Central bank worried about high inflation

The Bank of Greece is concerned about inflation and excess borrowing by households, Bank of Greece Governor Nicholas Garganas told Prime Minister Costas Simitis yesterday. The central bank estimates that inflation will average 3.5 percent this year. Its estimate is half a percentage point higher than that of the government, which sees average inflation at 3 percent. Core inflation, which excludes volatile items, such as fuel, fruits and vegetables, is a full percentage point higher than the eurozone average and shows few signs of abating, Garganas told Simitis. It was the first official meeting between Simitis and Garganas since the latter was confirmed by the Parliament, last week, as the new central bank Governor. The two have been close friends since the early 1960s. The Bank of Greece insists that gross domestic product will grow by 3.5 percent this year, while the government has forecast 3.8-percent growth, the highest in the EU. Otherwise, Garganas said, the economy is going in the right direction. The Bank of Greece is closely watching household indebtedness and will cooperate with a private firm on a large scale survey of households. Household debt has grown because of the expanded use of credit cards and the increase in mortgages that has followed a precipitous drop in interest rates. While the rate of indebtedness is still very low compared to other countries, there are concerns that its growth is too steep. Garganas’s predecessor, Lucas Papademos, now vice president of the European Central Bank, repeatedly warned against rising household debt. On another front, Economy and Finance Minister Nikos Christodoulakis is planning measures to boost exports. Greek exports have fallen disastrously in the past few years to the point where, in absolute value, they are the lowest in the EU, lower even than Luxembourg’s. This is the primary reason for a worsening trade deficit. The ministry has already started talks with producers; it also wants to upgrade the Export Promotion Organization and press exporters to improve the quality of their products. Other problems concern business delegations accompanying ministers abroad. This week, exporters from northern Greece told Andreas Loverdos, deputy foreign minister in charge of foreign economic relations, that the delegation that accompanied Simitis in his recent trip to China was poorly organized, to the point that it hurt Greece’s image. They demanded better preparation and follow-up by the government.