george a provopoulos : the greek economy and banking system – recent developments and the way forward welcome remarks by mr george a provopoulos, governor of the bank of greece, at the conference “ the crisis in the euro area ”, athens, 23 may 2013. * * * i would like to warmly welcome you to this conference on “ the crisis in the euro area ”. that such a conference is taking place here seems to be especially appropriate. after all, greece is the country where the euro crisis started and which, for much of the past several years, has been at the epicenter of the crisis. what i would like to do is to briefly discuss some developments that led greece into the crisis and then take stock of the progress that greece has made in adjusting its economy. before doing so, let me provide a preview of my main conclusion. although greece has been through some very rough waters, both in terms of its real economy and its banking system, the situation is turning around. considerable progress has been made in addressing the weaknesses of the economy, making it much more competitive. importantly, the country is well on the way to building a strong and competitive banking system. as the governor of the institution responsible for banking supervision and financial stability, i gain special satisfaction from the fact that, after three years of deep crisis, the stability of the banking system has not only been preserved but it has strengthened. it has not, however, always been easy for the bank of greece. let me now turn to the underlying causes, and the policy responses, to greece ’ s sovereign debt crisis. how did this crisis come about? the entry of greece into the euro zone in 2001 was widely seen as marking a transformation in the country ’ s economic performance. entry into the euro area seemed to indeed mark a new regime. between 2001 and 2008, real growth averaged almost 4 per cent a year, inflation fell to the low single digits, and interest - rate spreads between 10 - year greek and german sovereigns dropped to between 10 and 50 basis points, from over 600 basis points in the late 1990s. however, these were years when greece was living dangerously. unsustainable fiscal and external imbalances were building up. by 2009, the fiscal deficit had reached 15½ per cent of gdp and the share of government debt had increased to almost 130 per cent of gdp. moreover, greece ’ s cost competitiveness had deteriorated by 30 per cent, and the current account deficit had peaked at 15

no other sea outlet, but thessaloniki also is closer to sofia than the bulgarian ports in the black sea, and the same applies for large regions in south - east romania, south serbia etc. companies established in these regions will find it more convenient to use thessaloniki as a trading port than other sea outlets. especially, if one takes into account the queuing time needed to cross the bosphorus, the economic advantage of the greek ports is more than evident. this will be even more so when the eu co - financed trans - european transport networks, opening up the aegean ports to our northern neighbours and beyond, will reach a maturity phase towards the end of this decade. can thessaloniki become the rotterdam of the balkans? keeping all proportions i would reply yes, and its expansion in recent years and especially after 2007 when the road linking turkey to the west ( the egnatia highway ) will have been finished is a guarantee that thessaloniki along with northern greece will be restored to its past trading and economic glory, to say nothing about the fact that it is a very pleasant, in many respects more than athens, city to live in. greece is in a special position in that its exports of services far exceed its exports of goods. in fact, our non - oil good exports are now somewhat less than tourism receipts and even less than those from shipping, while our total receipts from services cover more than four - fifths of our total non - energy good imports. many foreign observers indicate, as a source of concern, greece ’ s trade imbalance but they forget that - in the world we live in - services are growing faster. we should build on our success in these areas. it is well known that greece is a major world power in shipping and by far the most important shipping nation in the european union and, on the basis of new orders, it may increase even more its world market share over the medium term. for both economic and geopolitical reasons, europe needs a strong merchant fleet, and here lies greece ’ s important contribution to the union. greece, with a shipping tradition of more than three thousand years, should maintain its comparative strength in this area both for its own benefits and the european union ’ s as a whole. shipping is a sector subject to practically unhindered international competition ; it is, therefore, necessary not to impose on it measures and regulations that could impair its competitiveness, apart from those required for environmental reasons. we should also look at ways to enhance the role