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In a report on monetary policy introduced today in Parliament head of the Bank of Greece George Provopoulos recommends that business should seek alternative financing arrangements to bank lending.

The banker believes that, over the next period, the economy will emerge from the six-year recession and provides for stabilisation of the economy. He recommends strict implementation of reforms in order to capitalize on the progress and cost reduction in order for fiscal "recovery" to be achieved.

As regards funding, which is a crucial issue for business, Provopoulos recognizes the existing liquidity problems and urges companies to seek capital from other financial instruments instead of relying on bank lending alone.

According to sources, he suggests that large companies should resort to issuing bonds and his proposal, for introducing in the institutional framework changes that will allow small and medium enterprises to secure liquidity through corporate bonds, is considered particularly important.

In terms of stock listed companies, Provopoulos states that they will have to deal with the difficulties of bank financing through increasing their share capital.

Moreover, the head of the Bank of Greece notes that business should take advantage of the European Union funds as well as of the loans granted by the European Investment Bank, pointing out that, in 2014, it will allocate 805 million euro to the small- and medium-sized enterprises in Greece.

As to the role of banks in the period when the economy is gradually starting to recover, the banker states that the banking system has been restructured and recapitalised due to which the banks are now fewer but larger and healthier, and they could and should play a key role in the restructuring of other sectors of the economy.

George Provopoulos recommends that the banks resort to targeted allocation of financial resources to healthy branches and companies in order to improve their competitiveness and to support the new productive outward model of the economy. The banks should simultaneously encourage business partnerships that will lead to the establishment of stronger and more competitive units.

Moreover, Provopoulos recommends that the banks should create departments to manage problem loans by seeking and finding potential bad loans in the bank’s portfolios and by applying dynamic credit ratings of borrowers.

He also believes that the banks should cooperate with each other, manage together the problem loans of their common customers and intensify their efforts to achieve out-of-court settlements.

Return to growth

According to the Bank of Greece, the Greek economy will mark positive growth in 2014, after 6 years of recession. As noted in its report, the assessment of positive economic growth in 2014 is based on findings such as the stabilisation of the Greek manufacturing industry, the increasing employment, the declining spreads of Greek bonds and the impressive improvement of the balance of the current account that will mark a surplus this year for the first time.

George Provopoulos however recommends that no one should take it easy and stresses the need for continued implementation of the programme of reforms and structural adjustments, of privatisation and fiscal recovery.

He also notes that the fiscal adjustment should focus on cost reduction whereas the increase in revenue should be exclusively the result of the fight against tax evasion and the informal economy.

Cash deficit of over 9.96 billion euro

A cash deficit is reported in the budget for the period January-November which, however, will become a surplus, if we subtract the effect of the payment of the arrears and of the return of profits from bonds on the part of the European Central Bank.

According to the Bank of Greece, the cash balance of the central administration reported a deficit of 9.964 billion euro in the period January-November 2013 in comparison with the deficit of 7.672 billion euro in the same period of 2012.

The primary cash balance of the state budget has reported a deficit of 4.007 billion euro but the Bank of Greece explains that it will turn into a surplus of 3.131 billion euro if we account for the revenue from the transfer of profits from government bonds by the central banks in the European system, which amount to 1.5 billion euro, and subtract a cost of around 5,638 million euro, which relates to the payment of arrears.

In his report, the head of the Bank of Greece pays attention to the considerable problems caused by the political climate in the country, which is constantly marked by elements of polarisation and confrontation at a time when the opposite is needed, namely the consent of all social and political forces for the implementation of a common national policy for emerging from the crisis and taking the path to economic growth.