yannis stournaras : prospects of the greek economy and the role of supervisors in regulating the banking system speech by mr yannis stournaras, governor of the bank of greece, at the international forum of independent audit regulators ( ifiar ) inspection workshop, athens, 8 february 2017. * * * ladies and gentlemen, i am deeply honoured to be here today and have the opportunity to share with you my thoughts on the impact of ongoing developments in the greek economy in general and the domestic banking sector in particular. before i move on, please allow me to highlight the importance of financial stability as a necessary condition for achieving the goals of prosperity and sustainable growth ; these are common goals between market participants and central bankers. this precondition becomes really important, as our macro - prudential environment becomes stricter with the passing of each year. regardless of any single initiative or project, the general macroeconomic framework and key financial stability conditions are absolutely necessary in order to achieve overall positive performance. these simple facts have become abundantly clear over the past few weeks in greece, as we all look forward to reaching an agreement between the greek government and the institutions as soon as possible and bringing the second review of the current economic adjustment programme to a successful conclusion. i will briefly outline some of the most significant developments that have been made in the domestic economy. these developments were accompanied by positive changes in the greek banking sector and, in particular, by a series of ongoing initiatives to achieve higher asset quality. in this context, it is worth adding some thoughts to the ongoing discussion between banks and supervisors, in terms of the medium - term impact of ifrs 9 implementation. finally, a few remarks about cooperation between banking and audit regulation as well as the issue of mandatory auditor rotation are quite relevant for our discussion. following a deep and prolonged recession, greece is currently on the road to recovery. the rebound of economic activity in the second and third quarters of 2016 supports an expectation of positive growth rate for the year as a whole, for the first time since 2014, and much stronger growth in 2017. as you are aware, the economic adjustment programmes that have been implemented in greece since 2010 aimed to address the large twin deficits ( i. e. fiscal and current account ) and structural weaknesses from which the economy had suffered for decades. so far there have been remarkable achievements : unprecedented fiscal consolidation : over the period 2013 – 16, the primary deficit was eliminated and, for the first time since 2001, substantial

support research, technology diffusion, entrepreneurship and foster closer ties between businesses, research centres and universities. this would contribute to further increasing r & d spending and the ict sector ’ s share in gdp. however, exploitation of ict calls for continuous development and training in new technologies, the adoption of innovative products and the enhancement of start - up entrepreneurship. overall, serious efforts are required to foster innovation and r & d spending in order to boost greece ’ s digital transformation. 10th targeting policy efforts on providing incentives for cluster development, so as to help smes overcome their small size and exploit economies of scale, given the very significant role of smes in the greek economy. incentives should also be provided to improve the technology and knowledge content of their output, while emphasis should be placed on facilitating their access to foreign markets through export promotion strategies and the establishment of common distribution channels. it is well documented that financial development boosts the growth of small firms more than it does large firms and hence fosters aggregate economic growth ( see beck et al., 2004 ). furthermore, policy action is needed to provide funding via the banking sector, the capital markets as well as through various eu funds, while financial technology ( fintech ) could offer alternative finance options to smes. the bank of greece has an active interest in fintech and has, in fact, recently set up a fintech innovation hub ( see bank of greece, 2019 ) aiming to offer support and information to firms and individuals who are introducing or considering the adoption of innovative, technology - driven financial products, services or business models. 5. the emu dimension a lot has been done in recent years to improve the functioning of emu. nonetheless, the architecture of emu is still incomplete in many respects, and euro area policy makers cannot rely solely on ecb interventions ( see european commission, 2018d ; stournaras, 2019b ). the following improvements are considered necessary : first, it is essential to ensure that the economic rebalancing mechanism ( i. e. the macroeconomic imbalance procedure ) operates more symmetrically, i. e. both for member states with external deficits and for those with external surpluses. up to now, the burden of adjustment has fallen, to a very large degree, on member states with current account deficits. member states with high current account surpluses could have responded more appropriately. second, it is a priority to complete the banking union with a european deposit insurance scheme and the capital markets union