BoG report sets out the key conditions for economic recovery

By Sotiris Nikas

Average salaries will post a combined drop of over 16 percent by end-2013, compared with the end of 2011, the Bank of Greece estimated in its intermediary report on its monetary policy. However, it forecast that by next year Greece will recover all of the competitiveness it lost in the 2000s. A rebound is expected from 2014, provided that fears of a Greek exit from the eurozone are put to rest and the country turns to a new growth model.

According to the report that Bank of Greece Governor Giorgos Provopoulos submitted on Monday to Parliament Speaker Evangelos Meimarakis, the recession next year will range between 4 and 4.5 percent, before the economy starts growing again in 2014, in line with the estimates in the recently voted state budget. Unemployment will reach even higher levels as it is set to exceed 26 percent in the next two years.

The report’s good news comes on the competitiveness front, as BoG estimates that 72 percent of the competitiveness lost in the period from 2001 to 2009 has been recovered between 2010 and 2012, with 100 percent to be recovered next year. This is mostly due to cuts to salaries, which have been in constant decline since 2010. By the end of this year salaries will have dropped by 8.1 percent on annual basis and are seen shrinking by the same rate next year, too, while minimum wages are expected to have dropped by an estimated 19.6 percent on average this year.

However, the report argues, the improvement in cost competitiveness must be supported by the strengthening of productivity via the promotion of structural reforms.

Provopoulos believes that even though there have been some serious delays and uncertainties, the environment in Greece has changed, a situation that under a number of conditions will give the economy new prospects. The central aim of the new strategy is the promotion of structural reforms, while the report adds the need for the lightening of the tax burden.

Besides lifting the uncertainty over its euro membership, Greece will need to draft and implement a new growth model, BoG notes. The country will have to complete a cohesive action plan for the radical change of its economic structures and for the transformation of its production.

It goes on to add that six main targets have to be set for the country’s economy to rebound. They are: the immediate application of measures for restarting the economy, such as absorbing European Union subsidies; the restoration of normal cash flow conditions, through bank recapitalization; the improvement of the public sector’s efficiency and the simplification of the regulatory framework; the creation of a stable tax system with a reduced tax burden on Greeks; the acceleration of privatizations; and the efficient use of funds from the European Union, toward a new growth model.