The following is the Executive Summary of the OECD assessment and recommendations, taken from the Economic Survey of Greece 2005 published on 7 July 2005.
Recent and prospective growth performance is good
The Greek economy has continued to grow vigorously, buoyed especially by low nominal and real interest rates and an expansionary fiscal policy stance, largely reflecting public works in preparation for the Olympic Games in 2004. The outlook is for some slowing activity in the near term, triggered by fiscal consolidation, but a subsequent pick-up in growth thereafter. However, inflation is likely to remain above the euro-area average, to a certain extent eroding Greece's international competitiveness.
Fiscal consolidation is the main priority
The fiscal audit, performed by the new government in close collaboration with Eurostat has revealed a very loose fiscal policy since the late 1990s, culminating in a general government deficit of 6% of GDP in 2004. The government debt-to-GDP ratio has remained stubbornly above 100%, despite uninterrupted strong growth during the past eleven years. Reining in government deficits is of vital importance both to meet the fiscal objectives of EMU, and to prepare for demographically-related budget pressures that will start emerging in a decade's time. Moreover, sustained high public debt makes Greece relatively more vulnerable to changes in interest rates and market sentiment, while its servicing threatens to crowd out public spending in areas important for Greece's ambitions to reach income levels elsewhere in the EU.
Convergence with EU living standards is a major medium-term policy challenge
Further policy challenges arise from the government's objective to eliminate the gap in per capita incomes with the EU 15, which widened from the late 1970s to the mid-1990s, but has narrowed since. A decomposition exercise shows that most of the income gap reflects low labour productivity rather than low labour inputs. There is substantial scope for catching up with best practice in leading countries in a number of policy areas, including competition policy; liberalisation of product markets, especially telecommunications and energy; policies to foster entrepreneurship; and the implementation of a better corporate governance regime.
There is also scope for better labour inputs
Convergence with European Union member countries could also be accelerated by getting more people into work through higher flexibility in the wage bargaining system; lower non-wage labour costs, especially for the lower-skilled; less stringent employment protection provisions; enhanced labour mobility; and more effective active labour market policies. In addition, training and education could be upgraded to improve educational outcomes, ensure that school-leavers have useful skills, and to support life-long learning. This would make workers more productive and raise their employability at both ends of the age spectrum.
Increased labour market flexibility from immigration will help
The inflow of immigrants during the 1990s was large, raising the share of foreigners in the population to over 10% and increasing the labour force by between 5 and 10%. Given the rigidities of the formal labour market in Greece, the existence of a substantial informal sector with latent demand for low-paid labour allowed illegal immigrants to find jobs in large numbers even while structural unemployment among the Greek population remained stubbornly high. While highlighting the effect that the relatively high ratio of minimum to average wages can have in reducing employment opportunities for the low-skilled, immigration has reduced the economic cost of these restrictions by allowing at least some Greeks to move to higher level jobs, and by increasing output and profitability in a number of sectors.
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