Remarks by Angel Gurría
Athens, Greece - 30 April 2018
(As prepared for delivery)
Dear Prime Minister, Minister, Ambassador, Dear Friends:
I am delighted to be back in Athens to launch the 2018 OECD Economic Survey of Greece. I would like to thank you Prime Minister for hosting us and for your government’s support throughout the preparation of this Survey, particularly the hands-on approach of Finance Minister, Euclid Tsakalotos, and Alternate Finance Minister, George Chouliarakis.
I also would like to congratulate you, your administration and the whole of Greece for an impressive stabilisation effort and one of the most ambitious reform packages we have seen at the OECD in recent times. This is starting to bear fruit!
Greece’s reform efforts are finally paying off. The Greek economy is growing again, at rates of 2.0% in 2018 and 2.3% in 2019. If our estimations are right, by 2019 Greece will be growing at a faster rate than the Eurozone average. Employment has also been growing, by up to 7% since 2014. Unemployment has been gradually but steadily declining. It’s still high but it’s declining. And this time exports are the main driver of growth, increasing their contribution to the economy from 24% of GDP in 2008 to 34% in 2017.
Amazingly, all this improvement took place in the context of an unprecedented fiscal consolidation effort. The Greek Government’s primary balance went from a large deficit in 2015 to a surplus of more than 3.5% of GDP in 2016 and 4% of GDP in 2017, exceeding the European Stability Mechanism (ESM) targets. We know that this effort has had a significant social and political cost, but we also know that it will be crucial to bring back international confidence in Greece.
The markets have already taken notice of this progress. The Greek government bond spread has fallen from about 12% in April 2015 to below 4% last week. Today, Greek bond yields are not far from those of Ireland and Portugal when they exited their own ESM programmes. And talking about exits, it is very reassuring to see that newspapers headlines have moved away from the “Grexit” doom to another type of exit, a positive one, the exit of Greece from its bailout programme this summer of 2018.
Congratulations Prime Minister, you have brought Greece back from the brink!
This, however, as you very well know, doesn't mean that the job is done. Greece is still facing important challenges.
The long crisis has taken a heavy toll on the economy, but most importantly, on the Greek people. Public debt is still high and this is a source of constant vulnerability. Investment has dropped by 60% since the onset of the crisis. Productivity levels are low and still decreasing. Unemployment levels are still high, at close to 21% (in 2017), while youth unemployment is still at 45%. Many of the new jobs are on part time contracts with low wages. GDP per capita is still 25% below its pre-crisis level, while poverty – in terms of severe material deprivation – doubled between 2009 and 2016 from 11% to 22.4% and remains at an all-time high in households with children (under 18).
As we argue in the 2018 Survey, it is now high time to focus the reform effort on delivering inclusive and sustained growth. It is very important to maintain the reform momentum and strengthen reform ownership, but it is equally important – I would even say urgent – to focus on those reforms that will reactivate investment, create more and better jobs, raise family incomes and reduce poverty. These are the thematic chapters of our Survey. And we are happy to see that these are also the priorities of the Greek Government. And that you are working on a new strategy, which the OECD stands ready to support.
The development of the National Growth Strategy is key, as it will frame Greece’s continued reform commitment for the post-programme period while focusing the reform efforts on growth. Wide and strong political ownership of the National Growth Strategy is paramount to maintain confidence in Greece’s reform momentum and, most importantly, to turn the reforms, the new policies, the new governmental programmes, into widespread well-being for the Greek population.
To achieve this, it will be crucial to advance in three parallel tracks:
First, improving debt sustainability. Greece’s public debt ratio has stabilised, but at 175% of GDP is still among the highest in the world. To reduce the debt ratio, it is essential to promote and implement additional reforms to boost growth. Reforms in public administration, product markets and effective retirement age can have a significant impact on long-term GDP growth. We estimate that these and other reforms listed in the Survey could raise long-term growth by more than 0.5 percentage points each year.
Large but realistic primary surpluses are also important. A primary surplus of just above 2% of GDP will have to be maintained for an extended period. This will require further changes to the tax system to make it fairer and more growth friendly by continuing to fight vigorously tax evasion, simplifying the tax system, and enhancing the effectiveness of public spending.
Reforms in these areas are already improving tax collection. The establishment of the Independent Authority for Public Revenue was a great step forward. Increasing further the share of electronic payments is also essential.
And, of course, it is indispensable to advance in debt restructuring. The OECD survey suggests to cap the interest on concessional loans at 2%. This along, with the reforms listed above, would bring the debt ratio to below 80% by the mid-2050s.
Secondly, supporting job creation and reducing poverty. For Greece’s recovery to be inclusive, it must be rich in jobs. Today, over 1 million people are looking for work, three-quarters for over a year. Past labour market reforms have allowed many businesses to stay open and keep employing their workers. However, wages have been cut drastically and today almost 50% of private-sector workers earn the full-time minimum wage or less.
Greece needs to keep the benefits of the reformed labour market institutions while better protecting workers from labour market risks. Wage-bargaining agreements need to adapt to the different circumstances of different workplaces, particularly small firms.
Sustaining job growth and raising incomes requires that workers have the right skills. In Greece, fewer workers report that their skills match their employers’ needs than in most OECD countries. Addressing this problem requires scaling up post-secondary vocational education and successful reskilling programmes. In this context, the reforms that Greece is promoting in the education sector are quite important.
Only last week, the OECD Chief of Staff and Sherpa, Ms Gabriela Ramos, launched the 2018 OECD Education Review of Greece with Minister Gavroglu, here in Athens. The Review makes concrete recommendations on increasing school autonomy, supporting the professional development of teachers, developing reliable student assessments, strengthening the tertiary education sector and, crucially, increasing expenditure for education, which has fallen by 36% in nominal terms in the past decade.
Very importantly, Greece also needs to step up efforts and programmes to curb poverty. In this respect, the Social Solidarity Income; reforms to family benefits; the roll-out of school meals; and, proposed reforms to housing allowances, are all welcome efforts. Progress made in better targeting social protection programmes and using resources freed by rationalising non-targeted programmes, should continue to create a fairer and more effective social protection system; another crucial challenge.
Finally, our third main recommendation is to focus on boosting investment. For Greece’s recovery to be sustained and resilient, it must be rich in investment. The drop in investment in the past decade has been so large that the productive stock capital is now falling, dragging down GDP growth. This needs to change.
Recent reforms have led to improvements in important areas of the investment climate, such as product markets and entry to professions, but more is required to raise domestic and foreign investment. Our Survey recommends further easing of product market restrictions, improving regulatory quality and transparency, completing the land registry, and fully implementing the legislated insolvency reforms. It will also be important – under the current tight budgetary constraints – to preserve and further promote public investment.
Greece also needs to continue tackling the challenges facing its banking sector. Banks have overhauled their governance standards but these still need to become entrenched practices. Though the capital ratios of Greece’s banks currently exceed regulatory thresholds, the stock of non-performing loans remains high and, along with capital controls, contributes to tight financial constraints.
Our Survey recommends that the Greek authorities stick to their ambitious plan of reducing non-performing loans (NPLs) and ensuring banks remain well capitalised. In addition, fully implementing out-of-court workout procedures and e-auctions, and strengthening temporary tax incentives will accelerate the disposal of NPLs. Capital controls will need to be phased out carefully while preserving financial stability.
Prime Minister, Ladies and Gentlemen:
The efforts that the Greek Government and the Greek people have made over the past decade have been remarkable. Let’s make them blossom! For that, it is essential to give continuity to the reforms, to strengthen the national ownership of these reforms, to recover the Greek command of its own destiny. In this sense, it is also fundamental to focus these reforms on a new type of growth, one focused on people; a more resilient type of growth, focused on social well-being; a more sustainable type of growth, focused on human progress.
The National Growth Strategy that you are developing can be the new vessel, the new Argo, to take Greece to this new era. Prime Minister, count the OECD among the Argonauts! Thank you very much.