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14 February, 2001
Greece, which joined the eurozone on January 1 this year, is expected to achieve economic development amounting to 4.6 percent in 2001 and 4.4 percent in 2002, according to predictions included in a report by the Organization for Economic Cooperation and Development (OECD). Economic development in 2001 will be the greatest experienced by the country over the past 10 years, it added.
"Since the early '90s the Greek authorities have made great steps towards handling macroeconomic inequalities. Their incessant efforts were rewarded with Greece's accession to the eurozone in 2001," the OECD said.
The percentage of unemployment in Greece is expected to decrease from 10.7 percent in 2001 to 10 percent in 2002, after reaching 11.4 percent in 2000, it added.
Inflation is also expected to be tackled. After amounting to 4 percent in 2000, it will decrease to 3 percent during 2001, while another slight decrease is expected in the following year.
"The main dangers surrounding these predictions concern the duration of a strong economic development in an environment of low inflation. Under the circumstances, it is extremely difficult to assess the repercussions from the slackening of monetary policy entailed by entry to the European Monetary Union (EMU)," the OECD warned.
Greece's entry to the EMU's third phase, with the adoption of the euro, means the Greek government lacks the possibility of increasing interest rates to avoid an overheating of the economy and control inflation. The need for a tighter fiscal policy stems from there, the report said.
"Therefore, a tougher fiscal policy should be implemented and cutbacks in taxation should not be applied unless they are accompanied by cutbacks in expenditures," the OECD advises.
Greece should also proceed with reforms in the health, pension and public administration systems.
These reforms "are not only necessary for an improvement in the public sector's effectiveness" but also to "secure the speedy reduction of the public debt," the report said.
Reforms have not advanced in the health sector. In essence, none of the measures included in the 1997 bill on health has been implemented, with the exception of certain pilot ones concerning first stage health. The government has committed itself now to reform hospital administrations and improve first stage health.
While reforms carried out in 1992 and 1998 have secured the pension system's viability until 2005, they have not settled its fiscal viability in the long term. Meanwhile, the demographic trends, the pensioners age and generous benefits, compared to contributions, lead to the conclusion that in the absence of substantive reforms, taxes should be increased considerably. The integration of economic immigrants in the social insurance system, as well as profits from employment, will offset part of the demographic trends negative repercussions in the short term.
Public administration management requires urgent improvement. The management of human resources is rigid, since both remuneration and services are frequently of a low quality. The government has acknowledged the need to upgrade public services.
A decrease in the cost of labor through a decrease in the contribution to social security is expected to improve employment prospects. A bill tabled in Parliament recently is a step in this direction. The labor market in its entirety should be rid of its inflexibilities.
Suitable measures aimed at lifting inflexibilities in the labor market and increasing the low level of employment will contribute to a decrease in the risk of the economy becoming overheated.
Proposals on less legislative protection for employment and the settlement of the last obstacles for part-time work, contained in the bill tabled in Parliament by the government, are measures in the right direction.
On the other hand, the minimum wage might constitute an obstacle for young people and women, two categories having high unemployment levels, to enter the labor market. For this reason, subsidized employment programs and proposed cutbacks in social insurance contributions by employers primarily concern these two categories and are aimed at decreasing the cost of labor for the employer.
Source: Athens News Agency