July 13, 2011 – The International Monetary Fund stepped up pressure on Greece on Wednesday, saying promised reforms were behind schedule in most areas and the delays were stalling recovery from years of recession.
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Greece, crushed under debt amounting to some 160 percent of gross domestic product, has been dependent on international support to keep paying its bills since an escalating financial crisis shut it out of bond markets last year.
Poul Thomsen, deputy director of the IMF's European department, said Athens could not rely on more tax increases and blunt across-the-board spending cuts, but needed to look at "taboos" that could include laying off more state workers.
"Greece needs to consider more aggressively closing down redundant state enterprises and entities, and it might have to accept in the process involuntary redundancies," Thomsen, who heads the IMF's mission to Greece, told a conference in Athens.
The comments underline the size of the challenge facing Prime Minister Lucas Papademos as he grapples to pass another round of bitter austerity measures before early elections tentatively scheduled for February.
"Both fiscal consolidation and structural reforms are needed in order to improve the investment climate and to create the conditions for economic recovery," Papademos told the conference.
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He said Greece's recession would be worst in 2011, and the economy could return to growth in 2013. But he cautioned that Greece's future in the European Union depended on making progress with reforms.
The IMF expects the Greek economy to contract by 6.0 percent in 2011 and by 3 percent in 2012, in what would be its fifth year of a recession that has slashed living standards and forced the most painful reforms since World War Two.
Papademos said the government would focus on reforming the notoriously inefficient public administration and boosting the banking sector's capital and liquidity base.
In a mark of what remains to be done, Piraeus Bank said it was preparing to seek shareholder approval to issue 400 million euros of non-voting shares to boost its liquidity. Greece's biggest lender, National Bank, announced plans for a 1 billion euro preferred share issue on Tuesday.
Finance Minister Evangelos Venizelos told the conference he was exhausted after months of fighting to keep Greece in the euro zone in the face of mass street protests and relentless pressure from international creditors.
But he voiced confidence that a deal would be done on a bond swap with private investors holding some 206 billion euros of Greek debt. The deal is a key element in the 130 billion euro bailout package that Athens needs in order to stave off bankruptcy next year.
Meetings between the bondholders and Greek officials ended on Tuesday without an agreement but talks are expected to resume in Paris later this week.
Although Greece accounts for only around 2 percent of euro zone GDP, its festering debt crisis has brought the whole bloc to the brink of disaster as much larger economies including Italy have been drawn in.
Officials from the "troika" of lenders comprising the IMF, European Union and European Central Bank have been in Athens since Monday, working on the bailout programme.
Thomsen said he strongly disagreed with critics who said Greece had failed to achieve any progress. But he said the joint bailout plan set up by the IMF and the EU had overestimated the government's capacity to implement reforms.
The cabinet meets on Thursday to discuss labour market reform, and Papademos and other senior politicians are also expected to hold talks with troika officials.
A poll on Wednesday suggested slightly more Greeks had a negative view of Papademos than a positive one, the first survey to suggest the public may be losing patience with the former central banker appointed last month to replace the Socialist George Papandreou.
Thomsen said that it would be vital for the government to retain sufficient backing, warning that all Greece's political parties had to get behind the measures.
"Let's not kid ourselves, without broad political support the risk of a lack of success is significant," he said. (Additional reporting by Lefteris Papadimas and Karolina Tagaris; Writing by James Mackenzie; Editing by Ruth Pitchford)