Economy alert issued

Outgoing central bank chief urges reforms to preserve growth

The outgoing governor of the Bank of Greece, Lucas Papademos - who is to become vice president of the European Central Bank - sounded an alert on the economy, observing that competition brought on by Greece's entry to the eurozone will not be easy, but, on the contrary, is fraught with challenges.

In his final report, which was presented yesterday during the annual general assembly of the central bank's shareholders, Papademos expressed concern regarding the growing tendency of consumer inflation, fiscal policy drawbacks, low productivity, a drop in competitiveness and slow market liberalization.

He stressed that, particularly over the next few years, the beneficial effect of external factors on the Greek economy will be reduced, and, as a result, the economy should become more outward-looking. Papademos underlined that the beneficial effect brought about by European Union funding, Olympic construction work and the reduction in interest rates will wear off year by year, and by 2005 their absence will start to be felt in the field of economic development.

Therefore, Papademos insisted on the need for timely reforms and structural interventions to the economy in order to allow the Greek economy's growth rate to be maintained in the future. More specifically, he urgently underlined the question of reforms to the social security and tax systems. On social security, he said the system's viability will become compromised, arguing this calls for immediate action in tackling the problem, as further delay will mean future corrective measures will have to be much more stringent.

Papademos advised raising the age of retirement, changes to the way pension payments are calculated and a reduction in pensions as a percentage of salaries. On tax reforms, Papademos called for a reduction in tax rates on the condition that the public finances are subject to scrutiny.

Opposition New Democracy praised Papademos, saying his words bore out its own longstanding positions. «Through the diplomatic terms of his report, all the weaknesses of government financial policy are laid bare,» shadow economy minister Giorgos Alogoskoufis said.