Central bank seeks ‘adjustment’

The governor of the Bank of Greece yesterday called for greater government efforts to put the country’s finances in order, singling out unemployment, inflation and the current accounts deficit as the economy’s three «major challenges.» In his annual report on fiscal policy, which was delivered to Parliament Speaker Anna Psarouda-Benaki, Nikos Garganas spoke of an «urgent need for greater efforts for fiscal adjustment, given the slackening of fiscal policy over the past three years.» The central bank governor pointed out that Greece has the third highest joblessness rate in the European Union, while inflation – at 2.5 percent in February – is steadily hovering above the EU average. Meanwhile, the ever-widening current accounts deficit is just under 6 percent of GDP. Inflationary pressure, according to Garganas’s report, is expected to grow this year due to a greater rate of increase in labor costs, while the August 13-29 Olympic Games are forecast to boost excess demand. But on the bright side, the strong euro, which is forecast to retain its edge over the US dollar this year, will help counteract inflationary pressure by absorbing the increase in oil prices – which are calculated in dollars. As a result, inflation is not expected to greatly exceed last year’s levels. Growth is projected to remain high, reaching 4.1 percent, partly as a result of an expected increase in tourist revenue due to the Olympics, while shipping revenues are also expected to rise as a result of an anticipated rise in the volume of global trade. The Garganas report also contained a warning on household borrowing, which rose from 9.3 percent of GDP in 1998 to 26.2 percent of GDP at the end of 2003.

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