Greece: The European Commission’s Recommendations

You can read the newly-released documents here.

7 replies on “Greece: The European Commission’s Recommendations”

I only skimmed this. Is the Commission basically saying Greece better implement the promised budget savings “or else”?

The fact that the Commission is, to an extent, endorsing Greek plans may calm the markets but it is still unclear as to what the plan of action is if the proverbial hits the fan.

From the press release:
“a reduction in the overall public sector wage bill, including through the replacement of only 1 of 5 retiring civil servants, progress with healthcare and pension reforms, the set up of a contingency reserve amounting to the 10% current expenditure, tax and excise duties increases and tax administration reform. In the medium term, Greece is required to implement further adjustment measures of a permanent nature, continue with tax administration reforms and improve the budgetary framework.”

“public reports on budgetary execution on a monthly basis, the obligation for social security funds and hospitals to publish accounts and enhanced control mechanisms and effective personal responsibility in the statistics and general accounting offices”

This is fairly harsh stuff. It may be in anodyne language, but it is at best IMF-lite.

I see Trichet is “confident” that Greece will stick to the plan.

Does anyone really believe they will? I see the unions are calling for a strike later this month against the austerity plan. Meanwhile the Euro is beginning to slide….

@ Stuart

“Meanwhile the Euro is beginning to slide…”

You say that as if most of the EU has a problem with such a slide…

No, I say that as evidence Mr Market doesn’t believe Greece can pull it off either.

Yes, the Euro slide is welcome but I’m also interested in the other side effects of Greece’s inability to get its house in order and after that Portugal and maybe Spain.

So far we’ve seen:
1. Move to US Dollars. Good news for EU exporters if Euro depreciates, bad news for US and will affect its somewhat fragile recovery.
2. Stock markets heading south

What’s next? I’m no expert but for Ireland here’s some suggestions:
A) Increased borrowing costs as there is nervousness we’re next.
B) Inflation. A big part of our deflation has been the drop in value of the Euro, if this reverses then we will see inflation again. Most imports from China are still priced in dollars.
C) As a result of B rising interest rates.
D) EU forced to bail out Greece, Portugal and maybe Spain forcing up member budget contributions

Maybe there’s nothing we can do but wait and see but I’d be interested in a discussion of the likely outcome. I for one don’t have much faith in the pronouncements of those in charge.

@ Stuart.

I think your analysis is on the money. For Ireland, a lower euro will obviously benefit our export sector, though a subsequent hike in interest rates could see the euro appreciate again and lead to a further contraction in consumer spending back home. This would call into the question the relatively optimistic nature of current ‘consensus’ macro forecasts for the Irish economy.

“B) Inflation. A big part of our deflation has been the drop in value of the Euro, if this reverses then we will see inflation again. Most imports from China are still priced in dollars.”
I presume you mean the rise in value of the euro?

Yes, if the euro falls, we will see a rise in dollar priced imports. As the EU is a net exporter, though, this should be counterbalanced by a net improvement?

It won’t stop interest rates rising to keep “inflation expectations anchored in the near-term”, but it may stabilise the european export economy.

As Paddy says, for our own economy, this would be a mixed blessing. None of the forecasts I’ve seen factor in increased interest rate costs. I find it a little weird as they are not just a known unknown – they are simply a timing issue and a level issue… and this despite the fact that the export boom that we are supposed to have to help us recover seems to be predicated on a weakening of the euro…

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