ATHENS (Reuters) - The expected growth in Greece’s economy this year is at risk if the government can’t fulfill its deal with creditors, public finances worsen and reforms stall, the country’s central bank governor said on Thursday.
Greece last week narrowly averted a banking collapse by accepting a last-minute deal with the euro zone to extend its bailout by another four months, during which time it has to spell out reforms and negotiate with lenders on the next phase.
Saying the deal averted “dire consequences” for the economy, Bank of Greece Governor Yannis Stournaras urged the government to pursue structural reforms and quickly conclude a final agreement with creditors.
“We must pursue the negotiations in a spirit of cooperation and trust and promptly conclude a mutually beneficial final agreement with our partners,” Stournaras said in his annual report to be delivered at the bank’s shareholder meeting.
Greece returned to growth last year after a six-year recession that left one in four unemployed, slashed living standards and pushed up poverty.
The central bank predicts the economy will growth again this year, with the recovery picking up next year. But Stournaras added that the government first needed to conclude talks with creditors and adopt a national growth policy that is focused on implementing pending structural reforms.
“These reforms are much smaller in scope and would entail low cost compared with the huge changes made in recent year at a very high price for Greek society,” he said. “If we, on our part, adhere to our commitments, our partners in turn can be expected to reiterate their decision... to consider further measures to alleviate Greece’s debt burden.”
He also urged the government to review tax exemptions and favorable tax treatment - which he said could allow for a lowering of tax rates overall - as well as complete major privatizations to boost investment.
Greek banks were well-capitalized but faced the twin challenges of a high level of bad loans and “considerable strain” on liquidity in the last few months and still have no access to money markets, Stournaras said.
He urged Greece to fulfill its agreement with the euro zone so that the European Central Bank would resume funding access for Greek banks that was cut off earlier this month.
Reporting by Deepa Babington and Karolina Tagaris Editing by Jeremy Gaunt.