Bank of Greece Governor Giorgos Provopoulos warned Parliament on Tuesday of the risks of political uncertainty, saying that the Greek recovery program “is still fragile.”
Presenting the central bank’s interim monetary policy program to the House on Tuesday, Provopoulos urged the government to push ahead with structural reforms aimed at boosting the economy and to avoid the imposition of new taxes as a means of raising revenue.
“It is a national necessity to safeguard the achievements made so far and at such a great cost, to avert backsliding and to cover the distance that remains for the country’s growth potential to be strengthened,” Provopoulos told Greek lawmakers.
In the report, the Bank of Greece forecasts that the economy will emerge from a six-year recession and begin to recover next year, trimming its recession forecast for 2013 to 4.0 percent from a previous -4.6 percent. It also projects that the country will attain a primary budget surplus this year, excluding debt servicing costs, expecting the current account balance to hit a surplus.
Yet, Provopoulos warned, a polarized political climate poses risks to the economic recovery program. He urged the country’s political forces to seek common ground, especially in light of twin elections in spring for European Parliament and local and regional authorities.
The situation, Provopoulos said, “calls for consensus between social and political forces on a national policy for exiting the crisis and returning to growth.”
The Bank of Greece governor said that the upcoming elections represent “a justifiable cause for concern that political tensions will rise and polarization become more acute, making a congruence of opinions, which is necessary for a national policy, even harder to attain.”
“Economic policy needs to remain focused on structural reforms,” Provopoulos added.
The central bank chief also said that in order for Greece to achieve the fiscal targets set by its international creditors, the government will need to focus on revenue raising measures such as broadening the tax base and clamping down more forcefully on tax evasion rather than on imposing new levies.
He called on the coalition government to persist with efforts to streamline the public sector, stressing the need for defunct state services to be abolished or merged as well as the acceleration of administrative reforms aimed at cost cutting.
Provopoulos further expressed the need for better oversight of the country’s social security funds, a speedier justice system and an improved tax collection mechanism.