Bank of Greece Governor George Provopoulos, presenting an interim monetary policy program report to Parliament on Dec. 17, forecast a recovery but warned it could be undermined by political in-fighting and if the government raises taxes again on the most vulnerable instead of broadening the tax base and going after tax cheats who owe $70 billion.
The recovery, it said, would be supported by a gradual stabilization in consumer spending, growth in exports and a small increase in business investment. Better utilization of European Union funds and a stepped up privatization program would also help.
“The macroeconomic data support the forecast for a recovery in 2014,” the report said, adding that 2014 “will be the first year to post positive change in gross domestic product after six years of recession.”
The central bank says Greece’s government must continue with the country’s reform agenda, especially in overhauling public administration like the health care sector, tax services and the law courts.
While Greek Prime Minister Antonis Samaras says the economy will begin to get back on its feet next year – the seventh year of a deep recession – Provopoulos warned that political uncertainty could yet derail a recovery program he said “is still fragile.”
Provopoulos urged the government to push ahead with structural reforms aimed at boosting the economy and not to impose any more taxes to raise revenues, which would violate Samaras’ vow to steer clear of any more austerity measures.
“It is a national necessity to safeguard the achievements made so far and at such a great cost, to avert backsliding and to cover the distance that remains for the country’s growth potential to be strengthened,” Provopoulos said.
In the report, the Bank of Greece forecasts that the economy will emerge from a six-year recession and begin to recover next year, trimming its recession forecast for 2013 to 4.0 percent from a previous -4.6 percent. It also projects that the country will attain a primary budget surplus this year, excluding debt servicing costs, expecting the current account balance to hit a surplus.
“Signs that the economy is on a stabilization path have strengthened and there are grounds to project that next year the recession will end and the economy will start to recover,” the report said.
But Provopoulos said Greece’s infamously fractured political landscape, in which the major opposition Coalition of the Radical Left (SYRIZA) and other critics of austerity imposed by the government on orders of international lenders keep sniping at it.
Provopoulos urged the country’s political forces to seek common ground, especially in light of twin elections in spring for European Parliament and local and regional authorities. SYRIZA leader Alexis Tsipras though he expects the coalition of Samaras’ New Democracy Conservatives and his partner the PASOK Socialists to be repudiated and for the Leftists to take power.
Tspiras said he would either modify the terms of Greece’s $325 billion bailout packages from Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) or scrap it and not repay the loans. He hasn’t offered any alternative to keep the economy from collapsing.
The situation, Provopoulos said, “calls for consensus between social and political forces on a national policy for exiting the crisis and returning to growth.”
He added that that the upcoming elections represent “a justifiable cause for concern that political tensions will rise and polarization become more acute, making a congruence of opinions, which is necessary for a national policy, even harder to attain.”
“Economic policy needs to remain focused on structural reforms,” Provopoulos added.
While the Troika and the government still haven’t come to terms over the size of a hole in the 2014 budget, said to be between 1.5-2.9 billion euros, Provopoulos said the only way for Greece to meet fiscal targets is to raise revenues through measures such as broadening the tax base and going after tax cheats instead of piling more taxes on the same people who’ve been left to pay for the crisis: workers, pensioners and the poor.
He said the government, which has been dragging its feet, should slice the public sector and to abolish or merge state services to further reduce costs.
Provopoulos further expressed the need for better oversight of the country’s social security funds, a speedier justice system and an improved tax collection mechanism, reforms the Troika has also urged and which the government has largely failed to implement.