The ECB is tightening monetary policy with the aim of inflation, while Yannis Stournaras leaves open the next move on interest rates.

In an environment of increased pressure from inflation and international developments, the European Central Bank proceeded with a new adjustment to its monetary policy, with its governor Bank of Greece Yannis Stournaras explaining the reasons behind the decision and the next possible steps. Mr. Stournaras emphasized that price developments and the revised forecasts for inflation made the ECB’s move necessary, while noting, however, that the path of interest rates will depend on new economic data, the energy market, and geopolitical developments. At the same time, he referred to the scenarios being considered by the eurozone regarding growth and inflation, as well as the significant progress of the Greek economy, which, as he noted, continues to strengthen its position within the European environment.

“The decision to raise interest rates by the ECB was unanimous,” explained the governor of the Bank of Greece, Yannis Stournaras speaking at the 7th OT FORUM on “100 Years of Economic Courier”.

The new forecasts

“The new forecasts indicate significantly higher inflation. In December we forecast 1.6%, now we forecast 3% and for next year 2.3% and then 2% by the end of the year. We see that conditions have tightened for inflation. So there was no other option but to raise interest rates,” he noted.

“However, if an agreement is reached, as was reported this morning in the Middle East, nothing stands in our way for the future,” he added, clarifying that “there is no commitment for either July or September. There are no forecasts for the future, as the president said yesterday.”

“Right now we have four scenarios: the baseline, a milder version of the baseline, and two worse-case scenarios from the ECB. And the Bank of Greece will publish corresponding scenarios in the coming days. I believe it is in everyone’s interest to reach an agreement that will lower energy prices, lead to the region’s reconstruction, and benefit everyone. We have scenarios for oil. The case for inflation and growth is built on this,” he said, summarizing that he believes “if there is an agreement that is adhered to by all parties, there will be a period of optimism. Let’s not forget that the economy and expectations are ‘animal spirits,’ as Keynes said. Since 2020, we have been experiencing supply-side shocks that have made the work of monetary policy very difficult.”

Significant progress in the Greek economy

“I have seen very significant progress in the Greek economy,” said Mr. Stournaras.

“We are not too far from the eurozone average, but there is still a long way to go. For example, the speed of the justice system, the education system that does not produce the skills sought by the labor market, as well as public infrastructure.

Regarding the minimum level of consensus within the political system, Mr. Stournaras emphasized that “we must continue the fiscal policy that is the foundation of growth, progress in the banking sector, financial stability, and reforms.”

Regarding demographics, he summarized that housing is a key factor, and based on this, steps must be taken to improve both this issue and the demographic situation.as we must also reconcile women’s roles with family life and homeownership

Regarding tax justice, Mr. Stournaras emphasized that “the top priority is for the Independent Authority for Public Revenue (AADE) to continue with electronic transactions. The Bank of Greece has raised the issue of the many tax exemptions—we’re not saying they should be abolished; that’s not our job —but we recommend that the government review them, as is beginning to happen at the IMF level, so that they are better targeted where there is a need.”

Regarding direct and indirect taxes, “I think the government is doing the right thing with indirect taxes because we have now emerged from the crisis. As long as tax evasion is being cracked down on, there is room to look at this as well.”

Elections

Considering that the fiscal problem has nearly caused Greece’s ruin several times in the past, and in the recent past,“I would say it would be right to include something reasonable about this in the Constitution. In any case, no one today disagrees with the new Stability and Growth Pact. Let it become a constitutional requirement.”

“If there is a possibility of multiple elections or an inability to form a government, of course there will be a problem for the economy. That is why consensus is required on the three key elements that the Bank of Greece considers the minimum issues for political consensus among the parties. “We have learned the hard way what the opposite outcome would be, which would lead us back to old payment cultures and to where we once were,” concluded Mr. Stournaras.