panayotis thomopoulos : the greek economy and its outlook speech by mr panayotis thomopoulos, deputy governor of the bank of greece, at the covered bonds conference, organised by barclays international, athens, 1 september 2006. * * * ladies and gentlemen, i am delighted to address this meeting devoted to an issue of growing importance to the financial community. experts will speak on the subject of this conference as for me i shall try to introduce the subject of greece. it is two years since the successful conclusion of the athens olympics and i am glad to observe that the greek economic performance since then has vindicated those of us who have remained optimists all through the last decade. while two years ago many feared that the greek economy would slide into a protracted period of slow growth or even recession when the spending for the olympics ended, and cited spain as a precedent, we now see that the greek economy remains one of the strongest in the eu. this performance, achieved in the context of a very significant domestic fiscal adjustment and the eurozone ’ s slow growth until recently, indicates that greece has a dynamism that reflects important changes on the supply side. in the rest of my speech i will highlight the main strengths of the greek economy, the risks facing us and the necessary policy measures needed to avoid those risks and maximize the benefits from our strengths. as i alluded to before, many feared that the demand - led expansion in the run - up to the olympics would be followed by a significant slowdown and some even predicted that greece risked falling back into a vicious circle of stagflation. indeed, between 1980 and 1994, economic performance was abysmal : gdp grew only at 0. 7 % annually and inflation averaged 16 % combined with a rising fiscal deficit, culminating at 13 % of gdp in 1993. considering the significant initial disequilibria it is not surprising that in the 1990s few believed that greece would satisfy the strict criteria for euro area membership, and even after joining the euro area in 2001 many doubted that it would be able to sustain for long the high rate of gdp growth of 4 % p. a. experienced in the 9 years to 2004, compared with only 1. 9 % for the euro area as a whole. indeed, the fears increased as the deterioration of the fiscal situation, associated with the olympic games ’ overruns partly due to sizeable additional expenditure for security as well as the budgetary relaxation called for a substantial fiscal adjustment,

emphasis in the future should be placed on the risks and vulnerabilities of the rapidly expanding non - bank financial sector5. in addition, further steps to enhance data quality and availability are necessary, including by harmonising data definitions and promoting greater standardisation at global level ( e. g. financial and real estate transactions data ). issues related to greece let me now turn to a few key domestic issues. throughout the crisis, the bank of greece has been the guardian of financial stability, fully protecting all deposits and supporting the economy and serving the public interest. the bank focused on two major fronts : ensuring adequate provision of liquidity, and managing and assisting recapitalisation, resolution and restructuring of the banking sector. with respect to liquidity provision, the bank has been critical in ensuring continuous liquidity provision to banks in its role as the lender of last resort. on various occasions, the bank of greece has provided ela to the banking system. this has helped preserve financial stability and contributed to the avoidance of a banking crisis. with respect to managing and assisting recapitalisation, resolution and restructuring, the bank, in the context of the adjustment programmes, aimed to strengthen viable institutions and resolve non - viable ones, whilst safeguarding financial stability. to this end, viability assessments and 3 / 5 bis central bankers'speeches capital needs assessments were undertaken. those banks deemed non - viable were resolved and absorbed by systemic banks. with 14 such resolutions having successfully taken place since 2011, this process has also facilitated the considerable consolidation of the banking sector. following three rounds of recapitalisation, greek banks now have among the highest capital ratios of banks in the euro area and maintain buffers sufficient to absorb additional credit losses, as the recently completed pan - european stress test indicated. they have also markedly improved their liquidity position, reducing their reliance on central bank funding, regaining access to the interbank market and issuing covered bonds. concurrently, customer deposits have been gradually increasing. however, the ratio of non - performing exposures ( npes ) to total exposures remains quite elevated and constitutes the most significant challenge for the greek banking sector. banks have set operational targets to significantly reduce the stock of npes by end - 2019. at the same time, significant reforms have been implemented, aimed at removing administrative, legal and judicial impediments to npe resolution, as well as establishing a secondary market for npl servicing and sales. these efforts have started to bear fruit : according to