Little time to turn tide, says BOG chief
Giorgos Provopoulos urges the support of all social and political forces for Greece’s midterm austerity program
Greece is fast running out of time to convince the eurozone and the markets that it can tackle its mammoth debt, Bank of Greece Governor Giorgos Provopoulos has warned in an interview with Sunday’s Kathimerini, adding that all political and social forces in the country need to help ensure that the necessary reforms are implemented.
Provopoulos tacitly criticizes the government, saying that delays and oversights in the implementation of the first Memorandum signed by Greece and its lenders – the European Union and the International Monetary Fund – last year harmed the country’s credibility and increased uncertainty.
The Bank of Greece governor also notes that the mediumterm fiscal plan, set to be voted on in Parliament tomorrow, does not place enough emphasis on spending cuts. The burden on taxpayers, he adds, has reached its limit.
In reference to the opposition’s stance on the midterm agreement, Provopoulos implies that there are no easy solutions and to think so is delusional. skepticism from the markets and from our lenders. The hourglass is almost empty and this is why we need to act fast and emphatically.
Adopting a framework for fiscal adjustment is the first step, but it is not enough. We need to see the reform effort gain momentum so that it covers some of the lost ground and provides a push for the rest of the program. vate it in the short term. Nevertheless, it is a precondition for restoring confidence and setting growth on a healthy footing. You can’t achieve growth while maintaining a huge public deficit and debt, and at the same time experiencing a large deficit in competitiveness. We need to move away from the habits of the past that led to the deficit, the constant borrowing and statist policies that pushed us to the edge. We need to understand that there is no going back and that to succeed, we all need to put our backs into it: both political and social forces.
Decades of bad thinking
money in areas that often made no contribution to the greater good. For example, if in the period between 2000 and 2010, public sector hiring had been frozen and wage adjustments had not exceeded inflation, the percentage of debt to GDP would now be down by 31 points. Moreover, if the percentage of revenue from taxes to GDP had remained at the same levels as in 2000 instead of dropping, we would have seen a further reduction in the debt by 26 percentage points. In short, if a wiser fiscal policy had been applied over this 10year period, the debt today as a percentage of GDP would be under 100 percent. our fiscal targets. In October 2010, the Bank of Greece put forward an action plan for growth aimed at creating an environment that is more conducive to business. With state funds being in the state they’re in, we need to attract foreign investment. We have two significant opportunities for doing so. Privatizations can slash state expenditure and attract foreign investment. Also, we can make better use of European Union funds.
To achieve growth we need to shift from consumption to saving and investment, and from statism to competition, to entrepreneurial initiative. We also need to gain the competitive advantage. According to Bank of Greece data, our competitiveness has shrunk by some 20 percent in the overall period between 2000-2010.
I have said time and again that this is neither necessary nor desirable. Those who argue that bankruptcy is inevitable fail to consider the positive effects of a succesful midterm program. It could turn things around completely, it cxould improve the economy’s ability to bankroll itself and would attract funds. On top of boosting confidence, it would be possible to shift the dynamic of the debt dramatically. I am referring to the assets of the Greek state, worth over 300 billion euros, compared to the 340 billion euros of its debt. If a portion of these assets were put to use – to which the government has already committed itself – the debt could be reduced soon and significantly.
Restructuring is not desirable because it would have a devastating effect on society and on the economy. It would also raise impossible obstacles in our relationship with the European Union that would put the country’s future in the bloc in jeopardy.
Revenues vs taxes
The Bank of Greece has been arguing since 2008 that the deficit reduction must be twothirds based on spending cuts and one-third based on revenues from taxation. Fiscal policy so far has been mostly based on tax increases, and the midterm austerity strategy, in my opinion, does not place enough emphasis on the containment of spending. Piling more taxes on taxpayers has reached it limit. Moreover, if more were done to curb tax evasion, taxes could be reduced in certain areas to provide a boost to growth. I need to stress this point: Tackling tax evasion is absolutely crucial and it would also increase people’s sense of justice and their support for the austerity program.