The global economy appears to have turned the corner following the worst recession in the post-war period. However, all indications point to a slow and hesitant recovery, with strong headwinds coming from the need to embark on fiscal consolidation. Public finances have indeed suffered badly, but in most countries, the withdrawal of fiscal stimulus, which is needed to ensure the sustainability of public finances, must be balanced against the risk of undermining the nascent recovery.
Resolving these problems urgently requires policy action on a broad front. If recovery is to be durable, Greece’s structural problems also need to be tackled. An ambitious structural reform programme holds the promise of unleashing productivity and restoring competitiveness, which would yield sustainable increases in economic growth, jobs and living standards. This in turn, will facilitate fiscal consolidation in a mutually reinforcing dynamic. The crisis opens a ‘window of opportunity’ for Greece to engage in deep fiscal structural reforms.
Greece should consider putting targeted measures into a broader framework of longer-term reforms to address its structural weaknesses.