The chronic weaknesses of the Greek economy were discussed in his new article by Giannis Stournarasgovernor of the Bank of Greece.
«The Greek economy, despite the significant improvement over the last five years, is still characterized by chronic weaknesseswhich limit competitiveness and create disincentives to make investments”, points out the governor of the Bank of Greece.
Growth rates significantly higher than the Community average are predicted until 2025 by the governor of the Bank of Greece, Giannis Stournaras, in an article published today in the “Manifesto” newspaper.
Specifically, in the article, which bears the title: “Economic policy challenges the next day” the central banker predicts an economic growth rate of 3.0% in 2024 and 2.7% in 2025 although he points out that “the feeling that we are invulnerable should not prevail”.
He emphasizes that “the Greek economydespite significant improvement over the past five years, is still characterized by chronic weaknesses, which limit competitiveness and create disincentives to invest.”
“Such weaknesses are, among others, the delays in the administration of justice, the bureaucracy and the inefficiency that still exists in some sectors of the State (e.g. in the transfer of real estate, in the preparation of spatial plans, in the completion of the National Cadastre, in the digitization of public services), the lag in basic infrastructures, the insufficient fight against widespread tax evasion, the quasi-oligopolistic conditions in specific markets for goods and services.
Additional examples of inherent weaknesses are the low participation of women and young people in the labor market in combination with unfavorable demographic developments, the increased risk of poverty and social exclusion, significant regional inequalities, deficiencies in the so-called “triangle of knowledge” (education – research ‒ innovation) and the high dependence of the Greek economy on fossil fuels. Chronic weaknesses and distortions are particularly reflected in the widening of the current account, a problem that usually occurs when Greece is growing at higher rates than its partners.”
For this reason, Mr. Stournaras proposes four interventions aimed at accelerating the reforms that boost the rate of growth of the potential domestic product, the largest possible increase in primary surpluses, the largest increase in exports of goods and services and finally, the largest increase in foreign direct investment.
The following is the full article by Giannis Stournaras, Governor of the Bank of Greece
“The global economy, weighed down by the fallout from the war in Ukraine, the energy crisis, high inflation and the rapid tightening of monetary policy to address it, is on track to slow in 2023. Big interest rate hikes by central banks have helped containment of inflation expectations, but at the same time have led, under the influence of other factors, to a reduction in expected growth rates and deterioration of financial conditions. In this context, the Greek economy maintained a significant part of its dynamism in 2022, but also during the first months of 2023.
Importantly, after the national elections, there is a clear medium-term horizon for economic policy. According to the forecasts of the Bank of Greece, the growth rate of the Greek economy in 2023 is expected to be 2.2%. In the coming years, it is estimated that the economy will continue to expand at rates higher than those of potential output, the level of which has already been exceeded. More specifically, the economic growth rate is expected to reach 3.0% in 2024 and 2.7% in 2025, significantly higher than the eurozone average.
However, we should not feel that we are invulnerable. International risks and uncertainties remain elevated, while the Greek economy, despite the significant improvement that has occurred over the last five years, is still characterized by chronic weaknesses, which limit competitiveness and create disincentives for investment. Such weaknesses are, among others, the delays in the administration of justice, the bureaucracy and the inefficiency that still exists in certain sectors of the State (e.g. in the transfer of real estate, in the preparation of spatial plans, in the completion of the National Cadastre, in digitization of public services), the lag in basic infrastructures, the insufficient fight against widespread tax evasion, quasi-oligopolistic conditions in specific markets for goods and services.
Additional examples of inherent weaknesses are the low participation of women and young people in the labor market in combination with unfavorable demographic developments, the increased risk of poverty and social exclusion, significant regional inequalities, deficiencies in the so-called “triangle of knowledge” (education – research ‒ innovation) and the high dependence of the Greek economy on fossil fuels. Chronic weaknesses and distortions are particularly reflected in the widening of the current account, a problem that usually occurs when Greece grows at higher rates than its partners.
Taking into account the uncertainties associated with the international economic environment, as well as the new and existing challenges faced by the Greek economy, they become particularly important:
First, the implementation of reforms that boost the growth rate of potential domestic product, thereby increasing the economy’s capacity for greater spending (mainly investment) without worsening the external balance.
Secondly, the largest possible increase in the primary surpluses of the public sector, by creating a special reserve, that is, not by distributing in the current year, extraordinary public revenues, following the example of Ireland.
Third, efforts to further increase exports of goods and services and import substitution, and promote energy conservation and green transition to reduce dependence on imported fuels.
Fourth, the greatest possible increase in foreign direct investments (which do not create external debt obligations of either the public or the private sector), and in particular productive foreign direct investments (greenfield investments), combined with optimal utilization, and therefore the maximum possible inflow of resources from the Structural Funds of the European Union and from the Recovery and Resilience Mechanism.
The Greek economy has made significant progress after the great debt crisis of the previous decadeto which the lack of fiscal prudence and the loss of competitiveness led it. This progress is mainly the result of the painstaking fiscal adjustment, the broad refinancing and radical restructuring of the public debt by our partners on very favorable terms, the extensive and difficult reforms in the labor market, the markets for goods and services, the insurance system, the tax system, as well as the extensive restructuring and capital strengthening of the banking sector.
The announcement of a prudent economic policy aimed at achieving cyclically adjusted primary surpluses of 2% of GDP, continuing reform efforts, reducing the stock of non-performing loans, effectively combating widespread tax evasion and effective and timely utilization of the available resources of the Recovery and Resilience Mechanism to strengthen investments in human capital, green energy and digital technologies will further consolidate Greece’s credibility vis-à-vis the international investment community.
This will lead to the acquisition of investment grade and, at a later stage, exceeding it in order to strengthen the resilience of the Greek economy to exogenous disturbances and episodes of volatility in international markets, to limit the cost of raising capital for the public and private sectors and to facilitate the realization of investments and the acceleration of economic development. The ultimate goal is real convergence with the eurozone without macroeconomic imbalances.”
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