In its just-released mid-term report on monetary policy, Greece’s Central Bank expresses optimism over the positive course of the economy, as evidenced by key economic indicators: industrial production, retail sales, the flows of dependent employment in the private sector, exports of goods and services, and foreign direct investment.
Current data indicates that there will be more rapid growth in the next few months and a boost to economic activity in the medium term.
The bank projects GDP growth rates of 1.6 percent for all of 2017, 2.4 percent for 2018, and 2.5 percent for 2019.
The beginnings of the recovery of the economy in 2017 is attributed to the export of goods and services as a result of Greece’s increased international competitiveness, the recovery of international trade, and the loosening of capital controls, first imposed in 2015.
Faithful implementation of reforms
For the positive prospects to pan out, Stournaras stresses that a smooth exit from the bailout programmes must be carefully designed. There is a pressing need, the central banker notes, to implement smoothly and in the agreed upon timetables the programme of reforms and privatisation, to legislate measures agreed to in the third evaluation, and to prepare carefully for the fourth.
A matter of trust
To establish the crucial element of economic trust, the bank lays out a series of prerequisites:
a. To specify medium-term measures to restructure the national debt, which will allow access to bond markets on viable terms and permit Greece access to the European Central Bank’s quantitative easing programme.
b. To make perfectly clear the manner in which the Greek economy will be bolstered after the completion of the current bailout programme.
Within the EU’s existing legal framework, Greece will be under supervision at least until it is able to pay off 75 percent of its official loans from eurozone countries, the EFSF, and the ESM.
Precautionary support programme
“It should be clarified to what degree there will be a ‘precautionary support programme’, and specifically on what terms. The existence of such a precautionary framework can function supportively for the Greek economy, lowering the cost of borrowing. Such a framework will afford security as regards the Greek state’s access to funding after the end of the programme in August, 2018,” Stournaras said
“That will firm up the trust of international investors in the medium-to-long-term prospects of the Greek economy, as they would know that economic policy remains prudent, averting the return of imbalances.”
The post-bailout support line is crucial if Greece’s credit rating is not updated, so as to maintain the ability to use bonds as guarantees for Eurosystem monetary policy actions, and to participate in the ECB’s quantitative easing programme.