Bank of Greece governor set two preconditions for the return of the economy to normality


Greece’s central bank warned on Friday that political consensus was needed to implement painful reforms of pensions and taxation that would help the economy to grow next year.

It said a recovery in the second half of 2016 was “within reach” after a shallower-than-expected recession, provided the government fully implements the reforms in the country’s third bailout agreement and takes ownership of the program.

“Now that consensus has been built, which is by all means an achievement, it must not be allowed to disintegrate,” the Bank of Greece said in its interim monetary policy report.

Athens has to introduce deeper reforms in the next two months to make its ailing pension system viable, including merging several pension funds into one and cutting back supplementary pensions.

Prime Minister Alexis Tsipras failed to secure the backing of opposition parties last week for the pension reform after his government’s majority shrank to just three seats last month.

The central bank said speeding up privatizations and maximizing the value of state-owned real estate were the most powerful tools to revive investment and growth.

A successful completion of the first review of the bailout program by Greece’s creditors early next year would lead to Greek banks regaining access to cheaper funding from the European Central Bank, and to Greek government bonds being purchased in the ECB’s quantitative easing program, it said.

That appeared to contradict a comment by ECB Vice-President Vitor Constancio on Thursday that other conditions were required to include Greek bonds in the asset purchase program.

Bank of Greece governor set two preconditions for the return of the economy to normality and then to recovery in the bank’s interim report on monetary policy submitted to Parliament on Friday.

The first precondition is the implementation of an agreement reached between the Greek government and the country’s partners. The central banker called on the government to take all necessary initiatives, beyond the provisions of the agreement, to improve economic and investment climate by exploiting the positive momentum created from attracting private capital for the recapitalization of systemic banks.

A second precondition is the support of the Greek Parliament to an adjustment effort and the rescue of the Greek economy. “It is self-evident that the Parliament must contribute to the completion of the legislative work to implement the agreement, since the biggest part of adjustment has been achieved since 2010 and only a small part remains to be done,” the central banker said.