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Belgium : Economic Adjustment Programmes for Greece: some reform despite weaknesses, say EU auditors.

The Economic Adjustment Programmes agreed for Greece after the financial crisis broke out provided short-term financial stability and made some progress on reform possible, according to a new report from the European Court of Auditors. But the Programmes only helped Greece recover to a limited extent and, as of mid-2017, had not succeeded in restoring the countrys ability to finance its needs on the markets.

The first Economic Adjustment Programme was for 110 billion in 2010, with two further Programmes for 172.6 billion in 2012 and 86 billion in 2015. The Programmes were aimed at establishing a stable economic situation in Greece by covering the economys financing needs in return for wide-ranging structural reforms, thereby preventing contagion across the rest of the euro area. These programmes promoted reform and avoided default by Greece. But the countrys ability to finance itself fully on the financial markets remains a challenge, said Baudilio Tom Muguruza, the Member of the European Court of Auditors responsible for the report.

The auditors found that the Commission had no prior experience in managing such a process, and that the Programmes conditions were neither sufficiently prioritised by importance nor embedded in a broader strategy for Greece. Furthermore, the programmes macro-economic assumptions were poorly justified. Cooperation with other institutions was effective but informal. The Commissions compliance monitoring in relation to Greeces implementation of the Programmes was sound. The auditors also found a mixed picture in the design and implementation of reforms in four crucial policy fields: taxation, public administration, the labour market and the financial sector. Reforms to taxation and public administration brought fiscal savings, but the implementation of structural components was much weaker. The financial sector was substantially restructured, but at a considerable cost.

Overall, the auditors found that the specific objectives of the Programmes had been achieved only to a limited extent. They did bring about significant consolidation, with the underlying budget balance improving by 17% of GDP between 2009 and 2015. However, the decline in economic activity during the same period, coupled with financing costs on previously accumulated debt, meant that Greeces debt-to-GDP ratio consistently increased. As a result, the country remains unable to fully meet its financing needs on the markets.

As part of this audit, the auditors attempted to assess the role of the European Central Bank (ECB) in the Programmes, in line with their mandate to audit the ECBs operational efficiency. However, the ECB questioned the auditors mandate and failed to provide sufficient evidence. The auditors were therefore unable to report on the ECBs role. The auditors make a series of recommendations to the European Commission to improve the design and implementation of Economic Adjustment Programmes. These recommendations have been accepted in full.

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Publication:Mena Report
Geographic Code:4EUGR
Date:Nov 20, 2017
Words:464
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