Greek central banker warns political risk could threaten recovery

ATHENS, July 7 Mon Jul 7, 2014 4:45pm EDT

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ATHENS, July 7 (Reuters) - Greece's newly appointed central bank chief said on Monday that political uncertainty around a presidential election scheduled for 2015 is the main risk to the debt-laden country's economic recovery.

Yannis Stournaras, the former finance minister, reiterated that he expected moderate growth of about 0.5 percent of GDP this year, but in his first comments on politics since taking over as central bank governor last month said there were still downside risks to the economic outlook.

"The main risk is due to political uncertainty, related to the election of a new president in early 2015," Stournaras told investors at a Eurobank forum. Other challenges included a slowdown in the global economy and geopolitical risks in Russia and Ukraine, which could hurt exports, he said.

Bailed out twice by the European Union and International Monetary Fund, Greece relies on loans from its foreign creditors to stay afloat, in exchange for austerity measures that have pushed unemployment to record levels and deepened a six-year recession.

Austerity fatigue has put pressure on Prime Minister Antonis Samaras' coalition government, which controls 153 deputies in the 300-seat parliament and has ruled out a snap election. But a presidential vote in early 2015 may muddy the political scene and force the government to early elections.

Greek law says parliament must be dissolved if no presidential candidate secures 180 parliamentary votes - a level of backing that is not guaranteed for Samaras.

The country's main opposition, the radical left Syriza party, which won the most Greek seats in the EU parliament in May, has said it plans to block the vote.

Stournaras said on Monday that reforms must continue in order to ensure recovery but active labour market policies could mitigate the impact of unemployment and should be a priority, along with measures to strengthen the social safety net.

He also warned that the accumulation of non-performing loans was the top challenge faced by the banking sector, but added that a return to growth and falling unemployment should improve borrowers ability to pay back their debts. (Reporting by Renee Maltezou and Lefteris Papadimas; Editing by Sonya Hepinstall)

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