong commitment to continue fiscal consolidation is urgently needed. This should include specific, concrete measures to eliminate the structural deficit, a more restrictive budgetary rule and greater independent oversight. The goal should be to bring public debt below 60% of GDP by 2020–25, when the full effect of population ageing kicks in. Developments in the financial sector will continue to demand close supervision to ensure that the support plan remains an adequate response to evolving risks.
Structural fiscal reforms should be a key priority going forward. Sustainability calls for improvements in a tax system which is beset with widespread evasion. Apart from simplifying and widening tax bases, the fight against tax and social security contribution evasion should be stepped up, and tax collection improved. This needs to be accompanied with tighter control over spending, including a cut in administrative costs, rationalisation and limitation of the wage bill, and reforms in loss–making state enterprises. Longer term viability also calls for further pension reforms, including revision of the parameters for pension calculations and new measures to further reduce incentives to early retirement.
The performance of the healthcare and education systems needs to be improved. This is important for social cohesion, the enhancement of human capital, and productivity. In both areas, in which major reforms have been launched, substantial efficiency gains can be achieved.
In health, the governance and highly fragmented structure of the health care system should be revised, with all health–related powers brought under one ministry and the various insurance funds merged into one. The quality of primary public health care services would be improved by developing a system of referring physicians, increasing the number of general practitioners and changing the structure of the remuneration system of doctors. Modernisation of hospital management is required, which entails inter alia expanding their management autonomy and revising their funding system. Lastly, consistently with the recently launched system for monitoring prescriptions for drugs, efforts to control pharmaceutical expenditures should continue.
In education, the supply of pre–school services, especially for children under three years, should be expanded and modernised, with adequate funding and staffing. The quality of secondary schooling must be raised, with schools given greater autonomy and accountability, and incentives and training for teachers enhanced. Changes are also needed in the system of admission to universities. Universities also require a funding review and greater autonomy.
How to obtain this publication
The complete edition of the Economic Survey of Greece is available from:
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.
For further information please contact the Greece Desk at the OECD Economics Department at email@example.com.
The OECD Secretariat's report was prepared by Claude Giorno and Vivian Koutsogeorgopoulou under the supervision of Piritta Sorsa. Research assistance was provided by Joseph Chien.