ATHENS, Greece — Greece has reached its limit in raising taxes and needs to refocus its austeritry program on long-term spending cuts, the International Monetary Fund said Tuesday.
The warning came as the debt-shackled eurozone member heads toward its fourth year of recession, with revenues weakening despite draconian new emergency taxes.
"I think one of the things we have seen in 2011 is that we have reached the limit of what can be achieved through increasing taxes," Poul Thomsen, the IMF mission chief in Greece, told reporters.
Thomsen, speaking about the IMF's latest report on Greece's progress, said the country's structural reforms have fallen "well short" of expectations. But he said it was too early to say whether new austerity measures would have to be taken next year.
He concluded that Greece is not yet "doing business in a fundamentally different way" and that is why the country is still in recession.
Greece has relied on a€110 billion ($145 billion) bailout loan package from eurozone countries and the IMF since May 2010 to stave off default. In return, it has taken a series of debt-reducing measures, including slashing salaries and pensions and imposing several rounds of tax hikes.
Greece's austerity program "has relied, in our view, too much on taxes and I think one of the things we have seen in 2011 is that we have reached the limit of what can be achieved through increasing taxes," Thomsen said. "Any further measures, if needed, should be on the expenditure side."
Greece has consistently missed deficit reduction targets, and it quickly became clear that the initial bailout would not be enough to prevent a potentially catastrophic default that could drag down other eurozone countries. European leaders in October agreed on a second rescue deal worth €130 billion ($171 billion), with key details still being negotiated.
Part of the deal includes provisions to write off 50 percent of the value of Greek bonds held by private creditors, potentially cutting the country's overall debt by €100 billion ($132 billion)
Thomsen said the IMF has not been asked yet to join in the second rescue package, and would not comment on the bond-swap negotiations still under way except to say the IMF was hopeful banks would have a "high participation" in the voluntary deal.
In its 161-page report on Greece, the IMF said successful efforts to reduce national debt to sustainable levels now hinged on "near-universal participation" in that bond swap deal.
Greece's reforms have also been troubled by a lack of broad political support for the bailout program, Thomsen said. Greece has been rocked over the last year by frequent strikes and demonstrations, some of which have turned into riots.
However, a political crisis led to the appointment last month of an interim coalition government headed by a former European Central Bank governor, Lucas Papademos. With the country's two main political parties, plus a smaller nationalist party, now holding government seats, the situation has improved.
Thomsen and other international debt inspectors are currently in Athens to review Greece's finances. They will meet the ministers of transport, development and labor on Wednesday, Finance Minister Evangelos Venizelos on Thursday, and Papademos and the finance minister on Friday.