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Nicos M. Christodoulakis
Deputy Minister of Finance
May 1998, New York City
Ladies and Gentlemen
During the last three years, the Greek economy has shown considerable and continuous progress paving the way to Greece's participation in the EMU by the year 2001. This progress is reflected by the fact that in the last three years the budget deficit has been reduced by almost 10 percentage points of GDP, from 13.9% in 1993 to 4% in 1997 and is expected to fall at 2.4% of GDP at the end of 1998. The debt to GDP ratio has been stabilized and it has recently been declining. Inflation has fallen from 12.3% at the end of 1993 to around 5% in April 1998 and is expected to fall below 3% at the end of the year. At the same time GDP growth has gradually accelerated from -1% in 1993 to an expected 4% in 1998. Undoubtedly, these developments have been among the most intensive macroeconomic adjustments recorded in the European Union over the period in question. Economic performance in Greece has improved considerably. This is proved by the declining interest rates especially on 10-year government bonds. Today their yield averages about 8% as compared to the European average yield of about 7%. In the next months the yield on Greek government bonds will continue to fall until it reaches the European average.
The above improvements suggest with certainty that Greece will achieve the Maastricht Treaty convergence criteria in 1998 or 1999 - and therefore - it will participate in the third stage of the European Monetary Union by the year 2001. Nevertheless, this view was shared not only among European institutions such as the European Commission and the European Monetary Institute on their April 1998 convergence reports, but also among the European leaders during the recent European Council, just a week ago.
Our efforts to meet nominal convergence criteria are strengthened by additional efforts to achieve real convergence. The acceleration in the absorption of structural funds from the European Union and the financing of large infrastructure projects have already created - and will continue to create - a favorable environment for business activity. I am referring to projects such as the Eleftherios Venizelos International Airport, the Athens Metro, the Rio-Antirio Bridge, and the East-West (EGNATIA) and North-South (PATHE) motor ways. These projects in addition to others, smaller ones, will increase the productivity of capital and therefore the benefits of potential investors. In general, improved conditions will help the real economy to recover with incomes rising and private investment accelerating. The continuous and rising activity of the Athens Stock Exchange represents one of the best indicators of an economy with positive business prospects. Obviously, Greece has already moved away form the emerging market status, for good.
Ladies and gentlemen, our commitment towards Greece's participation to the European Unification was further reinforced by our recent decision to join the European Exchange Rate Mechanism (ERM). By joining the ERM Greece made a decisive step towards the Economic and Monetary Union by the year 2001. As you are aware one of the prerequisites of the full participation is exchange rate stability. The prevailing view in the European Union is that exchange rate stability coincides with the participation to the ERM. By joining the ERM, Greece decided on the rate at which the drachma will be converted into Euro by 1-1-2001. The 14% adjustment implies a stronger long-term competitive position, thus ensuring that the rate of growth and therefore real convergence with the EU will be maintained. It has to be stressed that the timing of the exchange rate adjustment is closely related with the progress we have made in the inflation front. Acceptable inflation level is a prerequisite for joining ERM.
Our participation to the ERM was combined with bold measures aiming to neutralize the side effects of the drachma adjustment.
Spending cuts of around GRD 300 billion (about 1% of our GDP) are to be achieved by cutting down state subsidies and reducing social security costs. Despite the temporary uptick of the inflation rate caused by the adjustment of the value of the Drachma, we will stick to a 2.5% rise in public sector wages for 1998.
Our commitment to speed up privatization is demonstrated by our plans to further privatize the Hellenic Telecommunications Company by issuing a third package of shares by the end of the year. It is also demonstrated by our plans to partially privatize public utilities; for example, the Public Petroleum Corporation (DEP). It is finally demonstrated by our plans to fully privatize state firms (for example the Duty Free Shops) and state banks. Our most recent example is lonian bank.
Furthermore, new legislation on labour issues which will make employment rules more flexible will be introduced within the next few months. Flexibility, which is necessary due to changing patterns of work organization, is combined with security based on the acquisition of the necessary skills for finding employment rather than on security based on the individual's existing job. Focusing our attention on education and training will promote the acceptance of change within the labour force.
In addition to these, we try to create a leaner and more efficient state by exemplifying a new legislation on screening and hiring of civil servants, on salary structures and on restructuring of the regional administrations and local authorities. However, our immediate interests rest with the upgrading of services to the public, the improvement in support mechanisms of business activity and, in general, the creation of a modern and thus efficient institutional framework within which entrepreneurial and financial activity can function in a free, fair and competitive fashion.
From what I have mentioned so far it is apparent that the Government is determined to push through with sweeping economic reforms in order to secure our participation to the EMU in 2001. Our society is receptive and mature to find solutions to chronic problems and the Government expresses this sentiment
Ladies and gentlemen, a recent international survey cited the 15-nation European Union as a key place to be. A presence in Western Europe, and in Greece of course, provides U.S. firms with better access to Eastern Europe as its economies grow and stabilise.
From the moment the economic border of Eastern Europe and the Balkans opened to international competition, the Greeks took again the traditional trade roads to the Balkans and further to the rest of the countries in the area.
The results are astonishing: in no more than five years, Greek companies thrive in Albania, in Bulgaria, in Romania, in Ukraine, in Russia, the Black Sea region, and recently in FYROM, thus contributing to the progress and prosperity of these nations. Greek companies have taken full advantage of their historical background of how to do business in these areas.
Traditionally the Greeks have accumulated a solid knowledge of how to do business in the Balkans and in the countries, which emerged from the remnants of the ex-Soviet Union. They have been doing so for generations. They have been doing so even during the times when few European or American companies thought of doing business there. Now that the borders are open and everyone thinks in terms of "new markets", the Greek comparative advantage is the understanding of the peoples of the region, of their habits and methods.
Greece, for the first time after its membership in the EU, has the opportunity of gradually re-composing the economic space in its vicinity with the creation of a regional Balkan market, in which it will have a central and highly influential role. For the first time also, in the post-war period, a real opportunity is given to the Balkan countries to interact and cooperate without economic or military bloc barriers, leaving the level and type of their relations to be an affair of markets, preferences and geography.
Europe already contains an impressive amount of U.S. foreign direct investment. Europe - and Greece in particular - is a place for small and medium-sized American companies with the right kind of products to expand market and profitability.
Our government has taken - to all possible extent - the necessary measures to facilitate foreign direct investment. The establishment of the Hellenic Investment Center, the one-stop-shop, is a step towards that direction. |
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