EU CHECKS:GREECE'S BUDGETARY and economic policies will be subjected to an unprecedented degree of surveillance by EU authorities as the price of a promise of support agreed yesterday by Germany and other EU governments.
Pensions and healthcare policies, the public administration,labour and product markets, the use of EU structural funds, financial sector supervision and official statistics will all be rigorously monitored by the European Commission to ensure that Greece is not let off the hook.
The measures are more intrusive than anything adopted in the EU’s 53-year history and, if applied to the letter, will amount to a significant curtailment of Greece’s fiscal sovereignty in return for its right to continue sharing the euro.
Experts from the European Central Bank and the International Monetary Fund will be brought in to back up the commission, but on the insistence of euro zone leaders the IMF will stay largely in the background and will not be asked to provide credit lines for Greece.
All these initiatives are expected to be approved by euro zone and EU finance ministers next Monday and Tuesday.
For financial markets, the important question is whether the arrangements will work as effectively as IMF-linked recovery programmes of the kind that have been successfully applied to Hungary and Latvia, two non-euro EU countries, since 2008.
“If the Greek government shows signs of being unable to implement the required conditions, then market pressures could remain high or intensify again,” one investment bank analyst said.
Greece’s track record, not just as a member of the euro zone since 2001 but throughout its modern history, does not inspire complete confidence.
The country had been in a state of default for about 50 per cent of the time since its recognition as an independent country in 1832, according to calculations in a book published last year by Kenneth Rogoff and Carmen Reinhart, two Harvard economics professors.
Prof Rogoff perceives a risk that many Greeks will seek to evade their government’s attempt to boost tax collection and slash the budget deficit by shifting their wealth abroad or disappearing into the underground economy – estimated to be about 30 per cent of gross domestic product.
EU officials say the bloc’s recently adopted Lisbon Treaty gives them concrete powers to influence Greek behaviour and enforce Greek compliance with the commission’s policy recommendations. For example, the commission has launched an infringement procedure that will make it legally binding for Greece to report reliable financial statistics.
However, the EU’s ultimate weapon remains the threat of financial penalties if Greece ignores mandatory advice on cutting its deficit. No EU country has ever suffered such fines, largely because national governments are wary of imposing a punishment that may one day be turned against themselves.
The commission’s recommendations include a cut in Greece’s public wage bill, to be achieved partly by the replacement of only one in five retiring civil servants, the setting up of a fund for budgetary emergencies amounting to 10 per cent of current expenditure, increases in tax and excise duties, and reform of the tax administration. – (Copyright The Financial Times Limited 2010)
