Greece’s euro-strewn road to convergence

Economy and Finance Minister Nikos Christodoulakis said yesterday that changes in the country’s economic structure must be expedited if Greece is to reap the benefits accruing from the introduction of the European common currency two days ago. «We need to intensify structural changes and liberalize markets with a view to achieving a convergence of Greeks’ living standards with those elsewhere in Europe,» he said at yesterday’s presentation of his ministry’s latest six-monthly review of the economy. Convergence and a boost to employment were at the top of the government’s priority list for 2002, according to Christodoulakis. «If a significant part of society does not participate in the production process, there is no real convergence,» he said. He nevertheless cautioned that the convergence process would be gradual and long term. «In five years, Greeks’ average income will rise to 80-85 percent of the average European income, which is a relatively satisfactory degree of convergence,» he said. It now stands at 70 percent. Upbeat forecasts The review envisages an annual average 2.4 percent rise in real wages and salaries in the 2002-2004 period, covering 88 percent of the projected rise in productivity. It forecasts a 3.8 percent rise in gross domestic product (GDP) in 2002, and annual increases of 4 percent for both 2003 and 2004. The rate of growth for 2001 is conservatively estimated at 4.1 percent. In the first three quarters of 2001, GDP rose 5.1 percent compared to the same period in 2000. If the rate of growth in the fourth quarter exceeds 1 percent, the annual rate is expected to end higher than 4.1 percent. The eurozone average is estimated at 1.6 percent. Growth should also reduce unemployment. «The strong economic activity in 2001 is estimated to reduce the average unemployment rate for the year to 10.9 percent, from 11.4 percent in 2000,» said the review. The jobless rate is predicted to drop to 10.5 percent in 2002, falling further to 9.8 percent in 2003 and 9.0 percent in 2004. Investment will be the strongest factor sustaining domestic demand, according to the report. Gross fixed capital investment is projected to grow by 9.5 percent this year, and by 9.9 and 7.4 percent in 2003 and 2004 respectively. According to the review, domestic demand remained at high levels in 2001, largely as a result of falling lending rates. Within 9 months last year, short-term lending rates for businesses, private consumption and mortgages all fell by 400 basis points, compared to an average of 200 in the 1995-2000 period. Nevertheless, the growth rate of private consumption last year is estimated to have fallen slightly to 3.1 percent, mainly due to a decrease in new car purchases. Public consumption increased 1.8 percent and public investment 7.5 percent in 2001. Citing EU estimates, the report said the rate of return on capital invested in the Greek economy rose 3.6 percent, against a marginal fall of 0.1 percent in the eurozone as a whole. The rate is projected to rise by 2.4 percent and 3.1 percent in 2002 and 2003 respectively. Investment in housing is estimated to have risen by 6 percent, which is quite a conservative estimate in view of the fact that new building licenses showed a 17.3 percent rise in volume in the first half of the year. Private investment rose 9.7 percent against 13.2 percent in 2000, and is projected to rise to an average 11.1 percent in the 2002-2004 period. Inflation is expected to remain nearly stable during the three years, sliding from 2.8 percent this year to 2.7 percent in 2003 and returning to 2.8 percent in 2004. Public revenues are projected to fall from 43.7 percent of GDP in 2001 to 43.1 percent in 2004. The budgeted general government surplus of 0.5 percent of GDP for 2001 is expected to end at 0.1 percent, rebounding to 0.8 percent in 2002, 1 percent in 2003 and 1.2 percent of GDP in 2004. Public debt should slide from 99.6 percent of GDP in 2001 to 97.3 percent in 2002, 94.4 percent in 2003 and 90 percent in 2004, largely thanks to low interest rates. Exports of goods and services are seen growing at an average of 6.4 percent over the next three years, against an annual average of 10.1 percent in 1996-2001. Imports are expected to continue growing at around 6 percent a year. Minor problems Christodoulakis said the second day after the introduction of the euro was better than the first, heralding a new era for a strong European economy. The euro brings a great number of changes and benefits. The benefits will mainly arise as a result of lower costs of production from the elimination of currency risks and conversion costs as well as lower financial costs, he said. He acknowledged minor problems on the first day of the euro’s introduction – mainly as a result of system overload – most of which have been overcome.

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