BoG confirms recovery to come in 2014

Bank of Greece Governor Giorgos Provopoulos stated on Friday that confidence is returning to the Greek economy and that the European Central Bank may not need to activate its bond-buying plan as the worst of the eurozone debt crisis has passed.

In an interview published on Friday by Bloomberg, Provopoulos argued that Greece is making “good progress” in its efforts to ease eurozone debt concerns and is now closer to rebalancing its economy after six years of painful recession and three years of austerity.

“What is important is that at some point in the near future, certainly by mid-2014 and probably sooner, we will see the economy picking up. We could expect some positive signs even earlier, as the government continues to implement reforms,” the BoG governor said.

He added that the banking crisis in Cyprus and the haircut on deposits of more than 100,000 euros raised concerns in Greece “given that there are close economic and financial links between the countries.” As a result he expects April figures to show a net outflow in deposits as investors feared similar steps could be applied to Greek bank accounts, too.

“But I’m expecting a resumption of the steady improvement that we have seen since June [2012]. Given that there is an overall climate of improved psychology, with the government delivering, deposits will continue coming back,” he said. “Since the June elections we had deposit inflows of some 20 billion [euros], while the pace of credit contraction has been kept moderate, at 4 percent.”

He went on to stress that the country had no option other than the austerity it has implemented: “Within Greece, the fast pace of fiscal consolidation is having painful costs, because it means higher unemployment, lower incomes, lower salaries, higher taxes. But, given our deep initial fiscal imbalances, there was no other alternative.”

Provopoulos, a member of the ECB governing council, further opined that Frankfurt may never need to activate its Outright Monetary Transactions bond-buying plan, thanks to the perceived “normalization” on financial markets. “I think the worst of the debt crisis is behind us. This does not mean that all weaknesses have been dealt with or that the road ahead will be without bumps. But I think the worst is over.”