Yannis Stournaras: Ensuring Greece's European path
Honoree keynote address by Mr Yannis Stournaras, Governor of the Bank of Greece, at
the "2024 Capital Link Hellenic Leadership Award" event, New York City, 9 December
2024.
* * *
I am deeply moved and grateful for the great honour you bestowed upon me tonight.
I was born in Athens, Greece, on 10 December 1956. I graduated from Filothei High
School in 1974, and from the Department of Economics, University of Athens. I
obtained my post-graduate degrees (M.Phil. in 1980 and D.Phil. in 1982) from the
University of Oxford. My doctoral thesis aspired to ground macroeconomic theory in
mathematical microeconomic models.
I started my academic career at Oxford University, at St. Catherine's College, right after
my D.Phil., taught economics as a Lecturer and also conducted research in the field of
the oil industry. In fact, I was the first Research Fellow at the then (1982) newly founded
Oxford Institute for Energy Studies. This played a pivotal role in shaping my future
career path, as you will find out shortly!
It seemed as Oxford would become our permanent home, as both my wife, Lina (who
also obtained her D.Phil. in Neurophysiology from Oxford University and began her
academic career along with me), and I were perfectly happy with our lives in Oxford.
My sabbatical leave from the University of Oxford to fulfil my military service in Greece,
and above all luck, was what changed my plans!
After completing my military service, I was about to return to Oxford when I accidentally
came across a friend from Oxford, the now renowned Greek economist Dr. Platon
Tinios, who arranged for me an appointment with the then (1986) leadership of the
Greek Ministry of National Economy, Minister Costas Simitis and Deputy Minister
Yannos Papantoniou.
Out of politeness and as Platon wouldn't take no for an answer, I did go and met them.
They suggested that - who would have thought? - I should extend my leave from
Oxford University, stay a little longer in Greece and help them with the economic
stabilisation programme that had been launched in 1985, and more importantly to join,
as an energy expert, the team which, led by the late Anastasios Peponis, then Minister
of Energy and Industry, negotiated a gas supply contract with the then Soviet
corporation Gazprom.
To cut a long story short, they convinced me to stay. I went back to Oxford and
extended my sabbatical leave for a year. Lina did not agree at the time. "I'm not going
back to Greece", she said, "at least not until you return to Oxford for good". We agreed
that this would be the best. Deep down, I had always wanted to return to Greece. Unlike
Lina.
So I returned to Athens without her. As a Special Advisor to the Ministry of National
Economy on sabbatical from the University of Oxford. And that was it! I really loved to
pair academic work with policymaking. I decided to find a permanent job in Greece,
something that didn't take long. Soon, I joined the University of Athens, after a vacancy
announcement, at the Department of Economics. Meanwhile, the late Dimitris Halikias,
who at the time was Governor of the Bank of Greece, told me that he would engage me
as an Advisor to the Bank of Greece once my contract with the Ministry of National
Economy ended, if I decided to stay in Greece and leave Oxford for good.
I went back to Oxford only to resign. Lina and I had decided to take risk and quited
prominent academic jobs in Oxford, London and Bristol to return home to Greece. The
words of my superiors at the University of Oxford, the late Sir Partrick Nairne (Provost
of St. Catherine's College) and the late Robert Mabro (President of the Oxford Institute
for Energy Studies), as they were bidding me farewell, are still ringing in my ears: "You
must be mad to leave Oxford". They didn't make me change my mind. I left. Lina and I
did not regret leaving, but we both feel a huge debt to Oxford. Especially to the true
meritocracy of the system. We worked hard, got top-notch doctorate degrees and found
top research posts at a very young age.
Greece has honoured me with very important posts, both in the public and the private
sector. I was fortunate and privileged to serve at the economic and financial sectors of
my country and to cooperate with the governments of six Prime Ministers: Andreas
Papandreou, Costas Simitis, Panagiotis Pikrammenos, Antonis Samaras, Alexis
Tsipras and Kyriakos Mitsotakis. I have never abandoned my University career, until my
retirement last August. During the last years I was mentoring and supervising doctorate
candidates and co-authored research papers with them. The years as a Research
Fellow in Oxford included, I successfully completed 42 years of academic teaching and
research. My esteemed colleagues at the Department of Economics, as well as the
Rector of the University of Athens, honoured me a few weeks ago with the title of
Emeritus Professor.
Being an academic-cum-policymaker thrilled me. This wouldn't have been possible had
I stayed in Oxford and has been a huge asset in my professional life, even though it
required endless hours of hard work. As an academic, I quickly realised the limitations
of academic thought, if not tested in the arena of economic policy. As a policymaker, I
soon became aware of the shortcomings of an economic policy that is not grounded in
economic fundamentals.
Turning to the economic policy arena, my first job in Greece, as an Advisor to the
Minister of National Economy Costas Simitis and his Deputy Minister Yannos
Papantoniou in the context of the so-called "Simitis Stabilisation Programme
19851987", concerned the restructuring of public enterprises and organisations as well as
the design of an incomes policy based on productivity growth. Sadly, this plan was
never implemented, as Costas Simitis resigned. Over the same period, I also worked on
the gas pipeline project and the import of natural gas to Greece.
In my capacity as Advisor to the Bank of Greece (1988-1994), I worked with two
Governors, Dimitris Halikias and Efthymios Christodoulou, as well as with the then
Economic Advisor Lucas Papademos, on monetary policy issues.
As Chairman of the Council of Economic Advisers at the Ministry of National Economy
(1994-2000), I was involved in the design and implementation of economic policy
measures in preparation for Greece's entry into the euro area and I represented the
Greek government in the Monetary Committee of the European Union in the
negotiations for Greece' participation in Economic and Monetary Union, first under
Prime Minister Andreas Papandreou and subsequently under Prime Minister Costas
Simitis and Minister of National Economy and Finance Yannos Papantoniou, who was
responsible for the overall coordination of the effort.
As Chairman and CEO of Emporiki Bank (2000-2004), I negotiated and implemented
the first stage of the strategic partnership with Crédit Agricole and contributed to the
establishment of a number of jointly owned subsidiaries.
As Managing Director of Kappa Securities (2005-2008), I gained vast experience in
investment banking and capital markets, which would later prove very useful in all the
public offices I was entrusted with.
As Research Director and, later on, Director General of the Foundation for Economic
and Industrial Research (IOBE) (2009-2012), I was responsible for the design and
implementation of research projects, as well as for managing the Foundation; this
experience offered me valuable insights into key industries of the private sector.
In my term as Minister of Development in the caretaker government of Panagiotis
Pikrammenos in 2012, I signed the approval of several investment projects under the
development law.
As Minister of Finance in the Samaras government (2012-2014), I contributed to the
restoration of the smooth programme refinancing for Greece by the fulfilment of policy
commitments; the partial restructuring of Greece's sovereign debt; a public debt
buyback on favourable terms; the implementation of reforms; the normalisation of public
finances and the economy, a shift to a primary surplus at general government level after
years of persistent deficits; a drastic decline in Greek government bond spreads;
Greece's return to international bond markets; and the recapitalisation of systemic
banks.
As Bank of Greece Governor (2014-to date), a post to which I was appointed chosen by
Prime Ministers Antonis Samaras in 2014 and, for a second term, Kyriakos Mitsotakis in
2020, I contributed, along with the Bank of Greece staff, in keeping Greece in the euro
area during the first half of 2015; in the effective imposition and management of capital
controls in 2015 until their full withdrawal in 2019; in ensuring the smooth provision of
emergency liquidity assistance (ELA) to banks during the crisis; in the recapitalisation
and resolution of systemic and non-systemic banks, while fully protecting bank
deposits; in cleaning up ailigning banks and strengthening competition in the banking
sector; and in the organisational restructuring of the Bank of Greece itself. In addition,
as member of the Governing Council of the European Central Bank (ECB), I have been
participating in the formulation and implementation of the single monetary policy, both in
times of crisis and in a very low inflation environment, as well as in conditions of high
inflation after the Covid-19 pandemic, while also having served as Chair of the ECB's
Audit Committee.
Looking back, I am immensely gratified to have played my part, to the best of my ability
and with the invaluable help of my highly competent associates in all my public
engagements, first, in Greece joining the euro area, second, in Greece remaining in the
euro area under the extremely adverse circumstances of the debt crisis, and, third, in
Greece becoming - without exaggeration - a success story.
The Greek economy is beyond any doubt an international success story over the past
few years. The recovery of investment grade status confirms this. Government bond
spreads compare favourably with those of other Member States. Economic growth is
considerably higher than the average euro area growth rate. Major fiscal problems, debt
sustainability as well as bank restructuring and recapitalization issues have been
successfully resolved, while bank deposits have been fully protected. In the second half
of the 2000s, an imprudent fiscal policy and loss of competitiveness created gigantic
"twin deficits" and financial stability problems, which brought Greece into the center of
the Global Financial Crisis, with markets and analysts predicting Grexit both in 2012
and 2015. So, how did Greece turn itself into a success story? In my opinion, this can
be explained by the following six reasons:
(a) painful domestic fiscal and structural adjustment during the three adjustment
programmes;
(b) strong will to stay in the euro area;
(c) generous debt refinancing at very favorable terms;
(d) ECB waiver when Greece did not have investment grade status;
(e) NGEU-RRF generous participation; and
(f) Orthodox fiscal, financial and structural policies that are being pursued over the
last several years.
The Greek economy has continued growing throughout 2024 at a rate considerably
higher than the eurozone average. The labor market has maintained its momentum,
fiscal figures are improving and the public debt-to-GDP ratio is falling rapidly, while
inflation remains well below 2023 levels and is expected to converge to 2% in the
medium term.
Over the coming years, the Greek economy is expected to continue to grow at higher
rates than the rest of the eurozone. This is a particularly significant development, as it
will reinforce the convergence of the country's real per capita GDP with the EU
average. The primary drivers of economic activity will continue to be investment
spending, thanks in part to European funds and particularly the Recovery and
Resilience Facility (RRF), and consumer spending, due to the increase in real
disposable income resulting from higher employment and lower inflation.
However, in spite of the undeniably positive prospects of the Greek economy, we
should not lose sight of the economic challenges lying ahead. The most important
challenge for Greece is the large current account deficit (6.2% of GDP in 2023), despite
the very substantial fiscal adjustment and the improvement in labour cost
competitiveness.
The main reason is that Greece lags behind most European countries in terms of
structural competitiveness, despite significant improvements in recent years. For
instance, on the basis of Switzerland's International Management Institute Global
Competitiveness Index for 2024, Ireland ranks 4th, Portugal 36th and Greece 47th. (I
compare Greece with Ireland and Portugal because in 1974, with the restoration of
democracy in Greece and Portugal, these three countries had very similar
competitiveness and other economic characteristics).
A similar picture arises if one looks at data from the World Bank, which compiles six
Worldwide Governance Indicators for more than 200 countries covering the 1996-2022
period. Greece lags behind Portugal and Ireland over the entire period and across all
indicators. Accordingly, and despite the progress achieved over the past few years,
Greece has still a long way to go in order to catch up with the structural competitiveness
levels of most European countries.
Greece's persistent shortfall in all the above indicators translates into lower structural
competitiveness and explains the major part of the current account deficit. The rest is
explained by Greece's higher economic growth compared with its trade partners.
Compounded by weaker investment, relatively low structural competitiveness inevitably
weighs on productivity and living standards over the long run.
Investments play the most decisive role in shaping the future course of the economy, as
well as in transforming the growth model with an emphasis on boosting productivity,
driving innovation, increasing production of internationally traded goods and services,
effectively dealing with climate change and facilitating the green transition. Increased
production of internationally traded goods and services leads to higher exports and
import substitution and thus to a reduction in the current account deficit.
Investment spending can underpin economic growth, particularly through improvements
in infrastructure, education and health or investments in manufacturing equipment,
machinery, or even intangible assets and cutting-edge technologies, including those
that promote the green transition of the energy sector. There are considerable
synergies between investments in tangible and intangible capital, and these should be
fully utilized. Simultaneously investing in new technologies and in digitally skilled human
capital results in the largest possible increase in productivity in the long run.
Investments as a percentage of GDP have increased in recent years, owing to
particularly strong investment activity in the three years 2021-2023. Business
investments have fully recovered to pre-2010 levels. On the other hand, residential
investment is low, but rapidly growing in response to strong demand from both domestic
and foreign investors, including investors from EU countries as well as countries further
afield in the context of the Golden Visa program. Nonetheless, total investments as a
percentage of GDP remain below the EU average, at 15.2%, compared to the EU's
22% in 2023.
For one, RRF funds must be received and disbursed to the private sector promptly. To
date, the receipt rate of RRF funds is satisfactory (51% of a total €36 billion), and
Greece is among the top performers in the EU. Satisfactory progress has also been
made in terms of signing loan agreements. However, the disbursement of grants to the
final beneficiaries is moving at a slower pace.
In order to improve structural competitiveness, it is also essential to implement a broad
range of ambitious reforms, aiming at addressing structural weaknesses such as delays
in the delivery of justice, bureaucracy in public administration and lack of digital skills. At
the same time, it is crucial to eliminate any remaining restrictive practices preventing
markets from being competitive, by removing barriers to entry and opening up goods
and services markets to competition. These reforms will help attract foreign direct
investment, as well as facilitate the participation of Greek companies in global value
chains, in turn leading to the adoption of new technologies and innovative production
methods that will enable Greek companies to offer high-added value products and
knowledge-intensive services.
A healthy and competitive banking sector capable of financing businesses and
households is essential. There has been a marked improvement in banking sector
fundamentals over the past decade: Profitability, liquidity, capital adequacy and loan
portfolio quality have all improved; new healthy and adequately capitalized banks have
been created forming a fifth banking pillar, while divestment of the Hellenic Financial
Stability Fund's shareholdings in the four systemic banks has been largely completed.
Still, the sector's resilience must be further strengthened, including through quantitative
and qualitative improvements in the capital base of Greek banks, by further reducing
the non-performing loan (NPL) burden closer to the EU average and by improving the
services provided to businesses and households. This will enable the sector to
contribute even more to the financing of the real economy. Bank financing of business
investment needs can be further bolstered by utilizing the full range of national and
European financing mechanisms, such as the RRF, the European Investment Bank
(EIB), the European Bank for Reconstruction and Development (EBRD) and the
Hellenic Development Bank (HDB).
Crucially, financing sources must be diversified. Beyond bank financing, it is important
to explore possibilities of tapping private financing, of all kinds, for investments,
including access to capital markets. Venture capital, private equity, crowdfunding,
business angels, startup accelerators and microfinancing can be used to cover the
investment needs of small and medium-sized enterprises that lack sufficient fixed
assets to use as collateral for securing bank loans.
Implementing the reforms and changes outlined above can improve structural
competitiveness and, at the same time, boost the economy's growth rate and support
the transition towards a sustainable and competitive growth model, focused on
entrepreneurship, competitiveness, innovation and extroversion. The priority must be
the timely utilization of available EU funds, particularly RRF funds, to strengthen
investments in human capital, green energy and digital technologies, which will in turn
facilitate the country's green and digital transformation.
In a competitive global environment, the path towards effective and efficient
implementation of reforms passes through broader political consensus building. Despite
the substantial progress so far achieved, structural reforms should not be a taboo issue
for political forces. Broader political consensus can enhance accountability as well as
ownership of reforms and provide lasting solutions.
A strategy adopting a technocratic approach to political governance, which is based on
measurable results, systematic assessment and benchmarking against the rest of
Europe, as well as on seeking a genuine consensus in society at large, is key to
addressing problems in a number of critical policy areas. Sticking to ideological red
lines hampers building consensus around tried and tested answers to problems such as
tax evasion, lawlessness and impunity, shortcomings in educational standards vis-à-vis
the rest of Europe and delays in the delivery of justice. Only well documented policies
can provide sustainable solutions and usher the country to a new era of growth and
prosperity.
With regard to public finances, which is and should remain our number one priority,
given the fiscal challenges ahead and the need to maintain our fiscal credibility, I would
like to point out that we are still in the early stages of implementation of the new
Stability and Growth Pact (GSP). The revised fiscal framework imposes control on
government net expenditure growth, while also implying that any fiscal space created
on the revenue side will be used to reduce public debt. These new conditions are
opening up scope for rapprochement and synthesis between political parties towards
consensus decisions on how to prioritise public spending and investment and improve
their efficiency, combat tax evasion (with a view to broadening the tax base) and ensure
a fairer distribution of tax burdens.
At this point, let me elaborate on the disproportionately heavy burden of defence
expenditure borne by Greek taxpayers relative to taxpayers in many other euro area
countries, which is linked with the protection of European borders and, in particular,
Greek-Turkish relations. The burden of such expenditure, which primarily concerns
imported military equipment, falls exclusively on Greek taxpayers. What is lacking today
is a coherent and effective European security policy in the area of defence (as also
suggested by the Draghi Report), aimed at maximising the benefits of defence
investment and minimising the disproportionate costs entailed by defence equipment (e.
g. through defence co-production programmes). At the same time, efforts should
continue so as to find points of convergence in Greek-Turkish relations, given their
bearing on Greece's economic and social performance, stability and security.
A very important fact to note is that the dialogue between Greece and Turkey which
started in 2023 has already delivered significant results with regard to airspace
infringement over the Aegean Sea, managing migration flows and economic
cooperation. But above all, it has created an environment of stability and security for
citizens: it is no coincidence that, while two years ago Greek-Turkish relations, together
with the rising cost of living, were citizens' primary concern, nowadays, as suggested by
opinion polls, citizens are still interested but not worried. This has had a strong positive
impact on the stability and outlook of the Greek economy. I believe that an agreement
on the settlement of our dispute with Turkey, on the delimitation of maritime zones,
would be more than welcome, unquestionably paving the way for long and sustainable
peace as well as economic growth and welfare in the region and Greece in particular.
The complexity of modern societies, characterised by frequent crises, multi-dimensional
challenges, heightened uncertainties, globalisation and the ubiquitous presence of
social media, has, in my opinion, rendered traditional political ideologies such as the left
and the right, inadequate to describe today's political clashes. Therefore, the left-right
dichotomy sounds rather outdated. Rather, in modern democracies, the critical divide is
between liberal and populist policies, as experienced in Greece after the collapse of the
two-party system and the emergence of new political formations in 2012.
Citizens must demand from traditional and new parties alike a minimum degree of
commitment to dialogue and compromise. Even if this may require institutional reforms
in the context of our parliamentary system, potentially involving amendments to the
Constitution, such changes should be set in motion in the coming years.
The broader the policy agendas the parties manage to agree upon, the brighter the
economic outlook will be, thus helping to increase welfare. Besides, the country's
European orientation largely entails a convergence of views on the direction to be
followed by national economic policies within EMU.
Unfortunately, today at the European level, despite a long tradition of political
consensus and alliances, anti-systemic populism is on the rise, with public trust in
democratically elected governments plummeting. I would like to underline that such a
shift towards a polarised and fragmented political landscape in Greece, which has
already suffered from a protracted and painful economic crisis, would have disastrous
social and economic consequences.
However, in light of the hard lessons learned from the recent economic crisis, I believe
that the so-called "systemic" Greek political parties have come to realise the country's
political and economic stability as well as European path as essential pillars. This
realisation creates a unique opportunity for fostering a consensus political culture in
Greece, which would facilitate the sharing of political cost, hence the effective
implementation of necessary reforms. In my opinion, consensus on economic policy
matters should comprise four key elements: First, commitment to fiscal responsibility,
with continued achievement of primary cyclically adjusted budget surpluses of 2% of
GDP annually. Second, commitment to safeguarding financial stability, i.e. maintaining
the robustness of the financial system and protecting deposits. Third, commitment to
economic convergence by closing the investment gap as well as to advancing the
appropriate reforms and upgrading the institutions. Fourth, bringing Greek-Turkish
relations and the associated positive economic potential into the agenda.
Thank you for your attention.