'We have reached the limit on increasing taxes' - The Best from Greece

 

His comments came after the IMF published its fifth review of the country’s performance under the current bailout programme.

 

“The economic situation in Greece has taken a turn for the worse, with the economy increasingly adjusting through recession and related wage-price channels, rather than through structural reform-driven increases in productivity,” the report noted.

 

“We have reached the limit of what can be achieved through increasing taxes,” Thomsen told reporters in a conference call shortly after the publication of the quarterly report.

 

Thomsen was in Athens to head troika negotiations with the government for a new EU-IMF bailout programme agreed at the October 26-27 EU summit.

 

As in previous press conferences, Thomsen admitted that the country’s 18-month record under his policy recommendations had fallen “well short” of his forecasts and reform expectations.

 

But the troika staff chief had little more to offer by way of corrective solutions than the possibility of additional budget cutbacks in 2012, this time with the “emphasis on the expenditure side”.

 

 

“After a large adjustment in 2010, fiscal policy has struggled to keep up with recessionary pressures,” the IMF report noted, as if that fiscal policy of wage cuts and tax hikes was not the cause of the steep economic downturn.

 

“The authorities have also struggled to implement the reforms approved under the June medium-term fiscal strategy,” the IMF said.

 

“Privatisation plans are advancing, but difficult market conditions and technical delays prevented any sales during the third quarter. Structural reforms have not yet delivered expected results, in part due to a disconnect between legislation and implementation.”

 

But despite its gloomy tone, the IMF report did not fail to applaud “an important shift in the political landscape when the three major political parties combined to form a coalition government to be led by a technocratic PM”, stressing that “the new government and parties supporting it are committed to the programme’s objectives and policies”.

 

Against this political backdrop, “the authorities have taken steps to bring the fiscal programme back on track, taking meaningful measures to cut public wages, employment and pensions, and to broaden the tax base,” said the report, without explaining how these measures of “internal devaluation” can stem the spiral of depression.

 

“Still, risks to the programme remain large, both from external sources (the worsening outlook for the euro area), and internal sources (a relapse into weak implementation)” – but not, it would seem, from the self-defeating prescriptions of the IMF.