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Victoria Mindova

Recession of at least 3% of the GDP for 2011 forecasts the Governor of the Bank of Greece Georgios Provopoulos, not excluding the possibility to increase. The unemployment will be about 15% and the inflation will remain 3.3% and above the average levels for the Euro area.  This is what the first banker of Greece announced when presenting the annual report on the country's economy. "Much has been done for a year, but despite the positive results that were achieved the factors that maintain the uncertainty of the markets remain strong," said Provopoulos in his speech.
 
He pointed out that the dynamics of the foreign debt remains negative, mainly due to the decreased productivity. In the real economy, the GDP dropped by 4.5% due to the reduced consumption in the country. Public consumption has dropped by 6.5%, while direct foreign investment - by 16.5%. "The recession in 2010 could be not so deep if the reforms were carried out at a faster pace." Provopoulos stressed that the opportunities provided by the funds from the National Development Programme were not utilized, nor have been taken the necessary measures to reduce the public expenditure significantly.

There is some improvement in competitiveness due to the reduced salary costs, mainly in the private than in the public sector. What is not registered is improvement of institutional competitiveness. It determines the improvement of the overall business climate of the country and its becoming friendlier to entrepreneurship. The government has done little to reform the institutions to blame for the big budget deficits - the public administration, the numerous public institutions with unduly high costs, the local government organisations and the collection tools of the tax system. According to Georgios Provopoulos, the difference between planned and actual deficit at the end of 2010 is the result of deficiencies in the recovery of these public institutions.

The governor of the Bank of Greece did not deny that many important laws were voted last year that are crucial for the proper functioning of the local economy. There are improvements in the legal framework in health, social security and market liberalization, but the application of the changes is still not satisfactory. At the same time, the recession has become the main reason for rising unemployment. 180,000 jobs were lost. "The average annual job loss of 2.7% was lower than the drop in the GDP, leading to reduced productivity by 1.8%." Provopoulos accused the government itself that it could not support the implementation of the reforms. As a result, much of the public did not support the introduction of changes.

"The crisis is the result of the type of the economic model applied until now, it is not a crisis caused by the Memorandum of financial support," explicitly said Provopoulos. The negative balance from 2002 to now and the permanent transfer of funds from the business to the consuming and inefficient public sector has led to this crisis, bankers estimated. "This model satisfied the current consumption at the expense of the future." Now we should turn from consumption to saving money. So, a suitable environment should be created which could attract new investments, increase production and exports and reduce public and private consumption. The measures that burden the ordinary working people, the other operating companies and the retirees should be put to an end. The government should take more seriously the limitation of tax evasion and the employers that do not pay social and pension securities. At the same time, the government should turn more quickly to the development of those sectors that could support the positive economic growth. Investments in the energy, tourism and maritime transport are crucial to increasing the market competitiveness.

In connection with the recent hot topic related to Greece, the debt restructuring, Georgios Provopoulos said, that such a possibility is neither desirable, nor necessary. "It is not necessary, because we are able to achieve our goals, if we properly implement the planned reforms we have mentioned so far. It is not desirable, because it would have disastrous consequences for the return of the Greek government and enterprises to the international capital markets. Also, there will be a very negative impact on the assets of pension funds, banks and individuals that have invested in Greek government securities." According to the banker, whatever the fate of the Greek foreign debt, Greece should implement the recovery program appropriately and in accordance with the Memorandum of financial support, otherwise it would end up in very serious economic situation. In conclusion, Provopoulos urged the banks to turn to restructure the sector so as to withstand the pressures of the current crisis.