ECONOMY

Bank of Greece boss warns against excessive pay rises

Bank of Greece Governor Nicholas Garganas yesterday warned the government, employers and unions to keep a lid on wage rises in order to help fight inflation. «It is especially important for the government policy on civil servants’ wages and collective bargaining between the social partners over the next few months to ensure that nominal rises of average wages in the public and private sectors… be compatible with the need to achieve price stability,» Garganas said during a meeting of the central bank’s General Council in Thessaloniki. Later, Garganas gave a luncheon for businesspeople from the area. Greece is far from achieving price stability, defined by the European Central Bank as an annual rise in the consumer price index of 2 percent or less. According to Garganas, average inflation for 2005 will be 3.5 percent, up from 3 percent in 2004. This is eroding Greece’s competitiveness compared to its EU partners, despite higher than average GDP growth (3.5 percent this year). The proof lies in the rise in the current account deficit to 7.5 percent in 2005, up from 6.3 percent in 2003. Garganas also underscored the need for greater competition in all market sectors in order to avoid excessive profit margins. «If all the measures we have been proposing for years, and for which we have often been criticized, unfairly in my view, had been implemented, we would now enjoy price stability and we wouldn’t be falling back in terms of competitiveness,» Garganas said. Garganas also urged an immediate dialogue on the reform of the social security system. He proposed incentives to boost the birth rate and added that bringing down public debt was also urgent. At present, Greece’s total debt stands at 109.3 percent of GDP, the highest in the EU, and must be brought down to 60 percent by 2015, at the latest, because spending on pensions as a percentage of GDP will start to rise at that point. The central banker also referred to the inflexibility of the labor market, but added that the law passed recently on overtime pay and workday flexibility should take care of most of the issues raised by businesses. Odysseas Kyriakopoulos, chairman and executive president of the Federation of Greek Industries (SEV), who attended the council meeting, told reporters that the government and the state bureaucracy are to blame for a legal framework that is inadequate for promoting entrepreneurship and encouraging investment. Bureaucracy, lack of land use planning, delays in obtaining permits for major investments and a «inconsistent» action by courts are major obstacles to business expansion. «At present, the business climate prevents the investments that will create the enterprises and absorb the half a million jobless,» he said. Kyriakopoulos approved of the government’s efforts to make public utilities operate as private companies but opposed the government’s goal of regulating personnel and management wages by law. «(Wage levels) should be the result of free negotiations and should not be subject to state mediation,» he said.