Europe Economy

Greek reforms: Right direction or road to ruin?

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Greece may have put together an updated list of reform proposals, but as its new government finds it more difficult to secure concessions, there are still fears the country could crash out of the euro zone.

The contents of the new reforms list, which has been published by the Greek press and involves raising an extra 4.7-6.1 billion euros ($5.09-$6.61 billion) in government revenues, represents "a clear step in the right direction" according to economists at Barclays Capital.

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This means that, in effect, the Greek government has offered some concession to European authorities on the continuing wrangles over the austerity measures imposed as part of its bailout.

Since Greece elected a new government in January, led by the left-wing Syriza party, which promised to bring an end to austerity, the tone of its negotiations with international creditors has changed, raising fears that it may end up defaulting on its debt repayments and exiting the euro zone.

Greece needs aggressive reform package
Greece needs aggressive reform package

What is certain is that Greece still needs external financial support, particularly the 7.2 billion euros in bailout funds which it hopes to unlock from its international lenders. To date, Greece has received two bailouts worth a total of 240 billion euros.

Its lenders are keeping up the pressure on Greek politicians to reach a compromise. On Wednesday, the European Central Bank raised Greece's emergency liquidity by a modest 700 million euros to 71.8 billion euros, which Rabobank strategists argued continues "a strategy whereby Greece's leeway in terms of liquidity is strictly rationed."

Greek Prime Minister Alexis Tsipras gestures during a cabinet meeting at the parliament building in Athens March 29, 2015.
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While it has cut government spending, Greece has also suffered from falling tax revenues, which means that its deficit figures are worse than its targets, and its deficit was still rising at the end of February. The other peripheral euro zone economies which were bailed out during the credit crisis are in various stages of recovery, but Greece has lagged behind.

"Greece's budget consolidation is unravelling," Jessica Hinds, European economist at Capital Economics, wrote in a research note.

A man adjusts a European flag, next to a Greek flag outside the Greek embassy in Brussels February 19, 2015.
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Greece is due to pay 460 million euros to the International Monetary Fund on April 9.

There are also concerns that the new Greek plans are too optimistic about how effective a mooted clampdown on fraud and tax evasion could be.

"Given the historical difficulty (recently exacerbated) that the Greek government has experienced in collecting tax revenue, we highlight significant uncertainty as to the effective capacity of new fiscal measures to match their revenue targets," the Barclays Capital economists pointed out.

- By CNBC's Catherine Boyle