At a time when efforts are being made to discover the true magnitude of deficits and to reshape economic policy, in his annual report yesterday, the central bank’s governor highlighted the shortcomings of the Greek economy and the imbalances that were not corrected after Greece joined the eurozone. Nicholas Garganas, governor of the Bank of Greece, called for broader structural changes to make the economy more competitive and dynamic. Garganas noted that for a third consecutive year, the inflation rate in Greece is double that of the eurozone, which undermines competitiveness. He notes that this helps explain the large deficit (5 percent of GDP) in the balance of payments. And he warned that inflation could worsen during the Olympic Games in August. Garganas noted that to be competitive, a country has to have open markets, macroeconomic stability and an effective state machinery so as to be able to support the foreign investments that are so necessary. He called also for measures to curb state spending, so that the tax reforms that are being planned and which will reduce state revenues will not lead to a widening of the budget deficit and a worsening of public debt. Garganas stressed the need for a real solution to the problems facing the social security system and repeated his calls for greater flexibility in the labor market, proposing that wages depend on productivity as a basic tool for strengthening employment. The central bank governor also called on the «social partners» in the economy to be measured in their wage demands and frugal in their prices for goods and services. «We must, at last, stop giving generous wage increases, especially in the public sector,» Garganas said. Garganas proposed strengthening entrepreneurship by encouraging private businesses to enter the fields of research; speeding up privatization and opening up crucial markets in order to increase competitiveness; and modernizing public administration to make reforms easier to implement.