The Bank of Greece released its Monetary Policy interim report 2015. Although the detailed analysis is 159 pages long, the essence can be summarized in one sentence: Greece must apply the Agreement with the creditors in full detail.
Stressing that “recapitalisation of the four significant Greek banks has been successfully completed” the BoG express hope that a further agreement with creditors will “ensure a return to economic growth” that is predicted to start arriving to Greece in the “second half of 2016.”
But growth is not possible without “political stability and strong pro-European consensus” and implementation of the Program in full detail.”
“The present Interim Report on Monetary Policy is submitted at a time when negotiations between the government and our partners are going smoothly and the recapitalisation of the four significant Greek banks has been successfully completed. These factors support reasonable expectations that the agreement will be a success, ensuring a return to economic growth. Such an outcome, however, presupposes a climate of political stability and consensus, which will enable the unobstructed implementation of the agreement, thereby opening the way for discussions on further debt relief.”[…]
“All four significant Greek banks managed to raise sufficient private funds to cover the gap identified under the baseline scenario of the stress test, with two of them fully covering their capital needs exclusively through private funds. At present, the negotiations for the first review of the programme are ongoing.”
“It now appears safe to presume that the present government has opted for a path of cooperation and mutual understanding over one of confrontation with our partners. This fundamental choice is also backed by the overwhelming majority of the opposition, which remains committed to Greece’s European orientation. Therefore, a strong pro-European consensus base is effectively in place, which can reasonably be expected to guarantee the consistent implementation of the agreement and foster political stability as an essential condition for the programme to succeed, especially given that most of the adjustment has already been completed in the period since 2010 and that only little ground remains to be covered.”
the BoG says further that “further fiscal adjustment should not rely on tax or contribution rate increases that would undermine competitiveness, growth and employment,” and advises further cuts on “non-productive government spending including of the broader public sector, reducing tax expenditure, eliminating any remaining exceptions from general tax and social security provisions, as well as on a privatisation programme, aimed in particular at maximising the value of idle State-owned property.
Action to rein in non-productive spending could involve overhauling the structures of the broader public sector and reassessing the need for maintaining the hundreds of entities, reallocating human resources to pivotal functions (for instance, tax auditors) or understaffed areas (for instance, guards at museums), thereby increasing total productivity across the broader public sector. Furthermore, idle property belonging to the State or to legal entities in public law still holds largely unexploited potential, which, if tapped into, could help resolve many economic problems.”
The BoG urges for “reforms and privatizations” and notes that the banks should take up the challenge and ” the opportunity, after their successful recapitalisation, of managing their non-performing loans (NPLs) and reducing them to the levels prevailing in the rest of the euro area. A return to normality in the financial sector, too, would encourage the return of deposits and thus enable the lifting of capital controls.”
Investment, boosting unemployment and public debt sustainability would improve sentiment, with multiple positive effects: “new investment, inflow of foreign investment, return of deposits to the banking system.”
The capital controls – at least during the initial phase – had an immediate and visible impact on domestic and international transactions, which is easing up as the controls are gradually relaxed. The distortions caused to the capital and product and services markets have had far-reaching repercussions that cannot be accurately assessed, although it goes beyond saying that they have continued to weigh on economic activity in the second half of 2015. On the other hand of course, the capital controls halted the capital outflows and – as a collateral benefit – encouraged the use of electronic money.”
“Despite growth falling back into slightly negative territory over 2015, a recovery in the second half of 2016 is within reach.”
The Bog summarizes its long press release on the MP-IR2015 as:
“In conclusion, a return to normality and sustainable growth hinges upon two essential conditions: First, the government must implement the Agreement negotiated with our partners and take the necessary initiatives, beyond the ones already envisaged in the Agreement, to improve the economic and investment climate, building on the recent positive response of private investors to the recapitalisation of the significant Greek banks.
Second, Greek Parliament, after steadily supporting the adjustment effort and the rescue of the Greek economy since 2010, can reasonably be expected to pass all the legislation implementing the Agreement, especially given that most of the adjustment has been accomplished since 2010 and that only little ground remains to be covered.
The Bank of Greece has, on numerous occasions in the past, stressed the need for political and social consensus in tackling the major problems facing the country. Now that this consensus has been built, which is by all means an achievement, it must not be allowed to disintegrate. On the contrary, it must be preserved in order to safeguard political stability, to support a definitive exit from the crisis and to pave the way to growth.”
I don’t know where the Bank of Greece sees “political consensus” when the whole opposition down-votes each and every bill the SYRIZA-ANEL government pushes through the Parliament. Bills that are tailor-cut and seamed by the creditors. Unless, the BoG is stuck back in July and August when so0called pro-Europeans New Democracy, PASOK and To Potami were urging Tsipras to sign the agreement with the creditors but now when it comes to voting in the Parliament the three claim that they were ‘misunderstood’ by the media & the public.
But it is the Bank of Greece and the Bank of Greece knows better than a blogger, who didn’t even notice that recapitalization for Piraeus and National Bank have also concluded successfully.
PS I suppose, the report authors will enjoy a lovely weekend and Christmas knowing they have done their duty and handed out their precious advises to the next generations.
On second thought, I could have spared all these BoG report details and copy paste only the political consensus part. Apologies.