UPDATE 1-Crisis exposes Greek economy's weakness-cenbanker

Thu Nov 27, 2008 7:59am EST

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ATHENS Nov 27 (Reuters) - The world economic crisis has revealed structural weakness in Greece's economy, which needs a "policy mix" to boost competitiveness, the country's central banker said on Thursday.

"Greece's economy after many years of strong and uninterrupted growth is today at a critical crossroads," Bank of Greece Governor George Provopoulos told shipping industry executives.

Greece's economy has grown faster than the euro zone in recent years, but is expected to slow to 2.7 percent in 2009, based on government projections, which economists have described as optimistic.

"As international conditions show unprecedented deterioration, the macroeconomic imbalances and structural weaknesses of the Greek economy are more clearly evident," the central banker said.

He said high growth rates in the past were mainly fuelled by domestic consumption, which outpaced the economy's production capacity and potential output.

Provopoulos urged the conservative government to adopt an "economic policy mix" that boosts productivity, foreign investor confidence and secures credit market stability.

He said that although Greek banks were solvent, the central bank urged them to participate in the government's 28 billion euro support plan in order to avoid a credit crunch and keep funding flowing to households and businesses.

High growth rates have led past governments to ignore persistent inflation, a current account deficit at about 15 percent of GDP and public debt almost equal to Greece's national output.

"The size and persistence of these imbalances show, among other things, that the breadth and depth of structural changes was not enough to face such big problems," Provopoulos said. (Reporting by Dina Kyriakidou; Editing by Victoria Main)

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