Greece: Fiscal consolidation should continue
Economic activity has already weakened due to slowing domestic demand. Growth is expected to be subdued until mid-2009 in the context of a sluggish external environment, but to firm gradually thereafter. Inflation is set to decline, but the persistent differential with the euro area is likely to remain.
Despite weaker economic conditions, fiscal consolidation should continue, relying on better control of public spending. A reform of the pension system and greater efficiency in healthcare and public administration are essential. Recent measures to broaden the tax base are welcome. The strengthening of competition in network industries and a reduction in labour market rigidities would help to reduce inflation and improve long-term growth prospects.