and revenue enhancement are expected in the coming years as a result of merger synergies and the improved macro environment. synergies are expected to raise the efficiency of greek banks to levels comparable to european peers. the rebound of economic activity will improve revenues and the quality of banks ’ balance sheets. challenges ahead the positive developments outlined above must not make us complacent. the banking sector still faces significant challenges, with the most significant one being the accumulation of non - performing loans. this, makes banks reluctant to extend new credit, deprives them of income that could otherwise be recycled into new loans and forces them to tie up more capital for future loan - loss provisions. the resolution of the challenges surrounding non - performing loans has two preconditions. bis central bankers ’ speeches first, the economy has to return to a positive growth path and falling unemployment that, in their turn, will improve the repayment ability of borrowers. second, a framework has to be put in place at the level of individual banks to ensure a more pro - active management of non - performing loans. emphasis should be placed, on the one hand, on the alleviation of the burden on borrowers facing temporary difficulties in servicing their debts and, on the other hand, the finding of a more permanent solution to loans which are unlikely ever to be fully repaid. such a strategy will not only help individual borrowers, but in the long term will unlock funds for the financing of the economy. to this end, two important developments have taken place. the government has established the government council for private debt management. the bank of greece has prepared a framework of supervisory requirements for banks ’ npl management, as well as a code of conduct for the management of private sector arrears. both have laid the ground for the creation of a mechanism for resolving the issue of non - performing loans. banks, for their part, must continue undertaking the necessary organizational actions to enhance the operating units that deal with these loans. they also need to continue implementing value - enhancing, capital - enhancing and fundingenhancing strategies in light of the latest stress test, the basel iii requirements and the slow pick - up in deposits. at the same time they face pressures to reduce their reliance on eurosystem refinancing and are due to face pressures relating to the change in ecb collateral rules in early 2015. up until now, the only sector in the economy to have undergone radical restructuring is the banking sector.

world trade. - industrial production also shows signs of stabilization and indicators, such as retail sales, travel receipts and new car registrations, suggest that the recession is gradually coming to an end. soft data ( such as the economic sentiment indicator and the purchasing managers ’ index ) indicate a more optimistic outlook for the months ahead. - lastly, encouraging indications are emerging with regard to employment. over the first five months of the year, dependent employment flows have been positive and significantly higher than previous years. however, unemployment still remains exceptionally high and is expected to fall only gradually. recovery in 2014 is feasible overall, recent developments in the greek economy support the forecast of a gradual return to positive growth in 2014. by 2014 : - the fiscal drag will be considerably lower compared to previous years ; - competitiveness gains and higher external demand for greek products and services will bear fruit in terms of better export growth ; - liquidity constraints will loosen further ; and - the benefits of structural and institutional reforms will be more evident. however, recovery hinges upon, first, a reversal of the decline in investment and, second, a faster growth of exports. bis central bankers ’ speeches improvements in business and overall confidence strengthen the prospect of a recovery in investment as : ( i ) firms are gaining access to alternative sources of financing, such as corporate bond issues ; ( ii ) the absorption of eu funds has increased ( by april 2014, the absorption rates for the programming period 2007 – 2013 rose to 79. 3 %, bringing greece to third place in the eu ) ; ( iii ) the creation of a greek investment fund will have a positive effect on foreign capital inflows ; and ( iv ) the first quarter of the year marked the restart of major infrastructural projects. the second factor expected to contribute favourably to growth is a rise in exports. historically, export performance has been closely related to cost competitiveness, in particular unit labor costs relative to trading partners. in fact, over the period 2000 – 2009, wage competitiveness has declined by about 25 %. exports of goods and services ( excluding receipts from shipping ) have underperformed exports of the eu17 by a similar margin. however, this close relationship between wage competitiveness and relative export performance broke down after 2009 : while wage competitiveness has improved by more than 25 % since 2009, exports of goods and services ( excluding receipts from shipping ) have outperformed eu17 exports by just 5 %. historical correlations would have predicted an outper