Greece’s Economy Czar on a visit to Washington DC, New York
Washington.- Greece’s national economy and finance minister George Alogoskoufis outlined the opportunities and challenges of the Eurozone and the developmental efforts underway in SE Europe, with emphasis on what he called the “Greek experience’, addressing an event at the European ‘World Club’ Institute in Washington on Thursday.
The minister is in the States on occasion of the International Monetary Fund’s and the World Bank’s annual meetings. Yesterday he arrived in New York and during his stay he will visit the New York Stock Exchange, for a meeting with NYSE’s CEO, John Thain.
George Alogoskoufis, will also visit NASDAQ.
Speaking at the European ‘World Club’ Institute, Alogoskoufis noted Greece’s strategic geopolitical position, as it was in SE Europe, an emerging region with more than 100 million residents.
Regarding Greece’s experience from its participation in EMU, he said that the monetary stability and low interest rates of the euro had given a boost to private consumption and private investments, thus facilitating the servicing of the public sector debt.
However, he added, the fact that the preceding government had lacked the will to advance a plan of reforms and rationalise public expenditure had led to disproportionately large fiscal deficits and hurt the competitiveness of the Greek economy, thus limiting the prospective benefits from the country’s EMU participation.
The present government, he continued, had a concise goal: to contain the fiscal deficits, render the economy more competitive, and materialise the reforms that have been necessary for years.
Alogoskoufis said the New Democracy (ND) government, from the moment it took over the helm of the country 18 months ago, introduced many efforts in every branch of the economy. The government reformed the taxation system, reducing the corporate tax brackets and simplifying the taxation procedures and making them clear-cut.
The government also introduced a new investments law, in order to give impetus to regional convergence and encourage investments in sectors where Greece offers comparative advantages, as well as a new law for collaboration between the public and private sector so as to create the necessary infrastructures that were faster, more efficient, and lower-cost, he said.
The minister stressed that the privatization programme, although ambitious, has gone better than initially expected and planned. In fact, the government had budgeted and predicted revenues from privatizations at 1 percentage point of GDP, approximately 1.9 billion dollars, for this year, and they had already reached 2.5 billion dollars.
Further, the government had introduced a policy of mild fiscal adjustment in order to reduce the deficits below the 3 percent ceiling required by the Eurozone, he said, noting that this year the deficit would be reduced to 3.6 percentage points of GDP from 6 percent in 2004, while it was anticipated that the deficit would be contained below the 3 percent ceiling in 2006, he said.
Alogoskoufis also said that Greece has gone through a period of widespread state interventionism. The state was practically everywhere, making the new government’s job even more difficult. He said careful handling had been required to ensure the greatest possible social consensus, adding that the Greek people support the government’s reforms programmes, have realised the benefits that will arise, and are understanding about the fact that in order for the economy to reach the EU levels of productivity and revenue, the well-targeted reforms are necessary.
The Greek economy, in turn, was responding very satisfactorily to the government’s reform initiatives, the minister said.
He said that despite the high oil prices, the economy’s rate of growth remained one of the highest in the Eurozone. Economic growth was expected to reach 3.6 percent this year for Greece.
The strong private consumption, the 7.3 percent increase in exports vis-a-vis the first two quarters of 2004, and a 13 percent increase in tourism were spurring the economy forward, Alogoskoufis said, adding that unemployment had been reduced by 1 percentage point to 10.4 percent despite the end of expenditure for the Athens 2004 Olympic Games projects which, according to several economics, had been expected to lead to a significant slow-down in the economy.
Greece, he continued, also played an important role in the incorporation of its neighbouring countries in the global economy, with Greek investments contributing to the growth and stabilisation of the Balkan economies.
In less than 10 years, direct Greek investments in SE Europe exceeded 10 billion dollars, he said, noting that Greece was the biggest foreign investor in Albania, Bulgaria and FYROM, and among the top three in Romania.
Alogoskoufis further said that the euro had promoted a more efficient economic environment, with the citizens and businesses in the 12 eurozone member countries seeing a substantial reduction in cost, which had been due to the many different currencies. In addition, cross-border trade and transactions were further facilitated (with the introduction of the common currency), and received a big boost after the introduction of the euro.
The euro possibly added up to half a percentage point to the annual growth rate of the eurozone, reinforcing domestic demand (consumption and investments), facilitating commerce, and creating economic efficiency and scale economies, he said, adding that most of the eurozone member countries also saw a substantial easing in the servicing of their public debt, which in turn allowed for channeling funds to infrastructure projects and the implementation of more social policies, the minister continued.
He said that implementation of the Stability and Growth Pact had substantially helped in achieving fiscal discipline, which he noted was necessary for buidling long-term confidence on the markets.
Alogoskoufis noted that despite the efficiency to which it had led, the increase in prices in many of the countries led many to believe that the physical introduction of the euro had led to inflationary pressures which would not have arisen under the previous currency regime. As a consequence, according to that line of reasoning, the euro led to a decrease in the competitiveness of at least some of the countries that adopted the euro currency.
He said that the European Central Bank cannot counterbalance the lack of political will to promote the necessary reforms. In addition, the effects of a common monetary policy are not as common as widely believed. On the one hand, the low interest rates in countries with high growth rates (such as Ireland and Greece) would spur inflationary pressures — particularly in commodities and land, while on the other hand the low interest rates could not be low enough to give impetus to countries with low growth rates.
He said that what could substantially improve the conditions in the eurozone was the implementation of reforms which, gradually, will lead to higher productivity levels and the gradual adoption of more homogenous fiscal policies.
Such homogeneity could eventually shield the EMU economies from external turbulence, such as the high energy prices, Alogoskoufis explained.
Finance Minister George Alogoskoufis presented Greek positions regarding the economy and the role the country can play in Southeast Europe during his meetings with United States congressmen here on Friday.
Alogoskoufis met with Senator Paul Sarbanes and Representative Michael Oxley, as well as with officials of the International Monetary Fund (IMF) and the World Bank.
He also met with representatives of the Hellenic American Heritage Council which is active in developing commercial ties between Greece and the US.
Later in the day, the minister met with the Executive Board of the Hellenic-American Institute and the World Bank’s General Manager. He also gave an interview on US news network CNN.
ON OLYMPIC AIRLINES
The government will try to see through the privatisation of Olympic Airlines, albeit finding a buyer has become more difficult after the European Commission’s recent ruling that the state carrier received illegal state aid, Finance Minister George Alogoskoufis told state TV ERT on Friday.
If privatisation efforts fall through, then the government will move on to plan B, which the Transport Ministry is currently working on in cooperation with the Privatisation Committee, he said.
“We are at a very sensitive stage right now. I don’t think we can say anything more at this time,” he added.
Alogoskoufis made his comments from the US capital after meeting with members of US Congress.