Bank of Greece upbeat on recovery prospects

An interim monetary policy report for 2012, published on December 3 by the Bank of Greece, gave a positive assessment of the progress of reforms, and said recovery could come earlier than expected if the government pressed ahead with agreed measures.

The central bank said the country had already implemented a number of the necessary reforms. "All the conditions of the loan agreement have been met, sending a clear message that Greece has fully delivered on its part of the agreement," the report said. The eurozone agreed to a €43.7 billion ($57 billion) disbursement from the European Financial Stability Facility on November 27.

The Bank of Greece said significant progress had been made in "reining in" fiscal deficits, as the government's deficit fell from 15.6% of GDP in 2009 to 9.4% in 2011. Furthermore, the central bank said progress with structural reforms had "not been negligible", while action from the Bank of Greece and European Central Bank had helped to ease liquidity conditions.

"Despite the delays, the progress that has been achieved in key sectors is tangible," the central bank said. "Despite the risks and the ongoing recession, the economy is changing." According to central bank forecasts, GDP will contract slightly more than 6% in 2012, slowing to 4–4.5% in 2013 before turning positive in 2014.

However, other commentators were not so hopeful. Costas Azariadis, a professor of economics at Washington University, said the Bank of Greece had "consistently overestimated" the speed of the recovery.

Azariadis gave two reasons to be cautious about the progress. "One is that reforms voted, and revoted, by the parliament, are implemented at a snail's pace," he said. "The other is that investment has collapsed because corruption continues unabated and unpunished."

Andreas Koutras, a director at In Touch Capital Markets, a consultancy, expressed similar concerns. "It is the job of the central bankers to be optimistic, especially in Greece right now," he said.

Koutras suggested Greece had been too reliant on the state, and was now undergoing a painful rebalancing. "The Greek economy was predominantly driven by the state," he said. "Once the state stopped paying, the whole economy collapsed." The only solution was "deep-rooted reform" in almost every aspect of the economy, he said.