BoG warning on finances, debt situation

The governor of the Bank of Greece (BoG) expressed concern yesterday at apparent apathy over the slow pace of economic reforms in the country and warned about how quickly Greeks were getting themselves deeper into debt. Presenting the bank’s interim monetary policy report, Nicholas Garganas criticized political parties, unions and the media for dragging their feet over reforms to the Greek economy and not comprehending the scope of the problem and the urgency with which it needs to be tackled. «Greek society lacks a sense of urgency with regard to the need for the changes that must be accomplished,» said Garganas, with particular reference to securing a long-term, sustainable balance in public finances. He added that it was no wonder foreigners were shying away from investing in Greece. He was adamant that action was needed to solve the looming social security crisis, which the ruling conservatives have said they will not look to reform for the time being. Unionists have reacted strongly in the past whenever a government has suggested it might change the system, but Garganas urged Greek society not to be afraid of facing up to reforms. He also criticized public sector pay rises of 8.4 percent this year, compared to 5.8 percent in the private sector. In reference to recent oil price rises, Garganas said Greece was in a particularly weak position because it was the only EU country whose fuel consumption has risen in recent years. He suggested this would have a detrimental effect on inflation and growth. BoG predicted that core inflation will rise this year, to 3.6 percent, which is 1.4 percent above the eurozone rate. The report suggested that if the increase was not addressed, it would harm growth, although Garganas said a projected growth rate of 4 percent for this year, compared to 4.5 percent in 2003, was «very satisfactory.» He also announced that Greek households are currently defaulting on 2.5 billion euros worth of loans and, when combined with business loans, the amount reached 7.8 billion – 5 percent of Greece’s GDP. Delayed personal loan payments rose to 8.3 percent of the total owed and the rate of loans being granted increased by 37 percent this year compared to last. The report said that the housing market had mostly stabilized. In Athens, house prices had hardly risen this year, compared to an increase of 17 percent between 2000 and 2002, and 4 percent last year. Business and personal loans and mortgages amount to 27 percent of Greek GDP. As a result, BoG has asked lenders to be more cautious about the manner in which they hand out loans.