The rise of populism, the anti-EU rhetoric, the refugee crisis, Brexit and the legacy of the Greek crisis are risks to the recovery of the country’s economy, Bank of Greece Governor Yiannis Stournaras said on Friday, while he reiterated his view that it is possible to lower the primary surplus target.
“Current forecasts point to gradual recovery in both Greece and the euro area. However, the recovery faces several headwinds, relating both to political risks linked to the rise of populism and anti-EU rhetoric, the refugee crisis, Brexit and the crisis legacy, namely high unemployment, high public and private debt,” the central banker said, speaking at an event of the Young Presidents’ Organisation (YPO), a global network of young chief executives.
In view of these risks and challenges, the way forward should involve structural reforms in order to improve the growth potential and to make Greece and the euro area more resilient to future shocks, as well as greater economic policy coordination, convergence and risk-sharing inside the EMU, he added.
He also reiterated his view that a lowering of the medium-term fiscal target from a primary surplus of 3.5 percent of GDP from 2018 onward, to 2 percent of GDP, without affecting public debt sustainability prospects is feasible, if coupled by mild debt relief measures.
“Such fiscal relaxation would have beneficial effects for the Greek economy, as it would allow taxation to be lowered, freeing up resources for supporting economic activity, while making fiscal targets economically and socially feasible,” he noted in his speech.
Furthermore, the unwavering implementation of the structural reforms described in the new ESM programme is a prerequisite for economic recovery, Stournaras said, adding that structural reforms are expected to encourage innovation and the introduction of new technologies by increasing competition in various sectors and attracting new investment, both domestic and foreign.
“These developments will improve the quality of Greek exports, expand the export base and strengthen the non-price competitiveness of the economy,” he said adding that in this way, the elimination of the current account deficit that has occurred over the last six years will prove sustainable and potential output will rise in the medium to long term.
He also described the use of idle public and speeding up privatization processes as “strong tools” not only to boost investment activity and foster sustainable growth, but also to support fiscal adjustment, insofar as they reduce public debt. “The Greek State, for historical reasons, owns real estate, the development of which could attract investment and reduce public debt. This is an opportunity, which has not been exploited yet, but necessitates appropriate legislation for land use,” he said.
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