Bank of Greece : Greece must strictly apply bailout plan: central bank
03/19/2012| 11:09am US/Eastern
Greece must strictly adhere to the reforms agreed with its international lenders to regain market confidence and help its economy recover, the country's central bank said in an annual monetary policy report on Monday.
Foot-dragging in applying measures required by its euro zone partners and the International Monetary Fund as part of a first bailout in 2010 meant Athens failed to meet targets, resulting in market doubts and corrective action.
Athens secured a new IMF-EU bailout package after agreeing to a series of painful economic reforms and spending cuts and completing a debt swap that imposed losses of as much as 74 percent on private bondholders.
But with a parliamentary election due by early May there are concerns the vote could shift attention away from the economic program. while the prospect of a new coalition government is not letting implementation worries subside.
"The most critical factor that will determine the success of the program is its strict implementation. There are many difficulties and problems that must be tackled, but in the final analysis its targets are attainable and the program can succeed," the central bank said in its report.
The Bank of Greece projected that falling unit labor costs, coupled with easing price pressures, will help Greece restore up to 75 percent of economic competitiveness lost after it joined the euro zone in 2001 up to 2009, when its debt crisis erupted.
The country's competitiveness gap is estimated at around 15-20 percent of GDP despite progress over the past two years, according to the IMF. The erosion of competitiveness, a result of wage increases above productivity, was reflected by a bloated current account deficit which is now shrinking.
The current account gap is projected to drop to 7 percent of GDP this year from 9.8 percent in 2011 and continue to improve in the following years, the central bank said.
Greece's low share of exports in output, averaging 14 percent of GDP from 2007-11 excluding shipping, has stood in the way of a more rapid improvement.
The 215 billion euro economy is seen stuck in recession for a fifth year in a row in 2012, with gross domestic product contracting by 4.5 percent and unemployment topping 19 percent.
The economic downturn was deeper last year as GDP slumped 6.9 percent. Recovery may set in next year although for 2013 as a whole GDP is seen declining 0.5 percent.
"The faster return of the economy to positive GDP growth rates is key to meeting the goals that have been set," the report said. "A prerequisite for growth is restoring confidence in the economy's future."
The central bank expects price pressures to ease with consumer inflation projected at 1 percent this year, slowing further to 0.5 percent in 2013.
Core inflation is expected to turn slightly negative this year and next, at minus 0.1 and 0.2 percent respectively.
"Greece must assume the historic responsibility to implement a strategy (that shows convincingly) its economy can be restructured in a way that will return it to a growth path," the central bank said.
(Reporting by George Georgiopoulos; editing by Stephen Nisbet)
By George Georgiopoulos