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Exports, investment and consumption - the formula for Greece’s sustainable economic growth

09 July 2014 / 16:07:00  GRReporter
2256 reads

Maria S. Topalova
     Greece has done a lot to consolidate its public finances and to stabilize its macroeconomic indicators, but if it stops there, it will be like Bulgaria. Poverty, low incomes and the big difference between a small rich class and a huge mass of poor people will become its characteristic feature. This is the opinion of the economists and politicians who took part in the 18th Roundtable with the Government of Greece, organised by the Economist magazine, which this year was held under the motto "The big rethinking for Europe - The big turning point for Greece."
     "We are curing diseases that were developing for decades," admitted the new Minister of Finance, Gikas Hardouvelis, who believes that the successful fiscal consolidation in Greece creates a completely new basis for more stable economic growth, based not only on consumption, as in the past, but mostly on exports and investment. "In 2013 we achieved a positive trade balance, something we have not seen for about ten years. The goal is not to keep it, but to dramatically increase exports. Last year we reported the first budget surplus and this year we will have the first positive economic growth in six years," he recalled.
     Gikas Hardouvelis firmly supported the opening of the market of professions and services that the people should support too because this is the only way for the Greek economy to become competitive and have prosperity for its citizens. Greece’s new Minister of Finance also announced some changes in the tax system, including the gradual cancellation of extra taxes, the introduction of high-tech methods in the tax system such as providing the authorities with direct access to the cash registers of companies, equipping fuel tanks with GPSs, installing X-rays at customs.
     Rishi Goyal from the International Monetary Fund also confirmed the progress of Greece, but stressed that its primary surplus has to reach 4.5% of GDP and has to remain at this level for many years, which will not happen without structural reforms. "We see a recovery in exports, but it must be strengthened. The most important are the reforms in the labour market, such as the elimination of collective contracts and the reform of the law on strikes. Bad loans exceed 40% of total loans. It is too optimistic to think that the banks themselves will cope with them," said the representative of the Fund.
     Pavlos Mylonas, Deputy Executive Director of the National Bank of Greece, noted that 90 billion euro in deposits have left the Greek banks during the crisis years and only 12 billion euro of them have returned. He acknowledged that there is no recipe on how to return the rest of the money. During the crisis, Greece lost 25% of GDP after six years of recession, and the decline in consumption was even higher. All forecasts are very vague against this background," concluded Pavlos Mylonas.
     According to Klaus Regling, managing director of the European Stability Mechanism, in September there will be more clarity on Greece's future, namely whether it will need a new bailout, if its debts will be cancelled or the country will cope alone. He recalled that the Mechanism holds 40% of the Greek debt, which is granted at a rate twice lower than that of the International Monetary Fund. The average maturity of Greece’s debt is thirty two years compared to that of Spain which is twelve years and a half. "We have made the life of Greeks less difficult. The aid received from the European Stability Mechanism in 2013 alone was equal to 4.2% of Greece's GDP," said Klaus Regling.  
    Economists forecast that if the markets believe in the Greek recovery, there is no reason to be pessimistic. However, the personal forecast by Joan Hoey from the Economist Intelligence Unit is that there will be early elections in Greece in 2015, which will end up with a fragile parliamentary majority.

Tags: Gikas HardouvelisGreek Minister of FinanceEconomist magazine conferenceExternal debtEconomic growthGreek crisis
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