BoG governor Stournaras: Greece needs social stability and consensus to return to normality

Greece needs social stability and consensus to achieve the country’s return to normality, Bank of Greece’s governor Yannis Stournaras said on Monday.

Presenting the bank’s annual report, the central banker said that the country, after the completion of the programme, must convince productive forces and international markets that “it has definitely left past practices behind it and was back on a convergence course with Europe”.

Stournaras said that Greece should be cautious in its next attempts to access international capital markets, noting that he was in favour of a precautionary credit line. “A smooth exit from the programme and a successful course in a new, post-crisis European normality needs a commitment to safeguarding the achievements made thus far, to implementing a prudent economic policy after the programme and continuing structural reforms until their completion,” the central banker said.

He said that a recent seven-year bond issue was successful amid turmoil in international markets, but noted that caution was needed as turmoils seemed to affect countries with a weak credit rating and less strong economy more deeply. Additionally, he said that international experience has shown that a test return to the markets to create a cash buffer before the end of the programme, created a climate of confidence and prepared the country’s exit from the programme. However, he reiterated that Greece should examine the possibility of a precautionary support programme, which could offer financing security for the Greek state and Greek banks after the end of the programme in August 2018. A precautionary credit line from the European Stability Mechanism (ESM) could made these funds available without necessitating their use in advance, he noted, whereas accumulating cash reserves required immediate borrowing that burdened the country’s annual debt servicing costs. Additionally, this precautionary support framework ensured the continuation of a waiver for Greek state bonds to be used as collateral in the Eurosystem until Greece obtains an investment-grade credit rating.

The central banker said Greek banks have set ambitious goals in reducing their non-performing loans in the next two years. Greek banks are following a timetable set for a gradual reduction of non-performing exposures with the aim of lowering their NPEs by around 37 pct in the period from June 2017 to December 2019. Stournaras asked Greek banks’ managements to intensify efforts to achieve their business plans on this front, as “there is no room for complacency since the domestic financial system remains vulnerable to macroeconomic and financial turbulence”.

Stournaras said that despite the progress made, recorded in significant economic data, risks remained and noted that in this framework it was necessary to readjust a policy mix, lowering the tax burden. He said that an above-target fiscal surplus achieved in 2017 was mainly due to increased revenues from previous fiscal years and a reduction in public spending, while the revenue increase from direct and indirect taxes was minimal, indicating taxation fatigue.