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Economy

Launch of the 2016 Economic Survey of Greece

 

Remarks by Angel Gurría,

Secretary-General, OECD

Thursday, 10 March 2016

Athens, Greece

(As prepared for delivery)

 

 

Prime Minister, Deputy Prime Minister, Ministers, Ladies and Gentlemen:

 

It is a great pleasure to be in Athens to launch the 2016 Economic Survey of Greece. I would like to thank Prime Minister Tsipras for hosting us today at this beautiful Maximos Mansion. Greece is still facing difficult times and we wanted to come in person to present this study with the Prime Minister and to say to him and to the Greeks: you can continue to count on the OECD.

 

This launch comes at a very timely moment. One year ago, at this same place, Prime Minister Tsipras and I agreed to launch a strategic partnership to help Greece set the foundations for a more resilient and inclusive growth. The Prime Minister came to the OECD in March to discuss his plans for reform and we signed a Joint Document for Cooperation. Since that moment, we have been working intensely to support the Greek government, providing assessments of key policy challenges, technical opinions on draft legislations, and policy advice in their negotiations with its creditors.

 

Although our collaboration on structural challenges was delayed by Greece’s debt negotiations, I am happy to report that the work between the OECD and Greece is starting to bear important fruit. In recent months, we have kicked off our joint projects on competition, education and anti-corruption. It is in this context of increasing partnership that we produced, in close collaboration with the government of Greece, this economic survey.

 

It is very important to put this study in context. During the past six years, Greece has gone through an unprecedented and very painful contraction. It is hard to think of any other OECD country that has experienced such economic hardship in recent times. Since 2007, GDP declined by around 26%, unemployment peaked, household income dropped and the fault lines of the fragile social protection system became visible. Poverty levels and inequality also increased substantially.

 

The high uncertainty related to the prolonged and sometimes protracted negotiations with its creditors and the subsequent credit crunch pushed growth again into negative territory in 2015, a year in which the government has had to pass some very painful, although inevitable, measures. And now the refugee crisis is posing major problems for the Greek economy and its recovery. Greece needs to receive significant help to address this new challenge.

 

In spite of this very difficult outlook, our study recognises that the tide might be turning for Greece. In fact, the Greek economy is showing several important signs of resilience:
 

  • First, the contraction in 2015 was actually smaller than expected. Real GDP shrunk by only 0.3%, helped by another record season for tourism which brought nearly 24 million tourists to Greece, including my wife and myself.
     
  • Second, even if we are expecting flat GDP growth in 2016 (-0.1%), mainly due to last year’s aftershocks, growth is projected to continue gaining momentum in 2017, expanding by nearly 2%.
     
  • Third, the labour market is now showing signs of gradual improvement, with unemployment levels falling from the 2013 peak. Greece still has the highest unemployment rate in the European Union (at 24.6%). However, it is now experiencing its lowest level of unemployment since May 2012.
     
  • Fourth, the successful recapitalisation of banks, the gradual removal of capital controls and the reforms to address the large amount of non-performing loans have also helped to stabilise the banking system and will add to rebuilding confidence and credit.
     

The completion of the first Review of the ESM Programme will further boost confidence, triggering business investment and exports to support the economic recovery. Progress in reform implementation will also allow for negotiations with European partners, in order to reduce the future debt burden by extending maturities and grace periods. Greece needs a lower and more predictable path of future debt service flows to curb fiscal sustainability risks, boost investment and promote more inclusive and sustainable growth.

 

These are all important achievements and promising signals. However, this should by no means be cause for complacency. Greece is still facing very complex economic and social challenges.

 

Greece urgently needs to recover and improve its pre-crisis living standards and the only way to achieve this is through meaningful and effective reforms. For reforms to bear rapid and best fruit, it is essential to improve implementation and to develop stronger ownership of the reform process, as well as a clear communications strategy to explain the costs and benefits of reforms to the Greek people.

 

In the past years, Greece has undertaken significant structural reforms. However, progress has been uneven and the implementation has been weak due to inadequate administrative capacity, limited ownership of past reform programmes and vested interests. A quick look at the news today gives us a clear idea of the difficulties of promoting reforms after a contraction of 25%. Social patience is thinning, and this is also understandable.

 

Past reforms concentrated on taxes, social benefits and labour markets, but we think it’s now time to focus on a new set of priorities: such as reducing oligopoly power, lightening regulatory burden, and addressing weaknesses in the public administration. OECD experience shows that the implementation of reforms in these areas can produce short term gains for the economy, the government and the people.

 

But one of the most important challenges, as our study argues, is to make sure that all these reforms translate into inclusive growth and improved social well-being.

 

Boosting economic growth is fundamental to reducing poverty and unemployment, as well as addressing fiscal weaknesses. According to our Survey, fully implementing key structural reforms would boost output growth by more than one percentage point per year over the next decade. We must make sure that this growth translates into better opportunities for the most affected and vulnerable.

 

While many steps to create a comprehensive social safety net will be taken after the completion of the ongoing Social Welfare Review, actions to alleviate the social crisis are urgently needed today. Our Survey highlights the importance of several key actions, like the implementation of the guaranteed minimum income, introducing a targeted school meal programme and a housing assistance programme targeted at the poor.

 

These measures would cost around 1.5% of GDP. Given the limited fiscal space, an expenditure review is needed to identify potential areas from which resources could be reallocated towards social expenditures. Completing the planned pension reform to generate savings by reviewing special regimes and introducing a basic pension is important in this regard.

 

Pensions have already been cut significantly in the past years. Therefore, it is important to focus on measures that ensure a better alignment between contributions and benefits, that create savings by reducing unfair special treatment and that do not put more burden on the vulnerable. Greece needs to build a stronger social safety net.

 

It is therefore essential to keep improving the fiscal system to turn it into an effective development tool. Despite efforts to simplify the tax system, tax evasion remains pervasive. Thus, more has to be done to broaden the tax base and strengthen the tax administration, for example by giving it more autonomy and making sure it has the necessary resources for audits and enforcement.

 

Improving regulation and strengthening competition in network industries can help to boost investment and increase the competitiveness of the Greek economy and of Greek exports. Further strengthening the capacity and independence of regulatory agencies is also crucial. The work that the OECD has started with the Greek government to identify barriers to competition in sectors like wholesale trade, construction, e-commerce, media and manufacturing, will also translate in benefits for the Greek population, through better services at lower prices.

 

Our study also argues that it is essential to keep improving the business environment by fully implementing the 2012 Better Regulation Law; operationalising the national single export window; and adopting measures in order to increase the efficiency and integrity of the judicial system. This is crucial for the reforms to bear fruit.

 

Let me conclude by recognising the effort of this administration in combatting corruption and confirming the OECD’s commitment to work with Greece in the implementation of the National Anti-Corruption Plan, with the support of the European Commission, on the basis of international best practices.

 

Prime Minister, Ladies and Gentlemen:

 

The Greek economy is gradually recovering from the deepest recession in its modern history. The outlook is still very complex, but the policies and reforms promoted by Prime Minister Tsipras’ government are starting to bear fruit. It’s now time to refocus the reform effort to promote inclusion, social well-being and competitiveness. To achieve this, it is essential to improve policy implementation and increase the Greek ownership of reforms, but also, and most importantly, to achieve an agreement with Greece’s creditors to alleviate the burden of its massive and unsustainable public debt.

 

This will require enlightened leadership, political courage, improved administrative capacities and effective multilateral cooperation.

 

Prime Minister:

 

The OECD stands ready to help you design, develop and deliver better policies for better lives for all Greeks.

 

Thank you very much.