Trust ‘can be lost in 24 hours’
Central banker warns against fiscal complacency, lofty election promises
Greece’s economy is in a good place, recovering from the pandemic and the war in Ukraine thanks to tourism and cutting its debt through fiscal efforts and with the contribution of inflation, but significant challenges lie ahead, central banker Yannis Stournaras stresses in an interview with Kathimerini.
The Bank of Greece governor also reiterates a message sent last Thursday in a speech at the German-Greek Chamber, advising politicians that consultation and coordination are essential to prudent fiscal policy.
He does so knowing that the path ahead will be no walk in the park for the country, but an uphill slog during which it will have to steadily reduce the public debt to gain the confidence of the markets and not find itself unable, again, to service it in a few years.
Stournaras goes on to outline what the priorities should be: “The first is the return to surpluses of 2% of GDP. The budget must leave a surplus to pay the interest. This constitutes sound financial management. The distance from a deficit of 1% of GDP to a surplus of 2% of GDP requires a significant fiscal adjustment and will come at a time when growth will not be as high as it was in the previous two years. At the same time, we will be going through a period of higher interest rates, compared to previous years.
“When uncertainty in Europe is reduced, with the end of the war in Ukraine, the question that will be asked of Greece is whether it has secured debt sustainability in perpetuity. Because after 2032 we will be faced with significantly higher interest payments, now capitalized. We now have an opportunity to significantly reduce the debt-to-GDP ratio so that when capitalized interest is added, the debt remains sustainable and on a downward trajectory,” he says.
Given that the upcoming elections offer fertile ground for all kinds of promises, Stournaras does not hesitate – as is usually the case in similar circumstances – to warn: “We must be restrained before the elections. Greece’s credibility must be safeguarded because it was painstakingly built and can easily be lost in 24 hours,” he says.
