Central bank warning

Bank of Greece governor Lucas Papademos yesterday warned against the dangers threatening the Greek economy’s competitiveness and called on the government to speed up structural reforms. He noted that inflation, while easing slightly, was still higher than the eurozone’s average, that public finances continued to be in danger of going astray and that growth was slowing at a quicker-than-expected rate. The economy is likely to grow at about 3.5 percent this year, which is less than the government expects officially (3.8 percent), but still about twice the expansion rate of the eurozone as a whole. In his biannual report on the course of the economy which he presented to Parliament, Papademos presented the problems in a diplomatic way, but his continued to urge a faster pace of reforms; and his calls for action from all sides betray anxiety with regard to the immediate future. Papademos noted the three sources of trouble that could derail the Greek economy from its course toward real convergence with other eurozone members. These, according to Papademos, are wage demands high above the limits allowed by the improvement in productivity; higher product prices beyond the increase in true costs; and the slackening of fiscal discipline as reflected in the widening of public deficits. The central bank governor called on the social partners (the unions, employers and others involved in discussing reforms, wages, and so on) to rise to the occasion in their negotiations on wage increases. He noted that pay increases were tied to productivity and that excessive increases could set off a chain reaction in the broader economy. Papademos placed great importance on the fact that inflation continues to remain above 3 percent during 2002 and called on businesses to employ a prudent price policy. At the same time, he called on the government to speed up privatization, to increase flexibility in the labor market and to carry out social security reforms. The latter should aim not only at securing funds’ viability but also maintaining fiscal stability.

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