Advance payments from an EU Recovery Fund will finance investments worth 3.3 pct of GDP (around 5.5 billion euros) this year, Bank of Greece governor Yannis Stournaras said on Wednesday and called on Greek banks to make additional provisions to cover an expected new wave of non-performing loans. Addressing an online debate, held in the framework of an ECB initiative to re-examine the strategy of monetary policy in the Eurosystem, Stournaras stressed it was necessary that urgent fiscal and monetary measures taken to deal with the consequences of the pandemic be removed gradually when the health situation returns to normal.
The central banker said that both the monetary policy and the operation of the Eurozone will be a lot more flexible after the pandemic and noted that the Eurogroup has begun to discuss the replacement of the existing Stability Pact with somenthing a lot more flexible. He underlined that in order to avoid the so-called cliff edge effect after the end of the pandemic, support measures must be eased back gradually. Stournaras noted that credit institutions in Greece have designed products to facilitate a gradual re-entry of borrowers to normality after a temporary suspension of loan payments, but called on banks to take additional provisions to cover an expected new wave of non-performing loans. Commenting on the country’s public debt, he said that the very low yields of Greek state bonds – mainly as a result of the inclusion of Greek bonds in ECB’s PEPP programme, improved its sustainability, although he stressed that it was inevitable for public debt to increase as a result of the fiscal measures taken by the government. He noted that it was crucial that economic growth rates remain above nominal borrowing interest rates and underlined that the ECB was rejecting calls for a debt write-off.