The following OECD assessment and recommendations summarise Chapter 3 of the Economic Survey of Greece 2005 published on 7 July 2005.
More decisive reforms are crucial for speeding up the convergence process
Long-term growth scenarios suggest that even under fairly optimistic assumptions, Greece might not reach full convergence with EU-15 per-capita incomes before 2030, absent the effective implementation of comprehensive structural reforms and the closure of the inflation gap vis à vis the euro area. Indeed, for most of the past 30 years, the level of Greek per capita income has hovered at under two thirds the EU-15 average, and the income gap actually widened between the late 1970s and the mid-1990s. Differences in hourly productivity levels explain most of the gap, so increasing productivity growth is a central challenge facing Greek economic policy. There is no gap in total labour utilisation vis-à-vis the EU, as low employment rates of youths, women and older workers are offset by long working hours for full-time employees, and low levels of part-time work. There is thus considerable scope for higher labour inputs, which would not only raise Greek income levels, but would also contribute substantially to sounder public finances, a more equitable income distribution and social cohesion.
The role of the Competition Committee needs to be strengthen to establish a "competition culture"
More intense competition in product markets is likely to promote a better allocation of resources across the economy and a better overall employment performance. Anti-trust legislation was reformed four years ago, but the Competition Committee's well-documented under-funding improved only recently, leaving Greece's enforcement effort among the lowest of OECD countries. Hence, more political support of the Hellenic Competition Committee is needed to allow it a more proactive approach in establishing a "competition culture" and in improving the understanding by the public of the long-term beneficial effects of competition in terms of sustained growth of living standards and high employment. A new draft law (made public in mid-March 2005) corrects many of the shortcomings of previous legislation and significantly upgrades the Competition Committee.
Product market regulation and productivity levels in selected OECD countries
1. Overall indicator of strictness of legislation. Scores can range from 0 to 6, with higher values representing stricter regulation.
2. Panel C shows the estimated effect of a decrease in product market regulation (PMR) by one standard deviation on the level of the long-term multifactor productivity (MFP) gap between a country and best practice abroad (the ''leader''). The MFP gap is computed industry by industry and aggregated by taking an average weighted by the initial sectoral value-added.
Source: Nicoletti, G., S. Scarpetta and O. Boylaud (1999); Scarpetta and Tressel (2002); OECD, Productivity database (February 2005); OECD, Regulation database.
The liberalisation process should be accelerated in the electricity as well as other network industries
Substantial progress has been made in recent years in privatising a large number of state-owned enterprises, including in the network industries. The gains could have been larger still if the state had entirely given up the control of, and involvement in, the management of public utilities. While liberalisation of the telecommunications sector has progressed quite rapidly, the electricity sector continues to operate in an uncompetitive environment with the incumbent Public Power Corporation (PPC) dominating the electricity market and the State still owning 51% of PPC. A major disincentive to entry to the electricity market is the vertical integration of the PPC and the restricted access to low-cost fuel, and a price setting which does not yet entirely reflect the opportunity cost of additional electricity supply. A complete privatisation of PPC should also be considered, once competitive conditions have been established in contestable segments. Given the barriers to entry, determined steps are needed towards enhancing the powers and responsibilities of the sector's regulator in order to ensure competitive access and tariff conditions.
The government has also announced its intention to open up the gas market before the end of the derogation period in 2006. Commendable initiatives in this context include the establishment of regulatory responsibilities for the sector, and the requirement of account unbundling in gas activities. The Public Natural Gas Company (DEPA) has also submitted a proposal for third-party-access tariff structure that includes transparent transportation tariffs and non-discriminatory access at a reasonable cost. To enhance competition in both the gas and electricity sectors, the government should do away with the practice of "most-favoured-customer" contracts between the incumbent companies in each sector, which discriminate against other customers. Some steps have also been undertaken to increase competition at the refining level via a re-organisation of the oil products market in 2002, but there is no evidence so far that it has increased competition in the sector. In addition, the government introduced legislation in 2002 to open domestic sea transport to competition. This paves the way for a modernisation in the ferry sector, but effective implementation will be critical, and should be monitored.
The high barriers to entrepreneurship should be dismantled and access to finance facilitated
Paradoxically, Greece has both a high rate of self-employment and a low rate of firm creation, by international comparison. Registering and licensing a business in Greece is complex and very time consuming, possibly discouraging foreign investors and risking corruption. Considerable effort is given to alter the situation, and this has been set as a priority by the new government. To promote a more dynamic private sector, the government should eliminate the remaining obstacles to entrepreneurial activity. Most importantly, bureaucratic requirements for start-ups need to be more decisively overhauled, and once overhauled, decisively implemented, to take full advantage of the high entrepreneurial potential in Greece.
Access to finance seems more difficult than in most other EU member countries, in spite of recent financial market reforms. In part, this reflects banks' usual demand for collateral often worth substantially more than the amount they lend, to avoid recourse to time-consuming legal steps to recuperate assets from companies which have failed. Accordingly, the speed and efficiency of the judicial system needs to be improved to strengthen contract enforcement. This should include a re-examination of the bankruptcy legislation with a view to facilitating loan recovery, which would also improve the efficiency of financial intermediation. The reform of the bankruptcy legislation is being examined by a specially formed committee in the Ministry of Justice.
Close monitoring of financial markets and a better corporate governance regime are needed
With most of the transformation of the financial sector now accomplished since the liberalisation of financial markets from the 1990s, the provisioning for non-performing loans and the adequacy of capital are the main challenges facing the sector, in particular in the event of a future economic slowdown. Financial market discipline should be strengthened by increased disclosure of asset quality and other risk indicators, which until recently was less developed than in other OECD countries. The government has enacted a corporate governance law which applies to all listed companies, including banks, and which came into effect in November 2002. Main features of the law are the definition of the duties of board of directors, the safeguarding of minority shareholders' rights, the definition of the role of internal auditors and the protection of shareholder rights. The law should introduce adequate corporate accountability and disclosure practices and prevent the corporate abuses that occurred under the previous regime. To become effective, the new law needs to be implemented rapidly and vigorously. The corporate governance principles could be made more effective by making them part of the listing requirements on an apply or explain basis.
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