Greece and the euro area going forward Yannis Stournaras Governor, Bank of Greece 4 March 2017
Greece: Current Juncture The Greek economy is at a turning point • Growth turned positive in 2016 Q2 and, contrary to initial forecasts, it turned out positive for the year as a whole (0.3%) • Recent softening of economic indicators relates to delays in the closing of the second review. • Closure would reduce uncertainty and allow the economy to move quickly to a faster growth path. 2
Significant fiscal consolidation Change in cyclically-adjusted primary General Government Primary Balance balance 2009-2016 (% of GDP, programme definition) (% of potential GDP) 2009 2010 2011 2012 2013 2014 2015 2016* 18 2% 16 0% 14 12 -2% 10 -4% 8 6 -6% 4 -8% 2 0 -10% Greece Ireland Portugal Cyprus Spain Euro Area Source: European Commission, European Economic Forecast Winter 2017 * as published in 2017 Budget Report . 3 Source: Ministry of Finance
Significant current account adjustment Current account balance (% of GDP) 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2 0 -2 -4 -6 -8 -10 -12 -14 -16 -18 Source: AMECO 4
Restoration of competitiveness Relative prices Relative Unit Labour Costs (Inverse of competitiveness) (Inverse of competitiveness) (index: 2000=100; against euro-area (index: 2000=100; against euro-area countries plus 21 trading partners) countries plus 21 trading partners) 135 150 130 140 125 130 120 120 115 110 110 105 100 100 90 95 80 90 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Germany Ireland Germany Ireland Italy Italy Portugal Spain Greece Portugal Spain Greece 5 Source: ECB (Harmonized Competitiveness Indicators) Source: ECB (Harmonized Competitiveness Indicators)
Rebalancing the economy Relative size of tradeable to non-tradeable sector (index: 2010=1) 1.3 1.2 1.1 1.0 0.9 2007 2008 2009 2010 2011 2012 2013 2014 2015 Gross Value Added Prices Volume Employment Note: Relative prices are based on (implicit) price deflators of value-added. Tradeables: agriculture, industry, business and financial services, telecommunications and services related to tourism (transport and accommodation and restaurants). Non-tradeables: else except public administration and non-market services. 6 Sources: Eurostat (National Accounts ESA 2010) and BoG calculations
Greater openness: exports of goods and services Real exports of goods Real exports of services (index 2009=100) (index 2009=100) 160 160 140 140 120 120 100 100 80 80 60 60 I ΙΙ IIIIV I ΙΙ IIIIV I ΙΙ IIIIV I ΙΙ IIIIV I ΙΙ IIIIV I ΙΙ IIIIV I IIIIIIV I IIIII I ΙΙ IIIIV I ΙΙ IIIIV I ΙΙ IIIIV I ΙΙ IIIIV I ΙΙ IIIIV I ΙΙ IIIIV I IIIIIIV I IIIII 2009 2010 2011 2012 2013 2014 2015 2016 2009 2010 2011 2012 2013 2014 2015 2016 Greek exports BOP Greek receipts from services Greek non-oil exports BOP Greek receipts from travel EA19 exports BOP Greek receipts from services ex shipping EA19 receipts from services Source: Bank of Greece (BoP statistics) and Eurostat (for EA 19 ) 7
Stock disequilibria remain: unemployment Output vs. employment growth Unemployment (%) (annual % change) 30 6 25 1998 4 Recovery 2001 Employment growth (LFS) (high elasticity) 2016 2003 2006 2 20 2000 2004 2015 2005 2014 2007 1997 2008 1999 1996 0 2009 15 Pre-crisis -2 (low elasticity) 10 2010 -4 Crisis 2013 -6 5 2011 -8 2012 0 -10 Ι ΙΙ ΙΙΙ Ι V Ι ΙΙ ΙΙΙ Ι V Ι ΙΙ ΙΙΙ Ι V Ι ΙΙ ΙΙΙ Ι V Ι ΙΙ ΙΙΙ Ι V Ι ΙΙ ΙΙΙ Ι V Ι ΙΙ ΙΙΙ Ι V Ι ΙΙ ΙΙΙ Ι V Ι ΙΙ ΙΙΙ Ι V Ι ΙΙ ΙΙΙ -10 -5 0 5 10 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 GDP growth Source: Labour Force Survey 8
Non-performing loans Measures taken Greek commercial banks – NPL ratio (%) • BoG guidelines for enhanced 39 governance framework • Set of ambitious operational targets 34 agreed by banks and BoG/ECB, 29 NPEs ’ reduction by 40% by 2019 24 • New households’ insolvency law • Amended Code of Civil Procedure 19 • Enhanced capacity and efficiency of 14 judicial system 9 • Setup of a secondary market for 4 NPLs. Ongoing initiatives -1 • Revision of out-of-court workout -6 • Revision of bankruptcy law I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIIIIV I IIIII • Legal protection 2008 2009 2010 2011 2012 2013 2014 2015 2016 • Creation of a Credit Score Bureau Source: Bank of Greece and debt info/counseling centres 9 • E-auctions
General government debt Snowball effect (i – g): the main driver 100 100 Annual change (in % of GDP) 80 80 30 82.5 60 60 53.6 20 40 20.7 40 7.1 12.3 19.3 13.3 10 20 20 5.9 1.9 6.7 10.1 9.1 2.1 23.5 5.4 5.3 3.7 3.9 3.0 0 0 0 -1.3 -4.6 -4.0 -20 -20 -12.1 -10 -52.4 -40 -40 -20 -60 -60 2010-2016* -35.6 -30 Cumulative change 2010-2016 -40 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* primary deficit deficit-debt adjustment (- surplus) snowball effect Change in debt ratio * 2017 Budget Report Source: ELSTAT and Ministry of Finance 10
Short-term economic outlook • Strong positive growth rates are expected over the short and medium term for as long as the output gap closes. • Consumption continues to rebound, driven by the increase of employment. • Investment and exports increase as confidence is restored and credit conditions improve. 11
State budget execution State budget primary balance against MoF's period targets in 2016-2017 ( € million) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 -1,000 -2,000 Jan Jan-Feb Jan-Mar Jan-Apr Jan-May Jan-Jun Jan-Jul Jan-Aug Jan-Sep Jan-Oct Jan-Nov Jan-Dec State Budget Primary Balance 2016 MoF period target 2016 MoF period target 2017 State Budget Primary Balance 2017 Source: Ministry of Finance. 12
EC winter forecasts 2017 2018 GDP 2.7 3.1 Private consumption 1.6 1.6 Public consumption 0.2 0.0 Gross fixed capital formation 12.0 14.2 of which: equipment 13.4 15.2 Exports (goods and services) 3.9 4.7 Imports (goods and services) 3.2 4.2 Primary balance (% of GDP)* 2.0 3.5 * Programme definition, excludes transfers to the state of profits from ANFA and SMP portfolios held by the Bank of Greece. Bank of Greece calculation. 13
Long-term economic outlook Growth rate assumptions Private consumption 1% Investment 5% Rebalancing of the economy Value-added deflators Exports 5% Imports 4% (Baseline Scenario, % of GDP) (annual % change) 80% 8 70% 6 60% 4 50% 40% 2 30% 0 20% -2 10% 0% -4 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2007 2008 2009 2010 2011 2012 2013 2014 2015 Exports Imports price of tradeables price of non-tradeables Private consumption Investment Sources: Eurostat and BoG calculations . Sources: Eurostat and BoG calculations Rebalancing the economy from the demand Rebalancing the economy from the side: Investment and exports will fill the gap of supply side: The shift in relative price effective demand from lower public and inflation since 2010 makes production of private consumption, reaping the returns of tradeables more profitable. improved competitiveness. 14
BoG Proposals: fiscal policy and government debt • Fiscal mix: taxes versus spending. • Fiscal target: reduction from 3.5% to 2% of GDP after 2021 consistent with debt sustainability if combined with structural reforms and mild debt relief measures. • Debt relief measures: – Short-term measures – Eurogroup, 5 December 2016. – Medium-term measures: extending maturities and/or smoothing the interest burden. 15
Mild debt relief exercise • Option 1 defers interest for EFSF loans using the rule: interest due in year t is deferred to next 20 years in equal installments and capitalized. Weighted average maturity of EFSF interest payments increases by 8.5 years. Includes ANFA and SMP. Interest burden Interest for EFSF loans (EUR bn) (total debt, % of GDP, baseline) 7% 10 6% 8 5% 6 4% 3% 4 2% 2 1% 0% 0 2015 2021 2027 2033 2039 2045 2051 2057 2063 2016 2022 2028 2034 2040 2046 2052 2058 2064 Eurosystem Private investors -2 EFSF IMF baseline option 1 GLF ESM Other Interest new debt 16
Mild debt relief exercise • Baseline high surplus: Primary surplus of 3.5% until 2027, gradual decline to 2% by 2037 • Baseline low surplus: Primary surplus of 3.5% in 2018-2020, 2% afterwards • Option 1: Baseline low surplus + increase in WAM of interest payments for EFSF loans by 8.5 years (smoothing of EUR 101 bn of projected interest payments to EFSF until 2060) + ANFA + SMP • GDP growth : 1.5% after 2022 • Inflation : 2% after 2019 • Interest rates : GGBs: 5%, ESM: gradual increase to 3.0% until 2021, 3.5% after 2027 Gross Financing Needs of general Debt to GDP ratio government 190% 25 (% of GDP) 170% 20 150% 15 130% 110% 10 90% 5 70% 0 50% 2016 2021 2026 2031 2036 2041 2046 2051 2056 2061 2016 2021 2026 2031 2036 2041 2046 2051 2056 2061 baseline low surplus option 1 Baseline low surplus Baseline high surplus baseline high surplus Threshold option 1 17
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