In their annual review of the Mediterranean island's economy, the IMF's directors said it had "weathered the crisis well," noting the banking system had survived without government support and the economy will probably grow this year, albeit by just 0.5%.
But they warned that the island is becoming less competitive, as evidenced by large current account deficits. The directors said the COLA mechanism that links wage rises to past inflation rates "has recently contributed to wages outstripping productivity increases."
"Directors supported eliminating the automatic wage indexation mechanism...or mitigating its impact through productivity improvements and better targeting," the IMF said.
