Shaping the Future: Economic Reforms, Competitiveness and Growth in Greece
PROFESSOR GEORGE MERGOSSecretary General, Ministry of Finance
14th Annual Capital Link Forum- Positioning for the Rebound- Greece
New York City, 29th November 2012
Structure of the presentation
1. The results of the adjustment process2. The reform program: objectives and
priorities3. The impact on competitiveness4. A strategy for growth
2
1. The adjustment results
An enormous fiscal adjustment has been achieved
General government deficit shrank by 6.5 p.p of GDPGeneral government primary deficit shrank by 8.2 p.p of GDP
4Source: IMF, 3/2012
-15.8
-10.8-9.3
-7.3
-4.60
-10.6
-5.0
-2.4-1.0
1.8
-18.0
-16.0
-14.0
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.02009 2010 2011 2012 2013
General Government Fiscal Accounts 2009-2013 (% of GDP)
General Government Balance General Government Primary Balance
Greece has achieved the fastest fiscal consolidation
5
Greece achieved an annual rate of fiscal consolidation of 4.1 percentage points of GDP on average, the highest in the developed world over the last few decades
Source: AMECO
* Fiscal consolidation episodes as defined in OECD Economic Outlook 81, May 2007
4.10
3.55
2.95 2.85
2.13 2.06 1.84 1.80 1.801.60
1.56 1.371.03
0.77 0.75 0.66 0.60
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
Fastest fiscal consolidation* Average annual primary balance improvement
(percentage points of GDP per year)
Strong macroeconomic adjustment with about 25% cumulative decline in GDP since 2007
6
Fall on demand and disposable income... but close to achieving primary balance
7
Lowest Real Unit Labor Costs within EU-member states in 2012
8
75
80
85
90
95
100
105
110
115
Real Unit Labor Costs ‐ 2012 levels (Total Economy: 2005=1000)
But monthly minimum wages still high
9
0.00
200.00
400.00
600.00
800.00
1,000.00
1,200.00
1,400.00
1,600.00
Monthly minimum wages in PPS (bi‐annual data for S2_2012)
2. The reform program
10
11
Major reform program: objectives and priorities
The objective of the reform program: to address fiscal imbalances,
achieve structural change of the economy and
restore competitiveness
Reform priorities:Macroeconomic stability and fiscal sustainability
Lean, efficient and responsive public sector
Efficient product, service and labour markets
Better business environment
Efforts for fiscal sustainability continue
Rationalization and control of public expenditure Strong reduction in wages Automatic control mechanism for SOEs and LGs Reduction in operational expenditure
Tax reform and tax administration to broaden the tax base Repeal of the Code of Books and Records A new Tax Code will be voted before the end of the year Merger and centralization of tax offices in process Clearance of the backlog of tax cases
Achieving a sustainable social security system Strong reduction in pensions and social benefits Automatic control mechanism for expenditures on health Separate pension from health to control cost, unify collection of tax
and social security contributions, address swiftly problems of fraud 12
Public sector reforms proceed with significant efficiencies despite strong resistance
A reduction of public employment by 150,000 (about 20%) between end 2010 and end-2015 is under way
A functional review of all Ministries is completed soon
State Owned Enterprises and Local Governments and other entities of the general government are under a fiscal compact
An e-procurement in the public sector is expected to be ready by the end of the year
Major reforms take place in the organization of the health sector
A major introduction of ICT technologies in the public sector is planned and is to start being implemented soon under the coordination of the Ministry of Public Administration
13
Reforms make the labor market more flexible and efficient
Reforms making the labor market more flexible in working arrangements & wage bargaining
Part-time working arrangements are allowed, possibility to opt for short-term (intermittent) is allowed; working on daily, weekly or other basis
Sub-minimum wages established to facilitate youth employment
Wage floors are adjusted downwards
22% reduction in the minimum wage
32% reduction in minimum wage for employees under 25
A new framework for the minimum wage has been established
20% cut in overtime premia
14
Reforms are making product and service markets more price flexible
Retail market reforms Fuel market reforms Transport sector Regulated professions
Companies of temporary employment Stevedores for land operations and ports Kiosks and cantinas in public buildings Accountants and tax consultants Tourist offices and tourist guides Customs brokers and Real estate brokers
15
The business environment is improving
The administrative burden on firms is contained Public sector reform
Product and service market reforms
New Export Law reduces the red-tape in export activity
Doing business gets simpler: “One-stop-shop" - targeting at setting up a business in 1 day
General Commercial Registry (GEMI) established
Points of Single Contact (PSC) provide information on all procedures
Licensing becomes simpler (environments, etc)
Promoting investment is encouraged Fast track for FDi
New Investment Law
16
Privatization stimulates investment
17
The Hellenic Republic Asset Development Fund (HRADF), established in July 2011 Aims to maximize value from development and/or sale of assets
Privatization is taking momentum Privatization of IBC has been concluded with more under way
Launching of landmark asset sales: OPAP, DEPA/DESFA, HELPE, EYDAP, EYATH,
tenders for the ports, airports and Egnatia Odos motorway
Privatization, efficiency and attraction of FDI Privatization is not a fiscal measure…
….it is an instrument for increasing efficiency,
….attracting investment and FDI, promoting growth,
….while redeeming debt
3. Competitiveness
Current Account Deficit is declining Current Account Deficit fell from 14.9% GDP in 2008 to 9.8% GDP in 2011Current Account Deficit (excl. Oil and Gen. Govnt Net Interest) in 2011 was around 0% GDP, down from 6% GDP in 2008
19 Source: Bank of Greece
-6.5
-5.8
-7.6
-11.4
-14.6 -14.9
-11.1
-10.1
-9.8
-4.2
-3.3
-4.2
-7.2
-10.5
-9.7
-7.9
-6.3
-4.6
-2.0
-0.6-1.2
-4.1
-7.1
-6.0
-4.0
-2.3
0.0
-16
-14
-12
-10
-8
-6
-4
-2
0
2003 2004 2005 2006 2007 2008 2009 2010 2011
Current Account Current Account (excl. Oil) Current Account (excl. Oil & GG Net Interest)
% GDP
Substantial gains in domestic competitiveness in terms of Real Unit Labor Cost.
20
Source: AMECO (23/11/2012)
75
85
95
105
115
2006 2007 2008 2009 2010 2011 2012e 2013f 2014f
Real Unit Labor Costs: Total Economy (2005=100)
Greece
Eurozone
Ireland
Portugal
Spain
forecasts
Competitiveness is regained in terms of Real Effective Exchange Rate
21
Despite deep recession ……signs of recovery are already present
22
Source: OECD.StatExtracts
Formation of positive expectations to lead to actual results in the real economy
95
96
97
98
99
100
101
102
103
104
Graph 1: Composite Leading Indicator
Greece
Germany
Italy
Euro area (17 countries)
OECD - Europe
Business confidence is increasing
Negative expectations in major industrialized EMU member-states
Negative expectations within developed EU countries
Expectations regarding Greece are positive
Domestic trend expected to assist consumer’s confidence
23
Source: OECD.StatExtracts
92
94
96
98
100
102
104
Nov
-201
0Ja
n-20
11M
ar-2
011
May
-201
1Ju
l-201
1S
ep-2
011
Nov
-201
1Ja
n-20
12M
ar-2
012
May
-201
2Ju
l-201
2S
ep-2
012
Graph 2: OECD standardised Business Confidence Index
Greece
Germany
Italy
Euro area (17countries)OECD - Europe
Competitiveness is restored in terms of costs
• Consumers face lower prices • Producers face lower costs
24Source: AMECO
99
100
101
102
103
104
105
106
107
108
109
Q1_
09Q
2_09
Q3_
09Q
4_09
Q1_
10Q
2_10
Q3_
10Q
4_10
Q1_
11Q
2_11
Q3_
11Q
4_11
Q1_
12Q
2_12
Graph 2: Quarterly REER based on GDP deflator
EA17
EU27
IC36
• Greece’s real effective exchange rates to stress that Greece regains its relativecompetitiveness, thus converging towards EMU (EA17=100); EU (EU27=100); 36 majorIndustrialized Countries (IC36=100)
Greek products become more competitive• Greek products to become competitive
in international markets • Boost in exports• Current account balance improvement
• Fall on labor costs to be one of the major factors to currently assist economy’s relative competitiveness
25
Source: AMECO
100
102
104
106
108
110
112
Q1_
09Q
2_09
Q3_
09Q
4_09
Q1_
10Q
2_10
Q3_
10Q
4_10
Q1_
11Q
2_11
Q3_
11Q
4_11
Q1_
12Q
2_12
Graph 3: Quarterly REER based on export prices of goods and services
EA17
EU27
IC36
80
85
90
95
100
105
110
Q1_
09Q
2_09
Q3_
09Q
4_09
Q1_
10Q
2_10
Q3_
10Q
4_10
Q1_
11Q
2_11
Q3_
11Q
4_11
Q1_
12Q
2_12
Graph 4: Quarterly REER, based on ULC in total economy
EA17
EU27
IC36
• Efforts in promoting an environment that assists start-ups have paid-off
• Ease-of-doing-business increased, as bureaucracy regarding start-ups is restrained
• Greece’s relative position to other competing economies is advanced
26
0
5
10
15
20
25
30
35
40
45
50
2007 2008 2009 2010 2011
Graph 1: Time required to start a business (days)
Greece Bulgaria Germany Spain
Business environment is improving
Source: OECD.StatExtracts
27
2032 1980 1937 19241774 1774 1793 1711 1684 1662 1692 1625 1644 1601 1599 1573 1577 1543 1527 1475 1427 1411 1379
562 445 435 430 507756
547 538813
595798 778 856
1308
853 844 981 1101882 957
1351
916 992
0
500
1000
1500
2000
2500
Graph 1: Annual total hours worked per person and productivity per hour (2011)
Average hours worked per person Productivity per hour (USA = 1000)
Source: OECD.StatExtracts
There is high potential for increasing efficiency and for productivity gains
• Greek labor workforce is the hardest working in Europe
4. A growth strategy
28
Economic Growth Strategy
Outward orientation is a must -Internal demand is dwindling and large primary surpluses are absolutely necessary
A market based model that will enhance strengths and restrain existing weaknesses
Competitiveness should be enhanced – market efficiency
Institutions – reform of the public sector, education, justice
29
Economic Growth
Enhance Competitiveness
Advance Economic Reforms
Policy agenda for economic growth
30
Economic Reforms
Product Market
EfficiencyLabor Market
Efficiency Innovation Business environment
Technology Gap
Confinement
Institutional reforms: Public administration, education & human capital,
efficient state, decentralization in operational & decision-making levels; judicial reform
Potential for knowledge and technology based economy exists
Strengths:Competitive advantages:
1. Quality of air-transport and fixed telecommunication infrastructures
2. Healthy workforce3. High percentage of students
entering tertiary education4. Quality of math and science
education5. Availability of scientists and
engineers6. Domestic market size7. Number of patents under the
Patent Co-operation Treaty
31
Source: The Global Competitiveness Report 2012-2013, World Economic Forum
The very large output gap, much larger than any other OECD country, offers a strong
growth potential
32
‐16
‐14
‐12
‐10
‐8
‐6
‐4
‐2
0
2
4
6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012e 2013f 2014f
Greece's Output Gap % of potential GDP (2005=100)
Greece
forecastsSource: AMECO (24/11/2012)
Huge potential for improving FDI economic impact
• Recent low FDI flows signify huge potential • Cross-country comparisons suggest the existence of great
capacity in forming an FDI-friendly economic environment
33Source: OECD.StatExtracts
Creating a healthy banking sector is underway
Recapitalisation needs are nearly solely sovereign related (PSI+ losses: c.€24bn for the systemic banks);
Before the PSI+ banks were adequately capitalised and managed.
The recapitalisation is not a “gift” to banks. Recapitalisationwill signify a return to normality and will provide liquidity for the economy
Banks will be given the opportunity to retain their independence if the participation by private investors exceeds 10%. The Hellenic Financial Stability Fund (HFSF) will provide the remaining recapitalisation amount.
The HFSF will act as a “temporary” investor, through instruments that can be redeemed if certain conditions apply.
In parallel, a significant consolidation and restructuring is taking place leading to the creation of healthy banking groups
Greece’s economic revival will depend upon:
Creation of a New Economic (market friendly) Paradigm through the: Completion of economic reforms Achievement of fiscal sustainability Existence of an efficient public administration Liberalized product, service and labour markets Creation of a friendly business environment that fosters growth Remaking of a healthy banking sector Attraction of FDI that provides links to the international economy,
End-result: An environment of healthy competition, increased efficiency, productivity and competitiveness, revival of economic growth, for the benefit of society as a whole
35
Thank you for your attention
36
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