Budget Office of Parliament: “Greek debt still a problem”

The Budget Office of Parliament published a progress report regarding the financial developments in Greece and the Eurozone, where it is revealed that Greece has not yet overcome their serious financial problems. As a result, new fiscal rules in the Eurozone are necessary. The report is based on the intention of Greece remaining within the Eurozone and will not return to the drachma.

According to the report, “every future Greek government, irrespective of whether a new memorandum is signed, will have to operate within the new regulations of financial and fiscal policies”. Greece will also have to sing separate conventional agreements with other member-states to receive assistance from the various mechanisms.

The report further explains that the high public debt that sooner or later will lead to higher taxes, which in turn will stifle any growth perspective. This is supported by American macroeconomist Robert Barro, who has pointed out that all EU members have increased taxes while being more conservative in their growth estimations.

Additionally, the report argues that the new political goals and priorities lead to a significant drop of the GDP and dramatic explosion unemployment. The GDP loss had an “avalanche effect” by making the implementation of reforms increasingly difficult and unlikely to have a permanent effect.

Under these circumstances, the Budget Office considers that the debt problems of Greece (and other countries with similar debt problems) to be unresolved. Crucially however, it is pointed out that Greece will not able to reduce its debts as necessary without any further assistance and any additional austerity will only exacerbate the situation.

The report concludes that “every member should legislate and observe a balanced budget (the golden rule)” and predicted that when Greece publishes the midterm plan for 2014-2016 by late April, it must include measures that will “ensure a fiscal balance after the current bailout program ends, in order to demonstrate the country’s commitment to the European framework”.