28 Μαρτίου 2019

Yannis Stournaras: The pre-conditions for sustainable growth

Addressing the "87th International Atlantic Economic Conference" in Athens on Thursday, Bank of Greece Governor Yannis Stournaras set 10 conditions for the Greek economy to achieve higher growth rates in the future. The central banker said:

"To address the challenges facing the Greek economy, speed up the recovery and strengthen investor confidence in Greece’s long-term economic prospects, the following ten policy actions should be considered:

1st Reducing the high stock of NPLs with the timely implementation of the two systemic solutions proposed by the Bank of Greece and the Ministry of Finance, which will supplement the banks’ own efforts.

2nd Reducing the primary surplus target for the period up to 2022 to 2.0% of GDP compared with the current target of 3.5%.

3rd Changing the fiscal policy mix, with an emphasis on lower tax rates and higher public investment, so as to boost the growth impact of fiscal policy.

4rd Implementing more structural reforms (including those agreed as part of the enhanced post-programme surveillance) to safeguard the fiscal achievements made so far and to enhance policy credibility. This would have a positive impact on Greece’s attempt to return to international financial markets on a sustainable basis.

5th Broadening the scope for public-private cooperation, in line with best international practices, for example, by strengthening public-private partnerships in investment, social security and healthcare.

6th Improving the quality and safeguarding the independence of public institutions. Independent and properly functioning institutions enhance long-term economic growth. In this context, a speedier delivery of justice, legal certainty and a clear and stable legal framework are essential conditions for strengthening the public sense of fairness and justice, for improving the investment climate and for accelerating economic growth.

7th Implementing a more focused policy for attracting foreign direct investment (FDI), by reducing the tax burden, improving public administration efficiency and removing major disincentives, such as bureaucracy, legislative and regulatory ambiguity, especially land use, delays in litigation, and remaining restrictions on capital movements. FDI is crucial as domestic savings are insufficient to cover the investment needs of the Greek economy. In addition to helping to reduce the investment gap, FDI promotes closer trade links with countries and companies with state-of-the-art technologies and facilitates participation in global value chains. This would increase extroversion and improve both the quantity and quality of Greek exports. This, in turn, would accelerate a reallocation of production resources towards exports and increase Greece’s long-term potential output.

8th Maintaining labour market flexibility and supporting the long-term unemployed, so as to avoid losing the gains in competitiveness and employment growth from the painstaking reform effort of the period 2010-2017.

9th Enhancing the so-called ‘knowledge triangle’, i.e. education, research and innovation, and the digitalisation of the economy by adopting policies and reforms that support research, technology diffusion, entrepreneurship and foster closer ties between businesses, research centres and universities. This would contribute to further increasing R&D spending and the ICT sector’s share in GDP.

However, exploitation of ICT calls for continuous development and training in new technologies, the adoption of innovative products and the enhancement of start-up entrepreneurship. Overall, serious efforts are required to foster innovation and R&D spending in order to boost Greece’s digital transformation.

10th Targeting policy efforts on providing incentives for cluster development, so as to help SMEs overcome their small size and exploit economies of scale, given the very significant role of SMEs in the Greek economy. Incentives should also be provided to improve the technology and knowledge content of their output, while emphasis should be placed on facilitating their access to foreign markets through export promotion strategies and the establishment of common distribution channels. It is well documented that financial development boosts the growth of small firms more than it does large firms and hence fosters aggregate economic growth (see Beck et al., 2004). Furthermore, policy action is needed to provide funding via the banking sector, the capital markets as well as through various EU funds, while financial technology (FinTech) could offer alternative finance options to SMEs.

The Bank of Greece has an active interest in FinTech and has, in fact, recently set up a FinTech Innovation Hub aiming to offer support and information to firms and individuals who are introducing or considering the adoption of innovative, technology-driven financial products, services or business models".

Thursday, March 28, 2019

Source: bankofgreece.gr






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