WASHINGTON (AFP) ― The International Monetary Fund’s chief economist said Monday that Greece needs to cut wages to boost competitiveness and pull the country out of its economic quagmire.
Greece “needs a dramatic decrease in its debt. That’s the subject of negotiations,” said Olivier Blanchard.
“But that’s only half of what it needs, and maybe in a way it’s the easier half.
“The other half is competitiveness ... Either you basically increase productivity growth a lot and quickly, and you keep wage growth moderate, or you decrease wages,” he said. “There is basically no way around that.”
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Olivier Blanchard, chief economist for the International Monetary Fund. (Bloomberg) |
Blanchard was speaking in Washington at the Carnegie Endowment for International Peace as Greece remained locked in talks with private creditors over writing off a large portion of its debt, in hopes that it would be able to avoid defaulting.
If a deal is struck, the IMF is expected to join with the European Union in offering Greece more than in new bailout financing ― earlier estimated at 130 billion euros ($170 billion), though with stringent conditions for economic reforms.
Blanchard acknowledged that reforms would not be fast enough to right the economy, and that a push for boosting competitiveness vis-a-vis the rest of the eurozone would be essential.
“Structural reforms, which have potential in Greece ... take a while to take hold. And therefore a country like Greece probably has to do something on the wage side as well,” he said.
But Greek Prime Minister Lucas Papademos was caught Monday between EU pressure to quickly agree tough austerity measures, and growing labor actions, including a general strike called for Tuesday, by unions opposed to cutbacks.
