BoG: Growth will become sustainable through reforms

By Sotiris Nikas

Last year will probably be the last in the country’s long recession, but the reforms must continue and political and social forces will need to reach a consensus if the country is to return to a path of growth, the annual report by the governor of the Bank of Greece warned on Thursday.

The first condition that Giorgos Provopoulos sets for a return to economic expansion is the continuation of the streamlining program with resolve and coherence. “The hitherto favorable results do not allow for any complacency,” the BoG chief stated in his report, noting that “on the contrary, the fiscal adjustment must continue and be maintained on a permanent basis for the primary surplus to grow, debt sustainability to be safeguarded and for the climate of confidence to be consolidated.”

The BoG governor’s second condition is the banishing of risks or uncertainties that could emerge from the deterioration of the social and political climate “due to the customary clashes and polarization ahead of the elections for the European Parliament and local authorities.”

Provopoulos sets the transformation “of the ongoing stabilization to dynamic growth on solid ground” as the main national objective. In this context he stresses the significance of reforms, where “reluctance and lack of resolve” have been noted to date.

He also warns that the anticipated growth will be small and fragile and the country’s prospects undermined unless a program of extensive reforms is implemented “with vigor and boldness.” The program’s targets should be the following:

* A broad reform of the state mechanism.

* The institutional modernization of sectors such as education, health and justice.

* The creation of competitive markets and opening up so-called closed-shop professions.

* The formation of a tax system that will be stable and favorable to entrepreneurship, investment and employment, while being strict on tax evasion. The report stresses that major tax evasion has resulted in a greater burden on taxpayers who adhere to their obligations, and calls for the reduction of that burden.

For the policy to be effective, “it will take the composition of views and ideas, which would be difficult in a climate of confrontation that will increase differences and avert convergence.”

Crucially, Provopoulos also calls for a shift in the economic growth model, noting that the old growth pattern is being rapidly devalued while the emergence of a new one has been delayed. The new model should be based on the switch from the production of output that cannot be sold abroad to the production of internationally consumable products and services, as well as a shift from consuming toward saving and investing.