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Charles Dallara addresses the Hellenic Bank Association in Athens, calls for a new Strategy to enable Greece and Europe to emerge from the Crisis
Athens, Greece, November 14, 2012 — IIF Managing Director Mr. Charles Dallara today in Athens, Greece, said that “less austerity and more growth” was urgently needed in both Greece and Europe, adding that “until the Greek economy returns to growth,” doubts will persist regarding Greece’s membership of the Euro and these will fuel contagion elsewhere in the Euro Area. “It is time to recognize that austerity alone condemns not just Greece but the whole of Europe to the probability of a painful and protracted era of little or no economic growth,” he said.
He praised the Greek people for their “resilience, fortitude and courage” and their “impressive willingness to bear short-term pain for the long-term gain that will come from the structural adjustment of the economy.” He paid tribute to the governments of Greece that “have guided Greece through these last three tumultuous years”, and pointed out that “the current coalition has made a commendable start on the difficult measures needed to carry on the important work begun by its predecessors.” On Greek banks, he reminded the audience that “in contrast to some other countries in the Eurozone, the banks here did not bring down the sovereign” and that in fact they “registered impressive levels of capital adequacy before the crisis, with core Tier 1 ratios of 10% or more, well above those for banks in the U.S. and the rest of Europe” and a return on equity before the crisis of “near 15%, compared with only about 10% on average in the U.S. and the rest of Europe.”
Mr. Dallara said that what is needed now for Greece “is to ease the pace of the remaining fiscal adjustment to something closer to that of Ireland, which has been moving steadily with annual reductions of 1.5% per annum” and pointed out that is “just one third of what is programmed in 2013 for Greece.” On debt sustainability for Greece he laid out several steps that ought to be implemented, including “cutting interest rates on existing and prospective EU and IMF lending to funding costs,” which would give “meaningful debt service relief to Greece.” A more moderated adjustment path and accelerated drawing on unused EU investment structural funds would support investment spending and improve economic growth prospects.
On Europe, Mr. Dallara said that while “discipline and steady progress in reining in fiscal deficits are essential” they cannot alone do the job and that “growth must be restored sooner rather than later if Europe is to resume its rightful place as one of the world’s leading economic powers.” Mr. Dallara noted the important progress the Euro Area had made with regard to providing firmer fiscal foundations to Europe’s monetary union, but called for a clearer road map towards that goal.
A better balance within Europe between growth and austerity, he said, “could turn what threatens to become a vicious spiral of stagnant decline more generally into a virtuous circle of stronger growth and improved government revenues, feeding in turn into better job prospects and stronger profits for corporations and banks, the world over.”