NBG urges reforms to keep growth rates high

The high growth rates of the Greek economy in recent years (an average of 4 percent) have not been accompanied by a commensurate improvement in its competitiveness which could sustain them in future, but were chiefly based on factors unlikely to maintain an impact, the National Bank of Greece (NBG) noted in a press release yesterday. These factors were primarily a rise in investment and secondarily in employment – particularly of immigrants, largely connected with special circumstances such as the preparations for the Olympic Games, NBG said. «At the same time, the widening in the last four years of the inflation differentials with the eurozone contributed to a revaluation of the real currency parity, affecting the competitiveness of Greek exports, whose share declined. The services sector fared better, benefiting in the last two years from particularly favorable conditions for oceangoing shipping,» said the report. The NBG press release identifies weaknesses in structural factors which affect competitiveness – as observed by the Global Entrepreneurship Monitor (GEM) and OECD studies – and recommends improvements in the institutional framework, a reduction in red tape and the encouragement of entrepreneurship. «The removal of the last factors distorting competition would facilitate the reorientation of economic activity to sectors with a high added value. «Moreover, according to data in several studies, the education system in Greece does not satisfactorily meet the needs of the economy… Greece has one of the highest rates of unemployment among tertiary education graduates.» The press release also notes that Greece’s rates of long-term and young unemployed are considerably above OECD averages. A significant improvement in productivity is seen as key to progress in the coming years. «Part of this improvement is expected to result from the utilization of infrastructure projects being completed. But a substantial boost to productivity will come by speeding up structural changes,» says NBG. According to recent GEM data, the percentage of the Greek population aged 18 to 64 which engaged in some form of entrepreneurial activity declined from 6.8 percent in 2003 to 5.8 percent in 2004. «Greece exhibits a high degree of ‘necessity entrepreneurship,’ i.e. entrepreneurial activity that occurs… because the entrepreneur has no other means of earning a living. This represents 30 percent of total entrepreneurship,» said the GEM report. It further noted that «Greek society does not appreciate the creative dimension of entrepreneurship or, put differently, the fact that entrepreneurial activity is above all an activity of wealth creation rather than of redistribution.»