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The adjustment programme and structural reforms.

IV. The Adjustment Programme

and structural reforms

There was a risk that the Greek economy would be caught in the 1990s in a vicious circle of stagflation associated with increasing balance-of-payments tensions, reflecting the trend deterioration of macroeconomic imbalances, rising external debt servicing costs and a less favourable international environment. As analysed in Part I, the major destabilising factor in the 1980s was the rising PSBR. On present trends, even if the primary deficit were to be stabilised, the debt dynamic effects would push the PSBR to around 25 per cent of GDP by 1993 (see Annex I). Recognising the urgency of the situation and that wide-ranging corrective measures are necessary, the new government has announced important institutional and structural reforms to be implemented during the first half of the 1990s. Also, in order to strengthen confidence of foreign creditors the macroeconomic policy stance and reforms have been progressively tightened during the last ten months. The final form of the "Medium-term Adjustment Programme, 1991-93", including macro projections and micro reforms, was presented at the end of February 1991. Given the pervasive and deleterious effects of the oversized public sector, the mainstay of the Adjustment Programme is fiscal retrenchment and public sector reorganisation in general.

The Adjustment Programme, which has also been designed with the aim of preparing the ground for Greece's full participation in the process of the monetary and economic union of the EC, has very ambitious targets (Table 16). The main objective, on which depends the smooth implementation of the Adjustment Programme, is the reduction of the PSBR from nearly 21 per cent in 1990 to 3 per cent in 1993. Facilitated by the abolition of ATA the rate of growth in nominal wages is forecast to drop from about 22 per cent in 1990 to 9 per cent in 1993, implying a sizeable real cut concentrated in the first two years. With continuing restrictive monetary policy, consumer-price inflation is projected to fall by 15 percentage points to 7 per cent by the end of 1993. Though projected to remain non-accommodating, some easing in the exchange rate policy may also be envisaged, so as to arrest the deterioration in international cost competitiveness. This, coupled with sluggish domestic demand and supply-side improvements, is forecast to reduce the current external deficit to 3 per cent of GDP in 1993. As this would probably be considerably less than autonomous capital inflows a small fall in the net external debt is projected.

[Tabular Data Omitted]

Buoyant profits stemming from falling real labour costs and improved confidence associated with the marked reduction in the three inter-dependent disequilibria - the PSBR, inflation and the current external deficit - should bring about a major rebalancing of the real economy. The Adjustment Programme assumes a progressive pick-up in GDP growth to 3.5 per cent in 1993, led by a marked recovery in investment and exports. By contrast, consumption is projected to grow slowly, reflecting subdued government expenditure and a contraction in household real disposable income, mainly brought about by the increase in the tax burden and a fall in real wages. The improvement of the macroeconomic performance assumes the timely realisation of the announced structural reforms reviewed in this chapter.

Public sector reforms

Fiscal consolidation

Fiscal consolidation is planned to be achieved mainly by raising revenues; in particular the projected significant increase in central government revenues explains two-thirds of the fall in the PSBR (Table 17). On the taxation front the emphasis is placed on broadening the tax base by curbing tax avoidance and fraud, which is forecast to yield the equivalent of 6.8 per cent of GDP by 1993. However, the 1991 Budget incorporated significant increases in tax rates, with a revenue impact equivalent to somewhat less than 2 per cent of GDP. First, the non-indexing of personal income tax brackets and allowances coupled with the reduction in the number of tax brackets from 9 to 4 entails a substantial fiscal drag. Second, certain items were moved from the low VAT category to the standard one. Third, a 10 per cent tax on interest income. except for interest from government securities, was also introduced. In addition to taxation, over the three-year period the government expects to raise annually non-recurrent revenues on average equivalent to 1 per cent of GDP from privatisation and 1.5 per cent of GDP from the sale of so-called "land bonds", which give the right to bond holders to acquire state property at some later stage.

Table : Table 17. Fiscal consolidation programme
                   Per cent of GDP
                                 1990   1991   1992   1993   1990-1993
                                                             difference


Central government
  Total revenues                 27.0   33.6   36.6   38.2   +11.2
    Normal revenues              26.6   28.8   29.5   30.0   +3.4
    Extraordinary revenues (1)    0.0   2.4   2.6   1.4   +1.4


Proceeds from curbing tax
      evasion and fraud           0.4   2.4   4.5   6.8   +6.4
  Total expenditure              44.6   43.9   41.5   39.7   -4.9
    Primary expenditure          32.7   31.6   30.1   29.8   -2.9
      Wages                      14.0   13.5   13.0   12.6   -1.4
      Subsidies and grants        8.1   6.7   5.3   4.5   -3.6
      Other                      10.6   11.4   11.8   12.7   +2.1
    Interest payments            11.9   12.3   11.4   9.9   -2.0
  Borrowing requirement          17.6   10.4   5.0   1.5   -16.1


Social security organisations
  Revenues (operating)            6.9   7.2   7.4   7.2   +0.3
  Expenditure                    11.6   11.9   11.4   10.9   -0.7
  Subsidies                       3.2   2.9   2.5   2.2   -1.0
  Borrowing requirement           1.5   1.8   1.5   1.5   0


Public enterprises
  Revenues (operating)           12.0   13.0   12.7   12.1   +0.1
  Expenditure                    15.6   14.8   14.1   13.5   -2.1
  Subsidies                       1.9   1.4   1.4   1.4   -0.5
  Borrowing requirement           1.7   0.4   0.0   0.0   -1.7
PSBR (accrual basis)             20.9   12.6   6.5   3.0   -17.9
  Public-sector debt            109.2   108.2   101.9   94.1   -15.1


(1.) Including sales of public enterprises and land bonds. Source: Direct submission by national authorities.

In order to curb tax avoidance and fraud the authorities intend to rely increasingly on external signs of wealth for evaluating personal incomes. For this reason the "presumed" maintenance costs of cars, motorcycles, yachts, etc., were doubled. Moreover, for the first-time in Greece, people purchasing expensive consumer goods and real estate will have to justify the origin of the funds and a capital gains tax on real estate was introduced. Likewise, the "objective" values of residences and urban land, used for taxing real estate transactions, were raised by between 60 and 100 per cent, so as to bring them closer to market values. The government has also announced that new criteria will be applied for assessing farmers' incomes, with the aim of collecting no less than Dr 65 billion (2.3 per cent of expected agricultural income) in taxes by 1993. As some of these measures will become effective only in 1992 and 1993, their full impact will not be felt before 1994. Moreover, in order to maximise tax receipts, significant reforms in the tax administration have been proposed, including the formation of a new more efficient category of tax inspectors and the computerisation of tax files so as to make possible the cross-checking of taxpayers and transactions. Likewise, all shops will be required to install electronic cash registers by 1993. Moreover, in order to broaden the tax base the government is still studying alternative ways for taxing more efficiently professionals, self-employed craftsmen and employers, and it is expected to announce appropriate measures before the end of 1991.

Sizeable economies are also planned to be made on the expenditure side, with the result that the share of central government expenditure in GDP is projected to fall by 5 percentage points. First, the government has announced a 10 per cent reduction in public sector employment. Allowing for workers who are to be moved to the private sector after the privatisation of their enterprises, the reduction in employment in the general government proper would be considerably less than that. The intention of the government is to recruit one person for two officials retiring. This, combined with real wage cuts, will lead to a reduction in the share of central government consumption in GDP. Second, the projected sharp fall of inflation and the reversal of the upward public debt/GDP ratio are expected to outweigh the rise in real rates so that interest payments should decrease somewhat as a per cent of GDP. Third, a big reduction in subsidies is planned, partly reflecting the privatisation of loss-making firms and the improved financial situation of social insurance organisations.

The reform of the pension system (see below), an increase in the participation of patients in health expenditure and better management of the Social Security Organisations is projected to lead to a relatively large fall in the deficit of the Social Security System, after successive rises throughout the 1980s. Likewise, the deficit of public enterprises remaining under state control is expected to fall, reflecting shrinking consumption and investment.

Even though a marked reduction in deficits is expected, the PSBR target of 3 per cent of GDP in 1993 seems difficult to attain. The government has not yet finalised the system of taxing professionals, self-employed and small employers and there may be delays in the introduction of certain tax measures announced. Likewise, despite the proposed measures and government efforts long established behavioural patterns and systemic deficiencies may not be overcome rapidly so that improvements in the efficiency of tax collection may be limited in this short period. In this context it is worth noting, as the experience in other OECD countries has shown, that the suppression of the confidentiality of bank accounts for tax purposes would greatly contribute to reducing tax avoidance and fraud. Privatisation seems also to be lagging and it may be difficult to assess what net receipts will be if the state has to assume part of the debt of loss-making enterprises.

In addition to the uncertainties related to some revenue items, expenditure overruns may also be a problem. In the 1980s these accounted for more than two-thirds of the big difference between budgeted central government deficits and outcome, suggesting major weaknesses in the preparation and implementation of the budget owing to ineffective central control. In principle, budget procedures are very strict and the budget prepared by the Ministry of Finance goes well beyond the scope of many OECD countries, as it also covers detailed revenue and expenditure plans of the social security agencies and of public enterprises. Moreover, transfers of expenditure appropriations from one budget line to another, even within the same ministry, are supposed to be severely regulated. Voted budget appropriations allocated to the different ministries and public agencies are, in principle, monitored by the "expenditure control office" in each ministry or agency, which is composed of officials of the Ministry of Finance. However, control is often more formal than real, all the more so as overspending rarely is penalised. As a result, traditionally expenditure overruns are automatically approved by Parliament, when the Budget for the following year is voted.

The Ministry of National Economy, which oversees the implementation of the global policies of public enterprises, has since 1987 been progressively tightening controls. Recently the Ministry instructed public enterprises to submit monthly financial statements so as to able to correct expenditure trends before it is too late. Moreover, effective control over the expenditure plans of ministries and other public bodies can be improved by introducing in-year automatically triggered spending limits.

Pension reform

Greece has probably not only the highest pension expenditure/GNP ratio in the OECD, but it has been on a steep upward trend since 1980, contrary to broad stability or even a downward trend in most OECD countries (Diagram 12). And as was analysed in the previous two OECD Surveys, without a pension reform no lasting improvement in public finances could be expected. Despite strong union opposition, especially by public sector employees who have extremely advantageous pension "rights", the new government passed a very strict pension law in 1990. This law corrects many of the excessively generous provisions and distortions of the previous system, but not all of them. Accordingly, there is likely to be a slight fall up to the mid-1990s, whereupon the pension/GNP ratio will start moving up again under the influence of negative demographic factors. The authorities have estimated that the measures would yield the equivalent of about 2 per cent of GDP in 1991 rising to around 3 per cent in 1993, despite the big increase in the number of pensioners in 1991 due to early retirement by those wishing to take advantage of the privileges of the old pension schemes. With the aim of setting the pensions deficit on a permanent downward trend and not merely preventing another explosion, the government has announced that the whole problem of pensions and their financing will be discussed with the social partners in 1991 with the view to introducing additional pension reforms before 1994 [28].

Although the new law covers all pension regimes, the biggest changes concern the wider public sector (including banks), but some of them are planned to be implemented gradually so as not to harm people near retirement (see Annex II). The main provisions are:

i) The lengthening of the minimum contribution period giving a right

to pension (e.g. for women in the public sector from 15 to 25 years);

ii) Public sector retired people no longer can draw a pension upon

retirement, they will now have to wait until the age of 58 for women

and 60 for men. Up to now many women and men started receiving

pensions at the age of 33 and 43 respectively;

iii) Civil servants and other public sector employees recruited after

1990 will have to pay a contribution rate of 5.75 per cent and

7.5 per cent respectively (civil servants recruited before continue to

be exempted and other public sector employees to pay minimal

rates - less than 3 per cent on average);

iv) Contribution rates for private sector employees (35.45 per cent in

1990) will gradually be raised by 3 percentage points, two-thirds of

which will be met by employers;

v) The ceiling for calculating contribution rates was raised from Dr.

220 000 to Dr 300 000 and in the public sector the maximum

pension has been fixed at Dr 400 000 per month (about three times

the average wage in all sectors).

Strict norms have also been introduced for invalidity pensions so as to prevent the widespread abuses of the past, and within the next couple of years all invalidity pensions will be reassessed. Likewise, the criteria for classifying workers in hazardous occupations (enjoying big pension advantages) have been tightened and, as for invalidity pensions, a great number of professions are expected to be declassified. Measures are under study to ensure the regular collection of contributions, and to this end the non-payment of contributions has been equated to tax evasion.

The re-organisation of the public administration

An overmanned and inefficient public administration is one of the major systematic deficiencies explaining the malfunctioning of the public sector proper and impeding the expansion of the private sector on a healthy basis. The root of these problems lies in the traditionally large proportion of recruits taken from the political "clientele". Likewise, political criteria have tended to weigh heavily on promotions and senior appointments. Since the early 1980s the compression of pay differentials and the introduction of inappropriate recruitment criteria have further demotivated existing qualified personnel and have discouraged the recruitment of talented professionals [29].

Some corrective action was taken in the second half of the 1980s, but results were meagre. Two special institutes, one for the formation of top civil servants and one providing education and technical skills more widely, have been created. With the aim of ameliorating public services, an audacious law on the reorganision of the public sector was adopted recently. The weight of educational and professional criteria in recruitment has been upgraded. In order to increase mobility, a horizontal recruitment system based on professional qualifications was introduced, so that public servants will no longer be tied to any particular ministry or public agency. To improve motivation and career prospects a system of rewards, penalties and re-training has been adopted, so suppressing the automaticity of advancements, depending on years of service. Supervisory bodies, on which members of political parties and trade unions will sit, will be set up to increase transparency.

This law introduces many new elements expected to enhance the efficiency of public administration considerably. However, results are likely to be sub-optimal without a radical change in the remuneration schedules: in particular, salaries of senior civil servants have to be at competitive levels with those offered by most public enterprises and private firms, as was the case at the end of the 1970s.

Deregulation and market reforms

Privatisation

The unsatisfactory state of industry, reflected in a very low rate of return, is largely attributable to the poor performance of firms in the wider public sector, which represent a relatively large share of the organised business sector [30]. Most of these firms incurred big losses in the 1980s, despite the debt-to-equity conversions and the monopolistic position of some of them. The combined deficit of firms in the wider public sector (except for the power generating corporation and telecommunications) probably exceeded 5 per cent of GDP in 1990 (over one-third of their value added). A few of the firms are non-viable, but remain in operation by continually receiving subsidies. However, the majority of them seem to be viable firms if the necessary restructuring is done in time, but reflecting government interference and mismanagement, conditions have deteriorated over the years. Despite the fact that the State controls a large share of business firms, there is no tradition either of a body of public sector managers or of successful private managers moving easily to the public sector. Bureaucratic rules (e.g. concerning wage ceilings) and the day-to-day government interference in the affairs of these firms repel talent and professionalism, which can find much better openings in the private sector.

The new government embarked in an ambitious programme of privatisation in order to save the firms concerned and also eliminate open-ended subsidies adding to the deficits. Only a small number of firms will be liquidated. A ministerial committee has been created to coordinate privatisation, but the actual privatisation will be done by the institutions controlling the firms concerned. The principal agency is the Industrial Reconstruction Organisation (IRO), which is responsible for some of the biggest loss-making firms to be privatised [31]. The National Bank of Greece, the Agricultural Bank, the Commercial Bank and the Hellenic Industrial Development Bank control also a large number of firms, making a total of some 88 firms to be privatised. In addition, the new government announced partial privatisation (less than 50 per cent of the capital) of certain public enterprises (mainly in the telecommunications, transport and power generating fields) through the issue of shares in the Stock Exchange or sold directly to interested parties. The government is also considering privatising urban transport in the greater Athens area and has proposed to give partial ownership and management to the employees.

A relatively large number of companies, including many foreign firms, have shown an interest in taking over Greek firms. The authorities are keen to attract foreign investors so as to instil dynamism in ailing companies and increase financial resources available for investment, as domestic savings would likely continue to be insufficient to support a high investment ratio. However, privatisation does not appear to be proceeding at the pace originally envisaged, and so far only a very small number of firms have been privatised. The Gulf crisis and the credit squeeze, coupled with recessionary tendencies in Greece and elsewhere, have been discouraging potential investors. More importantly, there are legal hurdles waiting to be cleared [32]. Likewise, there are a number of practical issues that make investors hesitant, notably foreign investors. Procedures are usually long and, despite the help of foreign specialised agencies, it is difficult to establish the actual value of the different assets [33]. Potential investors would also like to have a free hand in restructuring the workforce and there, there may be both procedural obstacles and unnecessary labour friction in the absence of clearly laid-down rules in this domain. Accordingly, whereas privatisation may be a relatively easy task as far as it concerns profit-making firms it will probably be less so for loss-making firms. Likewise, privatisation of urban transport would probably encounter difficulties given the major problems in this area and the absence of clearly set criteria regarding the desired standards in relation to pricing policy and extent of subsidisation as well as of a study of the overall costs and benefits involved.

Financial deregulation

Financial markets is the only area where considerable liberalisation was achieved during the second half of the 1980s, despite the obstacles associated with the high PSBRs [34]. The reform process was pursued in 1990-91 and further plans have been announced in view of the establishment of the single European financial market before the mid-1990s.

Even though the interest rate deregulation of the last few years pushed the yield on public sector paper up close to market rates, the government continues to enjoy preferential treatment due to the secured access to commercial bank funds through the high obligatory investment ratio in Treasury bills. This has limited the competitive effects of interest rate deregulation, notably by pushing lending rates to the private sector to much higher levels than otherwise would have been the case. The recent decision to exempt interest on government securities from the 10 per cent tax on interest receipts has a similar distorting effect. In order to strengthen competitive forces the Bank of Greece has announced the phasing-out of the obligatory investment ratio. This ratio was lowered to 35 per cent in February 1991 and to 30 per cent of new deposits in July 1991 and again in two steps abolished by mid-1993 (the 40 per cent ratio will continue to apply to the stock of deposits at the end of 1990). In addition, the funds (9 per cent of commercial bank deposits) earmarked for financing public sector enterprises and entities was completely eliminated for new deposits in April 1991. The 9 per cent ratio will continue to apply to the stock of deposits, but only public entities (mainly social insurance funds) will henceforth have access to these funds to the extent that public enterprises repay their debt. Public enterprises, the principal beneficiaries in the past, will have to compete with the private sector.

Additional reforms are planned aimed at reducing the favourable status of the state-controlled Specialised Credit Institutions (SCIs). The Bank of Greece in 1988 imposed, for the first time, a reserve ratio on the deposits of the Agricultural Bank, which was raised to 4.5 per cent in 1990. The 2 per cent subsidy (paid by the central government) to bonds issued by SCIs, whose proceeds are, in turn, used to subsidise long-term loans, will also be abolished in 1992. It is also the intention of the authorities to eliminate soon the 10 per cent ratio earmarked for financing at subsidised rates small and medium-sized enterprises, but probably the partial guarantee to banks for this category of loans will continue [35]. Exchange controls on Greek investments in securities and real estate in EC countries were also abolished in May 1991.

Ongoing reforms are changing the nature of the Greek financial system, which until recently was characterised by its oligopolistic structure and overburdened by, often contradictory, regulations and state interventions. The introduction of a wide range of high-yielding government paper, the expansion of mutual and insurance funds together with the greater role of the Stock Exchange, the establishment of new domestic and foreign banks, and the large degree of external mobility of capital make for a more competitive financial environment. The planned reduction in the PSBR and the single European financial market should considerably reinforce market forces, calling for more sophisticated monetary management techniques on the part of the authorities and for important modernisation efforts by Greek financial institutions.

The Bank of Greece intends to rely increasingly on indirect means of control, essentially based on open market operations. However, experience in this field has been limited. Furthermore, in view of the further liberalisation of capital outflows (in line with the EC requirements), monetary policy is likely to be more complicated, reflecting the need to maintain orderly conditions in exchange markets, which are likely to be more volatile than was the case until recently. To prepare the ground and acquaint the public with the new financial instruments and means of monetary control, the Bank of Greece in 1990, for the first time, auctioned off Treasury bills out of its own portfolio. Since 1989 the Bank of Greece has been intervening more actively in the interbank market and also raised the interest rate on banks' overdrafts with the Bank of Greece to the high 26-30 per cent range in 1990, so as to penalise banks resorting to this kind of finance.

The financial position of some state-controlled financial institutions is still unsatisfactory and a more competitive environment, the single European financial market and the BIS capital adequacy ratios could produce additional strains [36]. In order to enhance flexibility in 1990 commercial banks under state control stopped being subject to the complex bureaucratic regulations applying to the rest of the public sector. And in order to strengthen financial discipline the government instructed the SCIs to recuperate the substantial overdue loans and stop discriminating against private firms, and if necessary measures will be taken against agricultural cooperatives and recipients of subsidised housing loans under the Programme of Popular Housing, which have been refusing in some cases to pay back their loans [37].

The privatisation plans incorporated in the Adjustment Programme could relieve some of the financial burden carried by state financial institutions, but a more extensive privatisation may be necessary in order both to raise additional funds and, more importantly, for bank management to devote attention to improving the core business of banking. In order to widen their capital base, these institutions should liquidate a large part of their portfolio of shares. Greater participation of the private sector both in bank ownership and management should also be encouraged. Indeed, without a major modernisation programme the big state-controlled financial institution would continue losing market shares, especially in the lucrative segments of the market, thereby further diminishing their chances of survival in their present form. It should also be recalled that the obligatory investment ratio in Treasury bills penalises existing banks, even if it is applied only on the stock of deposits at the end of 1990.

Labour market reforms and wage flexibility

Widespread labour market rigidities, reflecting an inappropriate legal framework and inopportune government interventions, have been a major obstacle to improving resource allocation, and therefore to promoting faster growth and employment creation. In 1990 new laws were adopted considerably increasing labour market flexibility despite the fact that the limit for laying off personnel at a maximum rate of 2 per cent per month has not been relaxed. The new law lays the ground for a rapid expansion of part-time employment, which has been very limited and mainly taking place in the underground economy, owing to the limited rights and the high social insurance costs associated with this kind of employment. Henceforth, part-time wages, social insurance contributions and social security benefits will be proportional to hours worked (38).

The new law also makes possible the introduction of a fourth shift (up to now it was practically impossible), thereby permitting factories to operate on a 24-hour basis seven days a week. The new law also significantly increases the flexibility of working hours. This is particularly important for enterprises with seasonal production schedules, which previously had to pay very high overtime rates. Now overtime work can be offset by reducing working hours in subsequent periods, on condition that workers work on average the standard 40-hour week over a 6-month period. With the aim of improving labour efficiency the authorities also plan to reinforce training programmes with the help of the EC, which has been providing sizeable financial aid to this end in the last few years. Some 5 000 workers of state-controlled firms to be liquidated or privatised were already attending retraining programmes in 1990. The introduction of active labour market policies, including retraining and improving mechanisms for transferring dismissed workers to new jobs, would also help to upgrade industrial skills.

The abolition of ATA (as from 1991) would also enhance labour market flexibility. It is also the intention of the government to free wage negotiations in public enterprises, so that wage settlements take into account the financial situation of each enterprise, thus ruling out across-the-board uniform pay rises. Furthermore, the government wishes to encourage productivity-linked bonuses so as to stimulate efficiency gains.

In March 1990, a new law was voted, replacing compulsory arbitration, where decisions typically represented government views, by a more flexible and independent system (39). The new law provides for the creation of a special board, on which would sit three independent professors in addition to three employers' and three union representatives as well as one Ministry of Labour official and a chairman elected by the rest. This board will be responsible for the creation of a group of independent mediators and arbitrators, recognised for their professional qualifications (40).

Greece had a bad record of strikes throughout the 1980s and into 1990. However, they were mainly confined to public utilities and interprises, including "problematic" enterprises under (direct or indirect) state control. Strikes in the private sector proper were minimal, partly due to the fact that the room for bargaining was limited, as both wages and working conditions were dictated by the government. With the aim of limiting widespread abuses of the right to strike the government introduced a very strict law in 1983. The law, however, was rarely implemented, reflecting strong union power in the public sector, the permanent status of almost all public sector employees and the lenient attitude of the government (e.g., striking workers received full pay in many cases). This law was subsequently repealed. A new law was voted in 1990 defining the right to strike and providing for penalties for those transgressing the law. Under the new law workers (including public sector employees) and even union officials can be fired if the strike has been declared abusive or illegal by the court. Furthermore, in order to stop repetitive strikes in public utilities, which disorganise the every-day life of citizens and disrupt business activities, the law requires the provision of essential (minimum) services in public utilities during strikes. The new law was recently applied to minimize disruption caused by repetitive strikes against privatisation plans for the Athens urban transport network.

Competition policies

The Greek economy is in many respects very open. Imports account for a relatively large proportion of domestic consumption and import trade is not dominated by big trading houses. Likewise, the multitude of small production units and the large number of wholesalers and retailers make oligopolistic practices almost impossible in many activities. On the other hand, the government directly fixed the prices of a number of goods and services provided by the private sector, has monopoly power in certain areas and imposes unecessarily strict rules and standards that stifle competition. The intention is to gradually lift these government-imposed obstacles to competition. The strict and limited opening hours of shops that caused great inconvenience to consumers were abolished in 1990. Now all shops can freely fix their opening hours subject to 81 hours maximum per week, except for Saturday afternoon and Sunday. A first step in rent deregulation was also taken last year by freeing rents for residences in excess of [140m.sup.2]. The government has declared that all rent controls (including for business premises) will be phased out by 1993.

The establishment of private television networks since 1989 and the possibility for the private sector to enter into the mobile telephone system is also the first breach in two state monopolies with an extremely bad service record. The new government lifted the 1983 prohibition on establishing private clinics and hospitals, which had led to exorbitant fees in the clinics already in operation in 1983 and to an increasing number of patients going abroad at a high cost given the great deficiencies of the state health system. There are, however, other areas that also merit attention in order to reinforce market forces, to the benefit of the consumer. An important problem is the oil market, where there is no transparency in the formation of oil prices and where the regime of trading quotas, as well as the obligatory approval by the authorities of the annual programmes of supply of the oil marketing companies, limit competition (41). The fixing by the state of base prices of oil products in a country with two major private refineries and two state refineries, the imposition of marketing margins for oil marketing firms and the strength of the Dealers' union (pumps) result in a much higher level of prices and less efficient services than in a typical OECD country. The government recently announced that the oil market will be completely liberalised by the end of 1991.

Environmental issues

Environmental issues have long been neglected and, whenever measures were taken, these were largely on an ad hoc basis to stop pollution in the Athens area from reaching alarming levels. A change in attitudes is perceptible in the last few years. The sulphur content of oil is being reduced and recently adopted fiscal measures favour unleaded petrol. Moreover, in 1990 a law was passed giving important fiscal advantages to people scrapping their old cars (average life exceeds 15 years) and replacing them by more energy-efficient and less polluting cars. In addition, non-polluting energy sources are being developed, including plans for importing gas from the Soviet Union and Algeria. Environmental considerations have also encouraged the construction of an underground metro in Athens, to be terminated by the end of the 1990s. Furthermore, the new government seems to have hardened its attitude vis-a-vis the very large number of illegal houses constructed without licenses, and has recently ordered the demolition of some of them. These measures will certainly have beneficial effects. However, there are still significant problems, and more courageous measures in all fields (in particular concerning sewage, waste disposal, urbanism, etc.), including greater use of economic instruments, are necessary if the environmental damage caused by growing pollution and disorderly urbanism is to be reversed.

PHOTO : Diagram 12. TOTAL EXPENDITURE ON PENSIONS Sources: Social Budget, Ministry of Health, Welfare and Social Insurance, and OECD estimates.
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Title Annotation:Greece
Publication:OECD Economic Surveys - Greece
Date:Jun 1, 1991
Words:5839
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