Central bank signal

The Interim Report of the Bank of Greece on monetary policy for 2003 which was submitted by central bank chief Nicholas Garganas to the parliament spokesman yesterday adopts a diplomatic approach to the government. This is, perhaps, a sign of government pressure on the bank governor but, in any case, it is not the most important aspect of the report. A diplomatic approach is something one would expect from a central bank report – and it is unessential so long as the document fulfills its purpose, which in this case is to express the bank’s concerns over the country’s economic prospects. And so it does. The bank and its governor do not keep secret their reservations over some aspects of the Greek economy. Garganas actually exposed them in yesterday’s press conference. The report does mention, of course, that the overall conclusion concerning the course of the economy is a «positive» one, economic growth is high and unemployment has dropped. However, barring these generalizations, the report does highlight that the inflation rate hovers well over the European Union average, that unemployment is still high and that the balance of payments deficit is above 6 percent of GDP for a fourth consecutive year. The figures also demonstrate that growth is largely dependent on the inflow of EU funds or on domestic demand that is based on such funds. Should the influx of Community funding come to a halt, it is doubtful whether Greece will be able to keep its growth rate above the eurozone average. And should it fail to do so, then real convergence will remain a pipe dream. The Bank of Greece document is at odds with the glossed-up picture promoted by the government. The report underscores that sustaining a satisfactory growth rate will be a daunting task. The report stresses the need for a more austere fiscal policy (also noting that the government fell short of its promises to implement one), while issuing a strong warning about the perils lurking in government handouts and the economic demands made by the various social groups which will increase as we near the ballot day. The central bank report vindicates those – including this page – who have said that the country must not put at risk what it has achieved in previous years and that the Third Community Support Framework must be exploited to the full so that the economy can stand on its own – without waiting for a lifeline from Brussels. This mandates a move away from vote-grabbing handouts and toward the promotion of structural measures that have been shelved for years for fear of estranging voters. The government must do what it promised back in 2000 – and not pretend that it has actually done it.