Europe's Political Economy

The Greek economy and market turbulence: not a time for faint hearts

George Papaconstantinou said Greece was fighting a battle to restore its credibility as well as its economy, and has a bold and tough recovery programme intended to rebalance the budget “over time”, but it had inherited fiscal economic and structural problems which had lain dormant.

Measures are underway to make its economy sustainable, including cuts in the public sector, tax rises on petrol and alcohol, and measures to target high earners and property owners, and crack down on tax evasion. This programme is the basis of the report submitted to the European Commission to reduce the deficit to below 3% by 2012, but results would not be seen immediately because of the lack of financial credibility and speculative gains.

The EU Summit decision to intervene to help Greece “if needed” had been a watershed”, he said, because it showed everyone was sticking together, and the first assessment of the effectiveness of the Greek measures would be in March.

The Greek Finance Minister was confident Greece would emerge from the episode stronger, as 70% of Greeks instinctively backed the reform programme, and while there are protests as the wage policy will make 65% of Greek civil servants poorer, “we cannot carry on as we are” he insisted.

A ‘Greek problem’ had indeed become a ‘European problem’ and now Greece was attempting unprecedented reforms: the quid pro quo from fellow euro-zone countries had been a summit decision “that I hope in the next days and weeks will be made more explicit.”