BoG’s Garganas praises euro, calls for reforms

Joining the eurozone has provided Greece with a stronger advantage in facing the challenges of globalization but the pace of needed structural reforms in its economy remains too slow, the country’s central banker said yesterday. «We need substantive and not decorative structural reforms,» Bank of Greece Governor Nicholas Garganas said in a speech to the British-Hellenic Chamber of Commerce. «It is the reforms that hurt and bear a political cost that we need the most.» Greece, which joined the eurozone in 2001, has yet to feel significant impact from globalization, as it remains a relatively closed economy due to its bloated public sector, Garganas, also a European Central Bank governing council member, said. Greece’s center-right government, in power since March 2004, has pursued a mild approach to reforms, including tax cuts on corporate profits, lower overtime pay, extended shopping hours and privatizations. But dealing with key challenges, including reforms to the social security system to ensure its viability, have been set aside for the next government in 2008. Low interest rates after joining the eurozone have been a driver behind Greece’s economic growth, which tops the broader eurozone’s expansion rates. But, Garganas said, this is overlooked by critics who blame the single currency for bringing inflation. «We tend to forget the important contribution of the euro to our strong economic growth rates,» Garganas said. «Had we stayed out of the eurozone we would have had at least two devaluations by now.» Garganas said reforms must seek to remove rigidities in labor and product markets and improve the business environment, making the country more competitive, including on the taxation front where competition is intensifying as more countries join the EU. (Reuters)