Bank of Greece reiterates call for structural reforms
The Bank of Greece yesterday underlined the urgency of structural reforms as it urged the government to tackle these challenges which are crucial to Greece’s goals of a high growth rate and real convergence with the eurozone. Presenting the central bank’s annual report at its annual shareholders’ meeting, Lucas Papademos, the outgoing governor who is scheduled to take up the vice-presidency post at the European Central Bank in June, said bolder and faster reforms were needed. He said Greece’s high unemployment rate and current account deficit point to structural economic weaknesses. The Bank of Greece is the latest organization to sound the alarm over the government’s timid efforts to reform the economy. Last week, the European Commission and the Paris-based Organization for Economic Cooperation and Development urged Greece to capitalize on its above-average growth rate in the next two years and accelerate key structural reforms. They said changes should focus on boosting productivity, making the labor and product markets more flexible and efficient, and improving the environment for businesses. They also emphasized the need for more restrained government spending. In the same vein, Papademos said it was necessary that the government speed up structural reforms and broaden their scope. Only by applying the right fiscal and structural policy, will Greece be able to achieve real convergence and full employment, he stressed. The central bank head singled out the social security system and the tax system as the principal challenges ahead. The problems of the social security system «must be dealt with immediately» as further delays would mean that future remedies would be «more abrupt» and «more painful,» he warned. Greece relaunched a dialogue on social security reforms last month under new Labor Minister Dimitris Reppas. The government’s proposals, however, are seen as stop-gap measures and drafted with the forthcoming municipal elections in mind. Papademos also indirectly called on social partners to ease their pressure on the government for greater funding of the social security system, even as he acknowledged the necessity for more public funds. He said the immediate priority is bringing public debt down and projected budget surpluses should go toward this goal. On tax reforms, Papademos said simplicity and transparency should be the key focus. Doing away with tax disincentives would not only encourage entrepreneurship and create jobs, it would also help in the fight against tax evasion, he said. The government earlier this month kicked off the social dialogue on tax reforms by presenting proposals from a committee of experts. It is due to unveil its own recommendations at the end of May. The bank head said other priorities include modernizing public administration, making the labor market more flexible and improving the banking system. The Bank of Greece report sees gross domestic product growth this year at 3.5 percent and average annual inflation at 3.5 percent, unchanged from the previous year.
