Greek fiscal system 'broken': acting IMF head

21st June 2011, Comments 0 comments

Greece's main problem is not its debt levels but a lack of competitiveness, its economic "isolation" in the eurozone and a "broken" fiscal system, the acting head of the IMF said Tuesday.

"The Greek situation is exceedingly difficult. The challenges are enormous," John Lipsky said in Berlin after talks with German Chancellor Angela Merkel on the Greek crisis.

"The critical question regarding the Greek economy is competitiveness, and what it has resulted in is an extremely poor performance," Lipsky said at the American Academy in the German capital.

"The underlying fiscal system is broken. But that means it can be fixed... It's not that hard to fix it. It is a matter of political will."

He also said that the Greek economy had failed to benefit from the creation of the single currency zone and was in fact "isolated" in the 17-nation area.

"They have theoretically existed in the single market, but in practice they have been left out. Their percentage of exports to GDP (gross domestic output) is the lowest in the euro area," he said.

"The government has expressed its desire, under difficult circumstances, to adopt an extremely ambitious programme of structural reform... We think that if it is implemented fully then it has a reasonable chance of success."

He added that the 110-billion-euro support programme given to Greece last year by the International Monetary Fund, and the new package now being discussed, were not "bailouts".

"I am not sure what a 'bailout' programme is. We have tried to make clear that what we have discussed is a programme of economic policy adjustment and structural improvement aimed first and foremost at improving the competitiveness and efficiency of the Greek economy," he told reporters.

"That programme will quite naturally create a set of financing needs. This is a moment in which it is clear the Greek authorities do not have access to private markets, and hence if their partners in the euro area and the IMF are going to be supportive of that policy programme, then the financing needs to be supplied."

Lipsky said that before the IMF released its share of a 12-billion-euro fifth tranche of the first aid programme, the Greek authorities needed to provide "clarity" on its reform plans and the legislation to implement it.

"The heart of the Greek programme is their policy adjustments. If they are not approved, then the bedrock of the programme does not exist," he warned.

Greece's embattled government on Tuesday faced a late-night confidence vote to pave the way for a 28-billion-euro package of austerity cuts vital to avert bankruptcy, something which is feared could cause turmoil in the global economy.

New Finance Minister Evangelos Venizelos said Athens would aim at "broader and faster" state cuts than those agreed with its creditors as he appealed for a "patriotic" vote to save the nation.

Lipsy added that Greece had not made any request to the IMF for additional support.

© 2011 AFP

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