"Greece: The post EMU Agenda"
Speech by
Mr. Yannos Papantoniou,
Minister of National Economy and Finance
of the Hellenic Republic
At the "Brewery"

London, Monday 21st February 2000

Ladies and Gentlemen,

It is always a pleasure to have the opportunity to speak with you about the challenges facing Europe and the prospects of the Greek economy. Earlier this morning I have met with Gordon Brown at the Treasury and we have discussed how we can jointly push for economic reform in Europe. In anticipation of the Lisbon Council deliberations, we have discussed at some length the issue of fostering enterprise culture and, in particular, how to create a business environment conducive to the development of business in the digital era. We must work together in order to speed up the rate of innovation in the European economy, increase the financing of new activities, and strengthen our commitment to the upgrading of the workforce in order to improve employment prospects. More investment, better opportunities and more jobs will lead to a more cohesive society.

There lies a great challenge for the markets and financial institutions. The introduction of the EURO coupled with new information and networks technologies have dramatically accelerated the integration of European financial markets. These developments offer the prospect of important benefits for the European economy in terms of economic growth, more competitive financing of business Investment and job creation.

We should work together to overcome historically developed rigidities in the organization of market rules and regulations. We should open up the agenda to include all aspects of listing and trading. Comparability of financial information, convergence of corporate governance rules, a modern regulatory framework guaranteeing effective enforcement and adequate supervision, an efficient clearing and settlement infrastructure, are the main items on this agenda. Policy makers, regulators and exchanges must work together, setting clear priorities in order to address and resolve these issues.

The Greek markets have covered considerable ground in terms of regulations and volume over the last six years. The Athens Stock Exchange has become the focus of increased activity as all major companies are now listed and privatization has gathered momentum. We have recently initiated a major restructuring of the stock exchange including its privatization and listing with a view to increasing its flexibility and strengthening the potential for international alliances.

The Athens Derivatives Exchange has already started its operations offering Greek stock exchange and bond related instruments. By the end of March a new market for small and medium firms will be created. Risk capital will be readily available for start-ups and dynamic companies. As I said earlier, the renewal of our economic systems and the creation of employment depend crucially on a favorable environment for investment and the opening up of enterprise opportunities for all.

These developments in the markets come on the back of a strong economy. Economic progress has been quite substantial and is leading to our joining the European Economic and Monetary Union on January 1st 2001. However, the challenge we have set ourselves is more ambitious. We want to ensure that Greece will embark on the monetary union in a strong position and fully reap its benefits. Moreover, we want to ensure that the country is in a position to play a substantial role in promoting stability and growth in Southeast Europe as well as in the Mediterranean basin.

Sound macroeconomic policies and extensive supply-side reforms over the past six years have contributed towards creating an economic environment which is conducive to sustainable growth. We have built a platform for stability based on openness, credibility and forward-looking action.

The government has implemented over the last six years one of the most ambitious and intensive macroeconomic adjustment programmes in the European Union. Inflation has declined to about 2%, down from 14% in 1993.

The budget deficit is 1.5% of the Gross Domestic Product, already well below the Maastrict Treaty criterion, compared to 13.8% of GDP In 1993. The debt is declining fast as primary budget surpluses have come close to 7% of GDP and privatization revenues hit record levels. The reform of public finances has proceeded on an unprecedented scale, both on the revenue and the expenditure side. The success of our fiscal consolidation effort has enabled us to introduce considerable reductions in the tax burden especially for low-income groups and small-scale enterprises. This policy move will have a positive impact on equity, employment creation and efficiency.

The real economy is responding to the new stability framework. For the last three years growth rates reached 3.5%, well above the European Union average. Real convergence towards the European Union has evolved at a rapid pace and will accelerate if our projection for growth of more than 4%, in the years following 2000, is confirmed.

Greece is now moving on a virtuous cycle with low deficits, low inflation and high growth. The major forces that have created this virtuous cycle have been increased policy credibility, deficit reduction, widespread structural reforms, a significant fall in real lending rates and an expansionary public investment programme, which is partly supported by European Union funds. Strong growth has created more employment opportunities.

The acceleration of structural reforms and the intensification of the privatisation process are likely to inject more dynamism in the growth process by spreading a competitive culture and higher efficiency In several protected areas of the economy. Thirty state enterprises and banks are being privatised over a three-year period. Fourteen enterprises have already been privatised. The Hellenic Telecommunication Organisation has achieved a listing in the New York Stock Exchange last November and a total of 49% of its capital has been placed in the market. The Athens Water Corporation has also been listed in the Athens Stock Exchange after a rigorous restructuring of its core business. Four banks have already been sold to the private sector. The sale of the lonian Bank last year was the largest ever privatisation in Greece and has initiated a major restructuring of the banking sector.

Needless to say that all major international financial institutions are involved as advisors and underwriters in the privatisation of public corporations and banks. With their assistance we have succeeded in speeding up the process of restructuring and privatization.

Preparations for the privatisation of other major banks and utilities are under way. The Agricultural Bank, the Lottery Organisation and the two main port authorities will be privatised during the year 2000. We have started the preparations for the privatisation of the Public Power Corporation with a public offering expected before the electricity market is deregulated. Total proceeds from privatisation have already exceeded 8 billion dollars since the beginning of 1998.

Within this more competitive setting the business community is showing signs of renewed dynamism and is gradually becoming more outward looking, exploiting the opportunities created by the opening of markets. Several years ago Greece's internationalised entrepreneurial activity was largely restricted to shipping and commerce. The current revival has led to a more diversified internationalization. Telecommunications, advanced support services, software development, banking and a very dynamic food sector are leading the Greek business expansion in the Balkans and other transition economies

Small and medium size enterprises are playing a leading role in the economic revival. Government policies to help SMEs through alleviating their tax burden, facilitating their access to bank finance and the capital markets, subsidizing their investment programmes and assisting their modernization efforts, are having the desired effect. They are developing a new enterprise culture in Greece encouraging entrepreneurship and the setting up of new businesses.

The Greek banking system is now functioning in a fully competitive environment. Privatization, mergers and acquisitions have transformed the financial landscape. A second phase of consolidation in banking is likely to occur prior or immediately after EMU entry.

Foreign capital has been involved in major infrastructure projects and has taken up considerable positions in Greek stocks and securities. We are confident that the outward orientation and dynamism of Greek and foreign investors will generate higher growth. Having this in mind, foreign investors have still considerable opportunities, in order to establish a successful presence in a wider region.

Let us turn to the future, to the prospects and opportunities of the Greek economy in the post EMU era. All economic Indicators point towards a stable and sustainable macroeconomic environment. Economic structures are being modernized and new dynamic sectors have flourished. The Convergence Programme, building on the budgetary consolidation achieved so far as well as on positive growth prospects, is projecting the general government balance to turn into surplus in the year 2002. The programme fully complies with the requirements of the Stability and Growth Pact Sustainability of economic progress is secured. We have always taken bold measures whenever stability was called into question. I remind you the recent revaluation of the central rate of the drachma.

Growth is projected to proceed at high rates, higher than 4%, over the following years, in an environment of low inflation. This prospect will allow us to promote substantial redistribution of Income in favor of the weaker social groups through tax reductions and Increased welfare spending. Restructuring and upgrading our welfare state with a view to improving the quality of public services also forms an important part of our social agenda.

High non-inflationary growth is conditioned by continued improvement of the competitiveness of the economy. There are three particular factors offering considerable relative competitive gains to the Greek economy in the following years. In fact, all three of them are related to different aspects of the catching-up process.

The first is related to the convergence within the year 2000 of the interest rates currently prevailing in Greece to the much lower level of Euro-zone rates. The reduction in interest rates will enhance the financial position of the private sector and will benefit the State Budget. It will, thereby encourage investment and accelerate growth in the coming years.

The second is related to the relative gains from the expected productivity Increases owing to rapid modernization and structural reform which has started only recently in Greece while it Is in a relatively advanced stage In most of the European Union member-states.

Privatization will gather pace and deepen over the next couple of years. The remaining public corporations will be listed to the stock exchange as soon as they are restructured and various privatization options will be promoted with a view to improving the competitive prospects of the enterprises concerned. New avenues for raising funds and Implementing structural reforms are explored.

A major boost in economic development and investment will result from the deregulation of the telecommunications and electricity markets. In these areas we expect a rapid inflow of capital and an acceleration of investment.

The third aspect is related to European Union Structural Funds' continuous financing of infrastructure projects in Greece. Following the Berlin Council agreement concerning the European Union budget, this financing is expected to rise to 25 billion EUROs over the 2000 - 2006 period leading to the implementation of works and projects with a total cost of 45 billion EUROs.

These funds will be directed to a number of priority areas. We are proceeding with the completion of the motorway network and the upgrading of the major entrance gates to the country. We are also promoting the diffusion of innovative and technology based processes to the economy in order to participate in the emerging information society and create a fertile environment for the development of new activities and employment patterns. We are going to invest close to two billion EUROs in projects related to the information society. Furthermore, we shall continue to direct resources to the development of agriculture and other productive sectors. Finally, we are initiating a major improvement of educational and other social infrastructure in order to attain a higher quality of public services.

It is a major challenge for us to implement efficiently such an ambitious development plan. Monitoring and implementation mechanisms are already in place guaranteeing prompt completion as well as the quality of the projects. Apart from European Union financing, we are pioneering public-private partnerships for infrastructure investments especially in the transport sector.

I would like also to add two further dimensions. The organization of the Olympic Games, a world class event, in Athens in 2004 will help to project the image of the country and create a fertile environment for the development of new service based activities. Furthermore, It will open up more opportunities for Investment and International co-operation. We have secured adequate financing for the main projects and planning is at an advanced stage.

Greece's position in the Balkans also implies an enhanced role in the region, especially as regards economic and political co-operation. Our cultural and economic ties to the peoples of this region, together with Greece's advantageous location at the crossroads of three continents, create the potential for Greece to become an efficient gateway to the regional emerging markets and act as a force for stability and growth.

Furthermore, we are helping the people of the area formulate a strategic vision that it is worth fighting for and within their capabilities. This perspective can be the process of the region's integration to the European Union economy and institutions.

The European Union has already identified the main areas for assistance: reconstruction of infrastructure, institutional building and aid to displaced people. Greece will actively participate in the working groups, which will design the international reconstruction package.

Moreover, Greece is making its own contribution towards the reconstruction and the development of the region. Our assistance plan has been designed to complement the international plan for economic reconstruction and cater for the most pressing needs of the countries in the region. Therefore, we mainly direct financial assistance towards the upgrading of social and basic infrastructure and the revival of the productive sectors of these countries' economies.

These new developments in Southeast Europe create a fertile ground for new business initiatives and cross-border collaborations. Greek corporations have already been very active In the Balkan countries. Knowledge of local economies, stable business links and proximity with headquarters make Greek entrepreneurs valuable partners for business expansion in the area.

Ladies and Gentlemen,

Over the past six years we have laid the foundations for a strong, stable and competitive economy. Economic and financial stabilization, supply side reforms, upgrading infrastructure and labor skills, coupled with policies designed to improve social justice and reinforce cohesion, make today's Greece a reliable partner in the regional and world scene.

Our expected membership of the European Economic and Monetary Union as well as our location and overall linkages to the peoples of Southeast Europe provide the framework for reinforced International co-operation, in both the political and economic fields, in the mutual interest.

This government is determined to continue pursuing policies guaranteeing growth with stability, and sustainable reform with social responsibility. Greece Is entering the new century in a spirit of competitiveness and optimism, determined to play its part in the transformation of the European economy.

© Copyright 2000. Capital Link, Inc. All rights reserved.