IMF to set up camp in Greece

The International Monetary Fund is to dispatch permanent
officials to Athens, amid mounting speculation that the emergency aid programme
currently propping up the Greece will have to be

Although widely praised for implementing the toughest
austerity measures in post-war history, the Greek government also faces growing
criticism over the pace of reforms agreed in return for a €110bn (£90bn) EU and
IMF-sponsored rescue package in May.

Until last week when it agreed to dispense the second
instalment of loans to Athens, amounting to €9bn, the IMF had postponed
stationing permanent representatives in the capital. Tellingly, the inspectors’
main brief will be to monitor the reform of tax collection and public spending.

The Ta Nea newspaper reported at the weekend that the
European commission is studying the possibility of extending the three-year
support programme until 2020. “Senior EU officials believe the Greek
government will not be able to apply the hard conditions of the memorandum of
understanding [between Athens and its international lenders] within the
appointed timeframe,” it said.

The extra time would facilitate financing of much-needed
development policies to spur the economy’s growth. The daily, which is known
for its pro-government views, quoted officials as saying that even if Greece
were successful there was no guarantee it would regain market trust. By 2013
the debt to GDP ratio is expected to reach 150%.

Before it received the biggest bailout in western history
– amid fears of the debt crisis spreading to other economically vulnerable
eurozone member states – Athens had been forced to borrow at prohibitively high
rates. The risk premium attached to Greek bonds remains close to record levels
at 11.5%.

“The reason why markets have not responded yet is…
because they are watching whether we can stay the course,” the Greek
finance minister, George Papaconstantinou, said at the end of a two-day road
show of European capitals to woo investors last week. “Markets don’t
behave in a linear way,” he added, vehemently ruling out the possibility
of a Greek debt restructure.

“There is a moment when you will see a rapid move
from the current wait-and-see… to an understanding that buying Greek government
bonds is a good investment.”

The spectre of international financial assistance being
extended beyond 2013 has been reinforced by fears that fiscal recovery efforts
are being severely hampered by the ruling socialists’ lack of headway in
boosting state income.

Greece is trying to cut its deficit from 13.6% in 2009 to
8.1% of GDP this year. The shortfall in revenues – estimated at €1.5bn by the
government but more than twice that amount by European commission sources – has
been blamed mostly on the failure to crack down on tax evasion, a long-time
problem in Greece.

“The government appears determined but is likely to
be fiercely tested by an entrenched and pervasive culture of tax evasion and
opposition from within the tax service,” the Washington-based IMF said in
a report released with the disbursement of the loan. It warned that additional
expense-cutting measures might have to be taken in 2011 if “pressure
points” continued to threaten the recovery plan.

In a radical departure from his own ideology, prime
minister George Papandreou has already pushed through unprecedented tax rises,
and wage and pension cuts, as part of efforts to stave off bankruptcy.

Widespread opposition to the measures – articulated
vociferously at the weekend by the conservative main opposition leader, Antonis
Samaras – has also worried Greece’s international lenders.

“The socialist government has told several
lies,” Samaras said, in his first major policy speech since his election
to the helm of the New Democracy party.

“The IMF and EU memorandum was not the only solution
for Greece, but the government was forced into it because it turned a debt
crisis into a borrowing crisis … It signed on to the memorandum without
understanding its conditions, like it was a blank, binding cheque.”

With the draconian austerity programme deepening
recession and the economy set to shrink by 4%, resistance to the policies has
far from subsided.

Yesterday, truck drivers who have blocked roads to
protest against government plans to liberalise the freight industry – one of
several “closed shop” professions that have long impeded Greece’s
competitiveness – pledged to continue their action, despite islands and remote
parts of the country running out of essential medicines and foodstuffs.

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