Central banker Yannis Stournaras warned on Monday of the risks of a fiscal derailment and reform backtracking due to the upcoming election this year, when growth is now expected to come to just 1.9 percent.
“As the country enters the election cycle, there is an increase in risks of a reform slowdown and fiscal relaxation, increasing financial uncertainty. There is therefore the danger of a reversal in the significant progress recorded to date,” the governor of the Bank of Greece said upon presenting his 2018 report to the central bank’s general meeting. He made no secret of his concerns over pre-election pressure for a greater fiscal expansion – as he described the handouts.
The BoG downwardly revised its growth rate estimates for this year to 1.9 percent, the same as the rate recorded in 2018 and considerably below the level of 2.5 percent provided by the state budget. Stournaras actually stated that even this rate depends on a number of conditions, such as the continuation of structural reforms, the implementation of the privatizations program without delays, and the strengthening of productive investments.
The former finance minister went on to stress that this growth rate is not satisfactory, and a greater expansion pace is required to compensate for the losses the economy has suffered during its recession.
The 2019 risks not only include the elections and their consequences, Stournaras argued, but also the danger from the eurozone slowdown. Another domestic risk factor is the high taxation that, as he said, reduces the competitiveness of Greek enterprises, limits the improvement in confidence, and generates tax fatigue with the shrinking of the tax base and the exhaustion of citizens’ taxpaying capacity.
However, the main fiscal risk, the central banker noted, comes from the possible application of Council of State verdicts against previous pension and bonus cuts. He explained that this makes the sustainability of the Greek debt harder to maintain and generates further uncertainty regarding the social security system.
He also said the minimum wage hike might boost consumption in the short term, but will have a medium-term impact on employment and could harm exports as the increase is much higher than the rise in the productivity rate.