Reforms can ease external shocks

Massive public sector is among areas that need to be changed, says Bank of Greece governor

A reform policy, mainly targeting the bloated public sector, could help relieve Greece from the impacts of the global crisis that has started to bite into the real economy, Bank of Greece Governor Giorgos Provopoulos said yesterday.

Provopoulos, who is also a member of the governing council of the European Central Bank, said long-term, outward-looking, sustainable growth momentum could help protect the economy against external shocks.

“Momentum that could be supported by boosting the productive base via investments, upgrading human resources... and a broad range of structural reforms, mainly in the wider public sector,” Provopoulos told a conference.

Greece’s economy has been one of the eurozone’s outperformers in recent years but has struggled to attract foreign direct investment.

Bureaucracy, corruption and markets that do not operate as they should are just some of the reasons cited by foreign investors for sidestepping the country.

“Such a policy mix... would also boost the confidence of international investors and markets in the prospects of the Greek economy and the system’s stability,” added Provopoulos.

Steps have been taken to rein in public debt and trim the budget deficit, but at a slow pace.

Greece still has the second-highest public debt in the eurozone, after Italy, and its budget deficit is seen topping the 3 percent mark this year.

Provopoulos said it was possible to boost demand via government packages only in countries whose public finances allow them to go ahead with such a move.

“In countries with problems – such as Greece – any relaxation of budgetary policy will entail particularly serious consequences,” according to the central bank governor.

“I dare not think how much borrowing costs would rise for Greece under such circumstances.”