Regling: The reform drive of new government to stimulate investment climate is welcome

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“The reform drive of the new government to stimulate the business environment and investment climate is welcome,” European Stability Mechanism (ESM) Managing Director Klaus Regling said on Tuesday at the Economist conference.

• “Although the government has just been elected and details remain to be seen, what is currently known seems promising to the extent that the country respects the established surveillance framework and its programme commitments,” he added.

Regling said that he met with Finance Minister Christos Staikouras on Monday. “He assured me that the new government is committed to achieving sustainable longterm growth and that the agreed fiscal targets will be respected when the 2020 budget is put together.

• This is promising for the future of the Greek economy. We are looking forward to working together with the Greek government on this common goal,” he underlined.

He noted that the Commission presented the 3rd Enhanced Surveillance Report, which assesses the ongoing implementation of reforms. The ESM agrees with those conclusions, he added.

• “The report concludes that reform implementation has slowed in recent months, and the consistency of some policy measures with commitments given to the European partners was not assured. Some of these decisions are likely to have negative consequences on growth – backtracking on past reforms and deciding on new spending increases, while arrears are still higher than expected.

To support growth and debt sustainability, the commitment to stick to the agreed reform path beyond the end of the programme is essential,” he underlined.

“I believe Greece should make growth its top priority while at the same time maintaining the agreed primary surplus and fostering fairness across society,” he stressed. The fiscal surplus is – together with growth – the necessary condition for debt sustainability. Given this overarching objective of “ promoting growth”, I would like to advocate the following four more detailed policy lines:

• First on structural reforms: reforms already implemented during the adjustment programmes, such as the labour market reform, should not be reversed. For example, increases in the minimum wage should be in line with productivity developments to maintain competitiveness.

Further structural reforms are necessary to improve productivity and competitiveness. This is particularly important given the poor demographic outlook for Greece. To strengthen productivity requires reforms to make the economic environment more business friendly, reduce the time needed to resolve legal disputes, and further improve the effectiveness of public administration.

• Second: continue with privatisations and support the improved management of state assets. This is critical to building an effective corporate governance culture in Greece, and to attracting both foreign and domestic investment.
• Third on banking: the resilience of the banking sector needs to be safeguarded in order to improve financing conditions and support growth. Greece needs a stable and profitable banking sector to support firms and households.
• Fourth on fiscal policies: Any rebalancing of fiscal policies should be targeted to foster growth while safeguarding the achievement of the agreed primary surplus. A reduction in tax rates, for example, could be coupled with a broader tax base.

Also, available fiscal room should be used for productive expenditures, such as public investment.
More broadly, policy measures should consider fairness across society. For example, social benefits should be targeted at the disadvantaged like the young and working age population, where the risk of poverty is high.

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