Although crushing austerity measures have hurt workers, pensioners and the poor across the board and Greece is struggling to get out from under a mountain of $430 billion in debt, the Bank of Greece nonetheless expects the economy will begin to recover by the end of 2013 or early the following year.
The bank said that would happen despite an average decline in salaries of 16 percent since 2011 and said that a return to competitiveness hinged on whether the country could avoid being forced out of the Eurozone as it continues to rely on welfare aid from international lenders. It said the government must also find a way to improve development and growth instead of relying on loans.
According to the report that Bank of Greece Governor Giorgos Provopoulos submitted on Monday to Dec. 3, the five-year-long recession next year will enter a sixth year and range between 4 and 4.5 percent, before the economy starts growing again in 2014, in line with the estimates in the recently voted state budget. Unemployment will reach even higher levels as it is set to exceed 26 percent in the next two years.
Because of deep cuts in the minimum wage, phasing out of collective bargaining and eliminating workers’ rights, the bank said Greece is becoming more competitive and profitable for businesses by offering lower labor costs. It estimates that 72 percent of the competitiveness lost from 2001-09 has been recovered between 2010-12, with 100 percent to be recovered next year.
This is mostly due to cuts to salaries, which have been in constant decline since 2010. By the end of this year salaries will have dropped by 8.1 percent on annual basis and are seen shrinking by the same rate next year, too, while minimum wages are expected to have dropped by an estimated 19.6 percent on average this year.
The bank cautioned, however, that the improvement in cost competitiveness must be supported by the strengthening of productivity via the promotion of structural reforms, which have been long delayed. A $17.45 billion spending cut and tax hike plan pushed through Parliament by Prime Minister Antonis Samaras made scant notice of growth.
Provopoulos said he believes that even though there have been some serious delays and uncertainties, the business environment in Greece has improved. He said the central aim of the new strategy is the promotion of structural reforms, but added that there must be a reduction in taxes, which have especially hurt workers, pensioners and the poor.
It goes on to add that the main targets for the country’s economy to rebound include:
- Recapitalizing banks
- Improving public sector efficiency
- A reformed tax system with lower taxes
- Acceleration of privatizations
- Better use of European Union subsidies
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