The Greek economy is at risk of facing a large number of bankruptcies by unsustainable enterprises after the coronavirus crisis, Bank of Greece Governor Yannis Stournaras warned on Tuesday in his annual report for 2020, noting that a safety net for workers at those enterprises is necessary.
Stournaras pointed to the need to maintain “selective economic support measures targeting the sectors of the economy and categories of workers that were worst-hit by the pandemic,” implying that support to unsustainable enterprises should halt, as is also the general direction in Europe. According to the report, the support measures may well have kept companies that would have normally gone out of business in normal times on life support.
“The possible failure of a large number of ultimately nonviable firms would entail significant credit risks (a new wave of nonperforming loans) and fiscal risks (the calling in of state guarantees, the write-off of debt to the government, higher unemployment benefits), which would negatively affect the financial sector and delay the return to fiscal sustainability,” he argued.
The report further projects many job losses, “especially in intermediation services and in low-skilled labor-intensive sectors.” The bankruptcies, job losses and income decline will inevitably lead to an increase in private debt and a new rise in the already considerable volume of NPLs.
For Stournaras, the challenge is to face the above problems by recording high growth. The central bank is relatively optimistic for 2021, sticking to its forecast for an economic expansion of 4.2%, above that of the government and the European Commission, for 3.5%. However, he cautioned that this involves a lot of uncertainty due to the risks associated with the course of the pandemic as well as the special features of the Greek economy.
“The speed at which the economy will recover will depend on three crucial factors: the acceleration of vaccine rollout schemes at the domestic and global level, the maintenance of support targeting those worst hit, and the speed of the activation of the National Recovery and Resilience Plan,” he said.