Garganas dismisses fears of a downturn after the Olympics

Bank of Greece Governor Nicholas Garganas yesterday dispelled fears that the Greek economy will face a slowdown after next year’s Olympic Games. «I see no reason why Greece should suffer a downturn after 2004. If economic policy continues prudently, nothing will change; growth will continue,» he told reporters. The central bank chief said Greece would not experience a fall in European Union investment subsidy inflows before the end of the decade. Such inflows, Garganas said, will continue after the expiry in 2006 of the current Third Community Support Framework (CSFIII) through its follow-up plan (CSFIV). He also expressed optimism regarding private investment. «If the policy of fiscal restraint is maintained, I do not see why enterprises should not invest,» he said. Garganas said it was natural for the Greek banking system to see more mergers and acquisitions. «This process is desirable, as it increases the average size of Greek banks and boosts their creditworthiness,» he said. He said the consumer credit market segment was developing satisfactorily after the lifting of restrictions earlier this year. «All is developing as foreseen and the growth rates in consumer credit are slowing down,» he said. Garganas said legislation will give the Bank of Greece broader powers for consumer protection in their transactions with banks. The central bank chief and European Central Bank council member said the European Union’s Stability and Growth Pact will survive, despite a serious dent to its credibility after member states’ finance ministers on Tuesday decided to suspend the rules against excessive budget deficits which France and Germany are violating. «There is no alternative, as a federal budget is not possible, given that most eurozone members do not want it,» he told reporters. Garganas said that the pact – which requires member states to limit budget deficits to 3 percent of gross domestic product – provides a necessary framework for fiscal stability, which may be revised. He said the EU’s planned structural changes in the economy have fallen behind and need to be speeded up, and predicted that current forecasts by international organizations for global growth rates in 2004 will be revised upward. The 2003 and 2004 state budget deficits will diverge from official estimates, Alpha Bank said in its weekly bulletin yesterday. The deficit for 2003 is estimated to close at 1.9 percent of gross domestic product (GDP), against 1.4 percent predicted by the government and 1.6 percent forecast by the Organization for Economic Cooperation and Development (OECD). Next year, the bank predicts a deficit of 1.8 percent, against 2.4 percent by the European Commission, 1.7 percent by the OECD and 1.2 percent in the government’s draft budget. The bulletin noted that business expectations were improving on all fronts (industry, construction, retailing and services) as the economy enters the final stretch to next year’s Olympic Games. Public projects financed by exclusively national sources (without EU subsidies), including Olympic facilities, will absorb 3.9 billion euros, against an initial target of 3.1 billion. Finally, it expressed the view that the freezing of the EU’s Stability and Growth Pact rules will help in the European economy’s recovery but will deal a serious blow to the credibility of economic policy in the eurozone.