September 19, 2011
The economic program launched by the Greek government in May 2010 has been subject to much criticism lately. And, indeed, there is no doubt that the program is at a critical juncture. The focus of my remarks today will therefore be on corrections and modifications needed to ensure further success.
But before doing so let me stress that we (in the IMF) strongly disagree with those who argue that the program has been unsuccessful to date. With the deficit having surged to a highly destabilizing level of 15½ percent of GDP, and having abruptly lost access to capital markets, Greece was standing at the abyss in May of 2010. Despite an unprecedented level of support from the international community—other Euro Zone countries, the ECB and the Fund—the Government had no other choice than focusing its immediate efforts on stabilizing the economy. And it did so: with the corrections to fiscal policy that are under discussion right now, Greece is aiming to achieve a reduction in the public sector deficit by some 7½ percent during 2010-11, despite a contraction in GDP of almost 10 percent during these two years. This is impressive progress that Greece deserves credit for. The efforts to restore sound public finances are difficult and socially painful, but they have already produced very impressive results.
But having made this impressive start in two years, Greece is now at a stage where further reduction in the still too-high deficit and, above all, a return to robust economic growth, will require a much stronger focus on structural reforms. This is what I want to talk about.
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