Bank of Greece (BoG) Gov. George Provopoulos on Monday called for greater determination by the government in promoting reforms, underlining that the Medium-term Fiscal Consolidation Programme - announced last week -- was the "last chance" for restarting the Greek economy.
Presenting the central bank’s annual report, Provopoulos noted that “promoting reforms was lacking behind the pact needed and often their implementation was delayed either because of civil administration bureaucracy or because authorities are hesitating in view of public reactions”.
The central banker stressed that an economic recession would be milder if the necessary measures and policies capable of encouraging recovery were implemented faster.
The Bank of Greece expects the country’s Gross Domestic Product to shrink by at least 3.0 pct this year, with unemployment to surpass 15 pct and the inflation rate - based on the harmonised consumer price index - to fall to 2.5-3.25 pct in 2011.
Provopoulos once again rejected speculation of a restructuring of the country’s debt, saying such a solution was neither desired nor necessary. He said he supports measures to boost efforts towards fiscal consolidation along with adopting a new growth model, focusing on boosting saving, exports and investments.
Moreover, the BoG head recommended four policy priorities:
- accelerating changes in the public sector
- combating tax evasion to achieve a fairer distribution of tax burden and to establish a feeling of social justice among citizens. Conversely, the central bank opposes the imposition of new taxes on wage earners and enterprises
- reducing spending in the public sector through the abolition of non-productive agencies and a better exploitation of the 4th Community Support Framework, and finally,
- attracting more foreign direct investments.
On the competitiveness front, Provopoulos said that although steps have been made towards improvement, he noted that the government should abolish hurdles still plaguing various sectors and services. He noted that a 6.0-pct improvement in the labour cost/per product unit in 2010 was not enough to counterbalance accumulated losses in the period 2001-2009, which total -28 pct. The central banker estimated that the country’s current accounts deficit will fall to 9.0 pct of GDP this year.
In terms of the closely watched domestic banking system, Provopoulos cited a strong capital base for domestic financial institutions, however, he stressed that an adjustment to new conditions was necessary.
Non-performing loans rose to 10.4 pct of total loans in 2010, from 7.7 pct in 2009, and predicted a continuation of the upward trend this year.
Finally, he predicted that credit expansion to households and enterprises will remain slightly negative.