panayotis thomopoulos : post - olympic greece 2004 - infrastructural development and financial innovation speech by mr panayotis thomopoulos, deputy governor of the bank of greece, at the euromoney conferences, athens, 24 november 2004. * * * ladies and gentlemen, it is a rare opportunity to be able to address a distinguished audience as this one on such a topical issue as the future of greece in the post - olympics era. in everyone ’ s mind there is the question whether greece can sustain the relatively high level of growth achieved in recent years now that the demand stimulus coming from the preparations for the olympics has come to an end. this is an important change for greece indeed, coming on top of all the difficulties faced by the world economy such as the oil shock, the geopolitical uncertainties and the threat of a disorderly resolution of global imbalances. trying to forecast the future is always a perilous activity and under today ’ s circumstances one might be inclined to take a pessimistic view. i would like to diverge from the pessimists and i will use my time to explain why greece can continue on a path of strong growth if we can address the forthcoming challenges by adopting sound and market - friendly policies. to use a sporting metaphor, in the 1960s and 1970s greece won the european gold medal with the fastest gdp growth, afterwards our successive coaches failed, but again since 1994 we came under the discipline of an excellent coach, the german inspired maastricht treaty and finally in 2004 we won the european champion football cup ( euro ). indeed, greece ’ s annual rate of gdp growth of 3. 7 % between 1997 and 2004 was the second highest in the eu, after that of ireland, and one - half bigger than that of the euro area. i believe that we can retain again a position near the top if we put our best effort to it. year 2005 will be a difficult one, as the necessary fiscal adjustment and high oil prices will constrain growth. however, over the medium - term, i do not see a danger of a severe slowdown or recession. of course, we cannot continue to grow for extended periods at rates above 4 %, so some deceleration is to be expected and may do us some good by helping contain inflationary pressures. our growth rate may regress back to our long - term potential, which i estimate to be around 3½ %. i want

entrepreneurs and, especially, foreign investors to enter the market. removing oligopolistic practices can be a spur to growth and help contain prices. flexibility in labour market does not mean less protection but more protection to all workers. the strict labour laws, which are, sometimes, unfortunately, interpreted even stricter by judges, is an important factor behind the big underground economy. unregistered labour has no job protection but is also less well paid than registered workers. the insider / outsider issue, which has reached big proportions in greece, is also an important factor behind the recorded high unemployment rate, especially affecting young people. the relatively small proportion of registered workers also undermines the capacity of the pension system to pay in the future the full pension entitlements to to - days working population. accordingly, the insiders may not even themselves be so well off at the end of the day as they think. more flexible labour laws which will bring to the surface the unregistered labour and the concomitant increase in social security contributions will also help to establish a sound pension system delivering all its commitments. accordingly, it is up to the authorities to move in the right direction and also benefit from the reform dividend. one thing that should be clear to all is that the future will be different from the past. growth in recent years has been based on domestic demand, fuelled by construction, overall easy monetary conditions and large deficits, as are now recorded. these favourable factors will play a smaller role in future, as the fiscal position moves gradually to balance or surplus and real interest rates increase, reflecting a decline of inflation and a rise in the nominal interest rate, if the ecb changes its monetary policy stance. so we have to give more prominence to external sources of growth and structural measures. we must adopt an “ extrovert ” policy that gives priority to improving our role in the world economy. sometimes i hear arguments for import substitution as a source of growth. let us be frank ; for a small, country - based economy, as the greek one, only firms which can also export can have the critical mass of production to remain viable in a highly competitive global economy. it is better to delete import - substitution from the greek vocabulary. in reshaping our economy, we should focus on areas where we already enjoy a comparative advantage, and by this i have mainly services in mind. this does not mean that we should neglect agriculture and industry. i simply want to say