ECONOMY

Garganas exhorts firms to adapt, State to intrude less

Bank of Greece Governor Nicholas Garganas yesterday warned both the state and private sectors to mend their ways in order for the country to prosper in the era of the euro. Garganas called on private companies to accelerate their efforts to adapt to a new, more competitive environment. If they failed to do so, they said, their very survival would be at stake. He also called on the State to intervene less in markets. Garganas made the remarks in Thessaloniki last night, where he was the keynote speaker at an event commemorating Greece’s first two years as a eurozone member. The event was organized by the big five bilateral chambers of commerce (American, British, French, German and Italian). Garganas, a former deputy governor replaced the former governor, Lucas Papademos, now the vice president of the European Central Bank. The companies that do manage to adapt, said Garganas, «will ensure more a effective operation and improved productivity which will allow them not only to face the competition but also to take full advantage of the country’s participation in the Economic and Monetary Union and achieve higher growth rates.» Garganas said that the prerequisite for the success of the enterprises’ efforts is the creation of a business-friendly environment that will attract both domestic and foreign investors. The responsibility for the creation of this environment «belongs mainly to the State, which must reform itself and limit its interventionist role which, in some cases, hinders market operation efficiency.» Garganas made special mention of the adverse effects of high inflation on Greece’s competitiveness. Inflation, he said, «remains over 3 percent in 2002, for the third straight year, and its upward divergence from average eurozone inflation widens for the second year in a row.» Factors that contributed to this development were a rise in fuel prices, the rise in the prices of fresh fruit and vegetables due to unusually harsh weather in December 2001 and January 2002, surreptitious price increases facilitated by the introduction of the euro, which resulted in a general rounding up of prices, and the rise in the unit labor cost. These developments, Garganas said, «contributed to a deterioration in the economy’s competitiveness,» which negatively affected employment and the rate of growth. Despite a significant increase in private and public investment over the past six years, «Greece has not yet taken full advantage of its human resources and neither has it expanded its exports so as to ensure a high and sustainable growth rate,» he said. The economy’s three major problems which must be tackled immediately, according to Garganas, are the high unemployment rate, still near 10 percent and declining very slowly; the current account deficit, which was equal to 6.3 percent of GDP in 2002 and 6.2 percent in 2001; and the extremely high – over 100 percent of GDP – public debt.