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Bank of Greece governor predicts GDP growth over 6% in 2021

Bank of Greece governor Yannis Stournaras appeared even more optimistic about the future of the Greek economy than the government in an interview with Politico on Tuesday. Stournaras estimated that GDP growth in 2021 will exceed 6 percent.

In fact, he predicted that the country’s GDP at the end of the year will be bigger than it had been before the outbreak of the pandemic. He estimated that Greece will maintain high growth rates of about 3.5 percent for the next 10 years.

As a result of the above, he estimated that the ratio of Public Debt to GDP will fall to 187 percent in 2022, from the current levels of 200 percent.

By 2019 he said that Greece had managed to reduce the Public Debt to the level of 180 percent of GDP and would have managed to attain investment grade if the pandemic had not broken out.

On the issue of Greek bonds, the BoG governor estimated that the European Central Bank (which according to the report holds 30 billion euro in Greek bonds out of a total of 4.4 trillion euros it has acquired through the various programmes it implements) will continue the purchase of Greek bonds even after the end of the pandemic programme – PEPP. According to Stournaras, the whole issue is not about whether Greece will be able to service its public debt, but mainly concerns the transmission of the ECB’s monetary policy and the efforts of the Central Bank in Frankfurt to keep borrowing costs for states at low levels.

PS Also Greek ministers are enthusiastic on the economic situation and speak of “spectacular jump” – In contrast, some mean Greeks dare ask them for the coordinates of the area where this jump is taking place.

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One comment

  1. Like all governments around the world the governor is only quoting the debt that is actually on the government’s balance sheet today. Nothing is ever said about unfunded commitments and they are usually much larger than the current debt.

    As far as being able to service the debt that only stretches as far as the maturity of the debt. The sentiment on interest rates can change overnight. Governments never actually repay debt in the normal sense of the word, they simply take out new debt to pay the person owed the original debt when it reaches maturity. If bond yields go higher for any reason, e.g. the value of bonds fall, the interest rate on the new debt will be much higher and the ability to service it becomes much worse. Worldwide bonds are massively overvalued and must revert to the mean at some point.

    Watch what happens to yields when the central banks stop buying. They are keeping the bond value high by printing money to buy the new bonds. If they keep printing money it must cause inflation. If they stop printing money bond prices must fall and yields rise. I see no way out of the trap that central banks have created in order to prevent normal market fluctuations.