G. Stournaras: Growth up to 9% in 2021 – Inflation decline from the middle of the year

By 2026, the money of the Recovery Fund will increase the GDP of Greece by about 7%, investments by about 22% and tax revenues by almost 3%, estimated Giannis Stournaras, noting that at the same time 200,000 new jobs will be created.

In an interview with the Mega TV station, the Governor of the Bank of Greece stated that “until 2026 the growth footprint of the Fund, according to the BoG models, is about 7%. It is very important. But it does not only reinforce this. Boosts investment, over 22%. Boosts employment. We calculate that around 200,000 jobs will be created of this money. And tax revenues will increase around 3 percentage points of GDP. So it has a very important imprint on growth, employment and public revenue. ”

As for 2022, Mr. Stournaras pointed out that thanks to the budget brake in terms of measures for the pandemic, the primary deficit will fall to 1.5% from the current 6.5%.

The fiscal contraction, Mr. Stournaras stressed, will not have an impact on the citizens because, as he estimates, it will be offset by the growth rates that will remain high. As he said: “Greece is the country that gave perhaps the most money in proportion to its size as a percentage of GDP for the pandemic, of all the other countries in the Eurozone. Accordingly, the brake on 2022 is bigger. That is why “And the primary deficit will fall from about 6.5 or 7% of GDP to about 1 or 1.5% of GDP this year. So the fiscal contraction this year is as significant as the fiscal growth we had in 2021 and 2020.”

He also noted that “fiscal contraction will not put pressure on the world, because it is replaced by the significant economic growth that we will have in 2022. Growth in 2021 will finally be surprising, perhaps approaching 9%. Here in the BoG, the latest estimates show that it will be around 8.5 to 9%. So, we will have a very big growth in 2021, but also in 2022 our models show that a 4.5 to 5% is possible. “This growth will act as a bridge to the fiscal contraction that must be done so that we do not have problems with public debt sustainability.”

Referring to inflation, Mr. Stournaras estimated that will decline by the middle of the year. “The pandemic has raised inflation because it has created barriers to production. When the pandemic goes away, it seems to go away, these barriers will be removed and so inflation will start to fall in the middle of this year. So in Europe we do not see the reason. “Why tighten monetary policy, in addition to the gradual lifting of emergency measures for the pandemic,” he said.

At the same time, when asked about the request for an increase in the minimum wage, he described it as fair, pointing out that the BoG participates in the relevant consultation.

With the new stability pact at the gates, Mr. Stournaras also referred to the climate that, as he stressed, has changed in Europe, with friendlier attitudes towards the countries of the South.

In particular, he said: “A different wind is blowing in Europe. I saw the new German government, completely different statements and climate from the government we had against us during the memoranda, during the difficult period during which I was Minister of Finance. “Things seem much more realistic today, much friendlier to the south of Europe. It is not only the elections that brought in new governments, but also the pandemic. There is nothing wrong with that. is a central investment mechanism that will take into account cohesion, external shocks in countries like the pandemic.The Fund is one side.The other is its financing.In June 2021, Europe came out and borrowed the first sums , the total will be 750 billion at constant prices in 2018. So we can talk about a common European bond that will finance this Recovery Fund. Wish work is to be permanent. “I was one of the first to argue that it should be a permanent mechanism.”

Elsewhere in his interview, Mr. Stournaras stated:

– “The good thing is that today we are here where we are after having gone through so many difficulties. Let the sufferings be lessons for us and for our partners. One lesson we have all learned is that pro-cyclical fiscal policies should not be followed. What When you have a recession, you can not ask the one who has a recession to take austerity measures. We should not lose what we gain from the primary effect of the so-called avalanche phenomenon, ie the difference between the interest rate borrowed by the public and the rate of economic growth. .

– We must make every effort to ensure that the rate of economic growth is higher than the interest rate at which the Greek government borrows. This is a very important lesson we learned then and we are trying to argue that this principle needs to be incorporated into the new Stability Pact. That is, to have the flexibility not to follow pro-cyclical fiscal policies. In the opinion requested by the European Central Bank, I think this has passed. To be fair, to put it bluntly, pro-cyclical policies should not be followed during the recession, but they should not be followed during the heyday. In other words, a country with a high rate of economic growth must take fiscal measures to reduce its deficit and not increase it. ”