An agreement with creditors is absolutely necessary in order for Greece to avoid bankruptcy and poverty and move towards growth, says the report written by Bank of Greece Governor Yiannis Stournaras. “Failure in negotiations will be the beginning of a painful course that will initially lead into bankruptcy and eventually to Greece’s exit from the Eurozone and – most likely – from the European Union,” says the fiscal policy report for 2014-2015. A Grexit will create a currency crisis and inflation will skyrocket. The next day will bring deeper recession, dramatic drop in revenues, more unemployment and collapse of the whole economy. Greece will become a poor, southern European country, the report continues. The Bank of Greece characterizes the signing of a deal with lenders as a “historical imperative,” adding that the distance to a deal is rather short. The report divides the time of uncertainty for the Greek economy in two periods, one in the last months of 2014 when snap elections were inevitable and one after the February 20 deal and the prolonged negotiations that led nowhere. As a result, in the second quarter of 2015 growth pace will be much slower. In order for Greece to come out of recession and the economy to be sustainable, it is imperative that all structural reforms that have been planned to be carried through, along with the expansion of products and services markets. At the same time, the report says, cash outflows from banks in the period October 2014-April 2015 reached 30 billion euros. According to the Bank of Greece there is a series of measures that must be taken that would “ensure a permanent exit from the crisis.” These measures are: A) Continuation of structural reforms in product and services markets, facilitating the entry of new businesses, enhancing competition and fostering of innovation. (B) Strengthening active labor market policies to address the high unemployment rate. (C) Formulation and implementation of a coherent and targeted social safety net, ensuring a permanent and not piecemeal assistance to those who really need it. (D) Streamlining state of operation, improve the institutional and legislative framework, adoption of a stable fiscal framework and generally a friendly business environment. (E) Ensuring fiscal discipline and achieving primary surpluses through interventions mainly structural in nature with less tax collection. Emphasis should be given to ensuring the sustainability of insurance funds through the reduction of various exceptions to the general provisions. Review the different exemptions that exist in direct and indirect taxes and maintain only those justified by developmental and social criteria. (F) Addressing the challenges of bad loans management, in order to strengthen the banking system. While changes are needed in the institutional framework, such as the pre-insolvency law, Civil Procedure Code and court settlement in order to support the efforts of banks to better management of non performing loans.
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