panayotis thomopoulos : anti - inflationary exchange rate policy in greece in the 1990s speech by mr panayotis thomopoulos, deputy governor of the bank of greece, at the euromediterranean seminar, eurosystem and mediterranean country national central banks, organised by the bank of italy and the european central bank, naples, 14 - 15 january 2004. * * * i would like to thank the ecb and the bank of italy for the successful organization of this meeting. greece has been for more than three thousand years at the cross - roads between north, south and eastern mediterranean countries and, we greeks have been able to enrich our culture and ideas from our relationship with all the nations around the table and i am sure that to - day ’ s exchange of experiences will be to the mutual benefit of all present. i look forward to an even closer cooperation in the future between the eurosystem, with the ecb taking the appropriate initiative, and the rest of the central banks from the other regions of the mediterranean. when the maastricht treaty was signed, greece was meeting all the criteria of a country in crisis. stagflation, with mounting macro - economic imbalances, were the main characteristics of the economy. in the 15 years up to 1993, average inflation was almost 17 %, gdp growth was barely 1 % per annum, while the fiscal deficit was creeping upwards reaching some 13, 5 % of gdp by 1993 and pulling up the debt - to - gdp ratio to over 110 %. it was, therefore, not surprising that the government ’ s commitment to prepare greece for the satisfaction of the maastricht criteria in 1999 and membership of the euroarea by 2001 ( 2 years after its creation ) was received with disbelief by almost all foreign and domestic observers. from the beginning of 1994, when the new stability oriented policy was initiated, a managed exchange rate was a key policy plank in the stabilization process and contributed importantly to disciplining economic agents and setting in motion wage and price restraint, which brought the rate of inflation down to some 2 % on average in the twelve months to early 2000 thus making possible our euroarea membership. between end 1994 and early 1998, i. e. in the period preceding our erm i membership, the bank of greece and the government had decided to follow a policy of managing the exchange rate by not allowing the drachma to depreciate as fast as was needed to compensate for

on structural fiscal adjustment, the new framework encourages the authorities to differentiate between temporary and permanent fiscal measures, thereby promoting more prudent long - term fiscal planning. the use of the expenditure rule as a single operational indicator used to monitor compliance with the new framework contributes to a more sustainable fiscal environment by encouraging disciplined budgeting and, thus, more effective expenditure - based fiscal consolidation plans. expenditure rules mitigate fiscal risks and create fiscal buffers, by curbing excessive spending during periods of economic boom. also, these rules allow flexibility for public investment and enhance predictability and market confidence in fiscal strategies. lesson 3 : national ownership of fiscal consolidation. the experience of the euro area debt crisis has clearly indicated that national ownership of fiscal adjustment efforts is critical for ensuring the success and sustainability of fiscal reforms. successful fiscal consolidations depend on political 2 / 8 bis - central bankers'speeches consensus and effective social dialogue. when countries take ownership of their fiscal policies, aligning them with domestic economic conditions and political realities, this strengthens their commitment to sound fiscal management. national ownership of fiscal consolidation plans allows governments to design tailored measures that reflect the specific needs of their individual economies, while fostering public support, because citizens are more likely to back homegrown reforms than those that are externally imposed. within the eu, where fiscal rules are in place, national ownership helps bridge the gap between eu - level requirements and domestic policy priorities. by embracing fiscal responsibility voluntarily, rather than merely complying with eu rules, member states can promote fiscal discipline, improve credibility with markets and enhance trust in european institutions. this approach supports long - term fiscal sustainability and economic stability, ensuring that fiscal consolidation efforts are both effective and politically feasible. but let me emphasise that trust, or credibility, is not something that can be obtained overnight. we will have to earn it. our new fiscal framework provides a necessary vehicle for doing so. the rest is up to us. as the old saying goes, " the proof of the pudding is in the eating. " 2. debt sustainability : a multifaceted discipline debt sustainability was perhaps the most immediate concern during the european debt crisis. the skyrocketing public debt levels in several member states led to a loss of market confidence, rising borrowing costs and fears of sovereign defaults. in this context, the european debt crisis offered key insights into managing sovereign debt effectively. lesson 4 : a holistic approach to debt sustainability. the crisis revealed that managing public debt is not simply about medium - term