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

Kathimerini English - - F Ocus - BY VAS­SILIS ZIRAS

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.

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