G. Stournaras: The architecture of the eurozone needs to be improved

The governor of the Bank of Greece, Giannis Stournaras, spoke from the Economist conference about a very demanding international environment for policymakers, noting that when we had managed to take a breather from the global financial crisis, we received the “blow” ” from a series of negative shocks.

Mr. Stournaras referred to the effects of the pandemic, the energy crisis and the Russian invasion of Ukraine, stressing that inflation has climbed to record levels in the Eurozone, necessitating the normalization of our monetary policy.

The governor of the Bank of Greece pointed out that a new instrument to mitigate fragmentation episodes is being considered, while adding that there will be flexibility in the way of reinvesting maturing bonds under the extraordinary PEPP quantitative easing program.

According to Mr. Stournara, the aim is for inflation to subside in the medium term and for this the architecture of the euro zone needs to be improved.

Gikas Hardouvelis: Risk of an inflationary spiral

The assessment that the problem with inflation concerns the next 12 months, as expectations for long-term inflation have increased, but are still at relatively low levels, was expressed by Gikas Hardouvelis, chairman of the Board of Directors of the National Bank, professor at the department of Finance and Banking Administration of the University of Piraeus from the stage of the Economist conference.

If we do not reach the expected inflation, after 12 months, the chances of entering – globally – an inflationary spiral, increase, he pointed out in his statement.

At the same time, he underlined that there is also a positive effect of inflation, however, on public finance indicators: “for example, at the end of 2022, the ratio of public debt to GDP will have decreased from 1.93 to 1.70” .

Referring to the possibility of recession, he noted that for the USA the chances are 35% and for the EU 33%.

“According to academic research I’ve done since the 1980s – and so far it hasn’t been wrong in its prediction – if the yield curve, that is, the yield spread on ten-year bonds compared to three-year bonds, turns negative for more than a quarter, then next year there will be a recession. Now this is not visible,” Mr. Hardouvelis pointed out.

According to Mr. Hardouvelis, households are aware of the problems in the economy and face the situation maturely, just like businesses.

“There are businesses that survived the financial crisis. Many businesses could borrow from government programs during the pandemic, but they didn’t. Bad loans are not increasing, for now. Tourism is doing very well. A lot will depend on developments in the Russia-Ukraine war”, he added, expressing the assessment that Greece must follow a reliable policy “and it does, at this stage”.

Mario Centeno: The primary goal is to overcome high inflation

The president of the Central Bank of Portugal, Mario Centeno, spoke at the Economist conference about an environment with upheavals, due to the pandemic and the unjustified invasion of Ukraine, stressing that one of the primary goals is to overcome high inflation.

As Mr. Centeno said, the European banking sector has proven its resilience during the pandemic and financial stability has been maintained, but according to him, the problems are not over.

“We need to act gradually, flexibly and expand our toolbox. It is very important to see what happened in the spring of 2020 when we operated in a spirit of coordination.”

At the same time, he mentioned the increase in interest rates, which he said also entails risks, pointing out that the Fed’s policy is different because the reality in Europe is also different compared to the US.

Konstantinos Herodotou: The banking sector is of key importance

Constantinos Herodotou, governor of the Central Bank of Cyprus, characterized the banking sector in Europe as of key importance in dealing with the crisis.

“The challenges for banks are to overcome the crisis of the pandemic and the war and this will be the fuel for growth,” he noted. In addition, Mr. Herodotou said that we are all feeling the impact on prices from the invasion of Ukraine, stressing that stable and low levels of inflation are what we need.

“We have given further guidance to raise interest rates in July and September, while promoting anti-fragmentation tools. We live in uncertain times that will last. The important thing is to be coordinated and united,” he added.

With information from APE-MPE