Fiscal feedback

Greece can only avoid a debt default with "vigorous and impeccable" economic reforms, a new report from the Organization for Economic Cooperation and Development, the OECD, said on Tuesday.

The OECD noted that Greece had already introduced "impressive" reforms over the last year which cut the Greek budget deficit by about 5 percent of gross domestic product (GDP) in 2010. That is the sharpest cut in a year by an OECD member in three decades.

But while praising the government for the "unprecedented" cuts in the public deficit, it warned that it must do better.

Greece "urgently" needed to strengthen tax collection and boost privatization, it said, to restore the confidence of financial markets.

Europe's leaders opted to lend insolvent Greece an additional 109 billion euros ($157 billion) last month to pull the economy back from the brink. It was also agreed that the private financial sector would contribute to the bailout.

Slightly reducing debt

The report warned, however, that the EU loans package would only play a small role in the long process to Greek recovery.

"Initial analysis suggests that the package would decrease the debt burden only slightly," the OECD said.

"The additional official financial support agreed and the maturity extensions, both public and private, provide the time needed for Greece to continue to implement fundamental fiscal and structural reforms, and for those reforms to bear fruit," the report said.

It is likely to take the Greek government a full generation to lower its debt-to-GDP ratio. Even by the OECD's "best-case" scenario, it would take 24 years for the government in Athens to get its sovereign debt down to 60 percent of GDP, the nominal limit set for EU member states.

Author: Charlotte Chelsom-Pill (AFP, dpa, Reuters)
Editor: Andreas Illmer