Dear President Lagarde,
Dear Governor Stournaras,
Dear Members of the Governing Council,
Ladies and gentlemen,
It is a great pleasure to welcome you, the Governing Council of the ECB, to Athens. The last time the ECB Council met in this ancient, glorious city was in May 2008. A lot has happened since. Over the previous decade, our monetary union went through a major, perhaps existential crisis.
Yet, despite severe turbulence and setbacks, we overcame unprecedented challenges and, in many respects, emerged stronger: At the union level, previously missing important safety nets were put in place, including the ESM and the Banking Union, the latter agreed during the Greek Presidency of 2014.
National economies, particularly those most impacted by the crisis, implemented far-reaching fiscal and structural reforms, increasing their competitiveness and improving public finances.
I will speak about Greece in a moment, but on the whole, those economies most tested by markets over the previous decade, are now much stronger and resilient, as the same markets attest. And for the record, I wish to acknowledge the ECB’s pivotal role in overcoming those challenges.
The pledge to do “whatever it takes to preserve the euro” provided a crucial anchor stabilising market expectations, putting in place the necessary platform for recovery to begin, and leveraging the beneficial effects of ECB liquidity provision programmes.
Ladies and gentlemen,
The last four years have seen their own set of extraordinary events, including the pandemic, Russia’s illegal war of aggression against Ukraine and elevated climate-related risks, as manifested by natural disasters of increasing frequency and severity, including those we experienced this summer in Greece. Europe also faces a productivity challenge which actually predated the pandemic which, if unaddressed, may have far-reaching implications for long-term growth and employment, our geopolitical standing and the euro’s international role.
Our collective response to the pandemic and the energy crisis triggered by Russia’s aggression, I believe, has been very successful in protecting the production fabric of our economies and supporting households. Again, the ECB’s contribution to this success has been decisive, including its support to Greece, for which I want to express my appreciation. At the same time, the introduction of NextGenerationEU, and the Recovery and Resilience Facility (RRF) in particular was a true milestone for the EU, and goes a long way towards addressing the needs of the twin transition to a green and digital economy.
But, having said that, there is no room for complacency. The fiscal and inflation fallout of the pandemic and the energy crisis respectively are substantial, warranting the shift towards monetary and fiscal normalisation currently under way. In relation to this, Greece fully supports the institutional mandate of the ECB to deliver price stability. Our fiscal policy, involving primary surpluses as of last year, is very well-aligned with this objective. Downside risks for the global and European economy of course continue to exist – just witness what is currently happening in our neighborhood, in the Middle East – and, despite significant RRF funding for the green and digital transitions, we still have significant financing gap for investments in these, and other areas.
At the union level, I believe this calls for action on two fronts:
First, protect public investment, preserve sustainable growth alongside fiscal adjustment, and ensure the financing of new needs in areas such as climate adaptation and migration, which is a big political challenge for all of us. Forthcoming decisions on open files, such as the European Governance Review and the revision of the Multiyear Financial Framework 2021-2027 must deliver on these objectives. We will have our first discussion on the revision of the MFF tomorrow and I don’t expect it to yield significant results. We should also revisit, in due course, the introduction of a central fiscal capacity, to enhance insurance against business cycle excessive fluctuations, but also to finance European public goods. We have set the bar very high in terms of what we want to achieve as Europe. We need the financial tools to actually get there.
Second, crowd-in private investment. This calls for the completion of the Banking Union, through the introduction of its third pillar (EDIS) and endorsement of the Commission’s proposal on CMDI. As well as deepening the Capital Markets Union, allowing European firms, including small and medium size (SMEs) ones, to mobilise European and international savings, to increase growth, employment and inclusive prosperity.
Achieving these goals of course requires growth-friendly and sustainable national policies. Some of you were present here in Athens for that last Council’s meeting that I referred to earlier. A lot has happened since. Today I am delighted, indeed proud, to welcome you and all colleagues here today, to a country that is on a very different path compared to those times. It’s a country in the process of what I believe is a fundamental economic transformation. Greece is now one of the fastest growing economies in Europe, with increasing employment, falling inequalities and improving public finances.
In recent years we’ve seen a major increase in our economy’s openness and extroversion. It is a factor that is crucial for a small open economy in order for it to prosper within a monetary union. Not many people know that Greek exports have increased from roughly one fifth of GDP at the beginning of the crisis to about half of GDP today, a level similar to major exporting eurozone economies. And our exports base is well-diversified, it’s evenly split between goods and services, with significant diversification among various goods categories. The Greek economy is not a one-trick pony, dependent just on tourism.
Against past advice from some quarters, the transformation of Greece’s external sector has been taking place, thank God, without a nominal devaluation. It is the result of very deep structural reforms, which took place over many years, very painful reforms, very difficult political reforms which addressed Greece’s supply side challenges, as well as the institutional attractiveness of being a member of the eurozone. A non-exhaustive list of reforms we have implemented over the past four years include significantly digitising the Greek state, but also supporting the digitisation of the private sector, significant reform in labour markets, supporting the green transition -Greece today is one of the leaders in the world in terms of its production of energy from renewable sources, education reform, a fully-funded supplementary pension system, returning the state electricity company to financial health and make it a protagonist in the broader region, simplifying licensing procedures, reducing red tape and continuing with privatisations.
Furthermore, and aiming to improve incentives for firms and labour, we prioritised alleviating the excessive tax burden for labour and capital, not consumption, while observing fiscal discipline. We have been able to reduce the tax burden in a reasonable manner, while maintaining and achieving our fiscal targets. Social security contributions were cut, as well as the corporate income tax rate. Fiscal measures of support to counteract the shocks of the covid, energy and the cost-of-living crises were both targeted and temporary, but they were effective in terms of protecting jobs and supporting the more vulnerable. They prevented scaring and supported those in most vulnerable, while maintaining well-anchored expectations for debt sustainability.
These reforms have considerably improved Greece’s business environment. They have attracted record inward Foreign Direct Investment in 2021, in 2022, again in 2023. They are making a substantial contribution to increasing the share of investment as a percentage of GDP. Bringing in foreign capital remains a top priority for this government. It is crucial for covering the narrowing but still existing investment gap of the previous years.
We are now turning this disadvantage into an opportunity. The high expected profitability Greece displays as an economy converging with the euro area average, combined with the monetary predictability offered by the ECB’s unrivalled policy credibility, and -what I think is very important- the high degree of political stability Greece now enjoys, render our economy a very attractive destination for domestic and foreign investors.
If you walked through Athens today, you were able to pick up the vibe of a booming city, attracting investors across the board. This, in tandem with significant inflows Greece receives in the context of the RRF and other European financial instruments, has given us the foundation I believe to do something exceptional, and that is to essentially repeat the economic miracle Greece achieved in the 1950s and 1960s. And materialize what is my main objective: to increase living standards through higher real wages financed by growth, and not by debt.
My government has been tasked with taking full advantage of this historic opportunity. And we will definitely deliver on this task.
In this effort, of course the financial sector plays a key role. I remember in 2019, when we came to power, the first question that I always received from foreign investors was: “What are you going to do with your banks?” The Greek banking system was saddled with legacy NPEs that amounted to roughly half of its loan book. Cleaning up the banks was a top priority to regain creditworthiness but also to jump-start economic growth through financing increased investment. Using the highly successful Hercules Asset Protection Scheme, we have been able to reduce Greece’s NPE ratio to single digit levels, while capital increases by systemic banks further strengthened their position.
Today critics actually point to Greek bank profitability. Rest assured, we will not squander our hard-earned credibility by listening to the siren voices of populism. Looking ahead, the Hellenic Financial Stability Fund will be disposing of its stake in the four systemic banks by the end of 2025.
Eurobank is already the first bank to return to full private ownership. Another important step to this objective came earlier this week with Italy’s Unicredit offer for the HFSF stake in Alpha Bank. We invite other European financial institutions to take a good look at Greek banks. It was a very important milestone for us to have a major European bank express an interest for a Greek bank. It seems as if things have indeed come full-circle.
In addition to restoring the health of the banking sector, Greece is one of the first countries to adopt the EU’s single insolvency framework. Creating for the first time a streamlined restructuring and bankruptcy process, a prerequisite for deepening capital markets and maximising the potential of the banking union.
The advantages of this new framework are also increasingly clear in data relating to legacy private debt, offering further confirmation of the transformation of the Greek economy, not only at a macro but also at a micro level.
Our economy’s positive outlook is strongly underpinned by fast improving public finances. We have already returned to primary surpluses, our headline budget deficit in 2023 and 2024 is projected to be one of the smallest of any country in the developed world.
Although our debt-to-GDP ratio remains high, over the last couple of years this has dropped by more than any other country in the world, and is projected to drop below its 2012 levels this year. We are committed to fiscal discipline and the benefit that this accrues to our citizens and firms.
The plunge in the debt-to-GDP ratios shows that the denominator matters as much as the numerator. Growth has accelerated in recent years, with Greece’s GDP having grown nearly 5 percentage points more than the euro area average since 2019.This, I believe, is a fact that should not go unnoticed when we will make our decisions on the new European fiscal rules.
Fiscal discipline and structural reform performance have been rewarded with full access to sovereign bond markets – I am sure to the relief of Christine – at narrowing spreads and the regaining of investment grade, the most recent one being S&P Global last Friday.
This opens up the road for further improvement in financial conditions: A study by the Bank of Greece finds that half the benefit of achieving investment grade accrues after the upgrade itself. I would like at this point to thank the economic team, the previous Minister of Finance Christos Staikouras, the Minister of Finance Kostis Hatzidakis, their team. This has been a team effort. We have put a lot of work to be able to put ourselves in this position and we will continue down this path, because the job of reforming the economy never ends.
A lot of hard work lies ahead. Looking into the remainder of my second term as Prime Minister -we still have almost four years ahead of us with a strong mandate and an absolute majority in parliament- , you will see a lot more work toward fighting tax evasion using big data analytics, you will see an emphasis on justice reform -which we know is still a thorny issue that we need to address-, we need to expand our labour supply and participation, we need to make capital markets reform.
To conclude, politically Greece has a positive message for Europe too. You are bankers, and we are politicians. And if you wanted proof that centrist politicians can and do win elections against populism then look no further than this country. For two consecutive terms the Greek people have chosen the path of stability and reform over the path of chaos and populism.
Ladies and gentlemen,
Let me close by saying that my country spent the previous decade trying to stay in the euro. It will spend this decade converging to Europe. Staying in the euro was not easy, but Greece is undoubtedly a story of success. Today, in this wonderful setting, it is indeed a day to reflect on the past, it is a day to rejoice on what has been achieved together, but also to look forward to the future. Here’s to showcasing Greece and Europe’s further progress when the next ECB meeting is next held in this extraordinary city.
Thank you all for being here.