Prime Minister's address at the 75th anniversary celebration of the Bank of Greece, 3 November 2003
03/11/2003 - Speeches
Minister’s address at the 75th anniversary celebration of the Bank of Greece,
3 November 2003
Excellency the President of the
gives me great pleasure to be here with you today, to take part in the
celebration of the 75th anniversary of the Bank of Greece. In the years that
have elapsed since the Bank was established,
has undergone radical changes. The most important one in
recent years is our entry into the euro area.
and 11 other countries of the European Union chose to give
up their national currencies in favour of a new single currency, the euro, and
have entrusted monetary policy to a European institution, the European Central
Bank. Following the Accession Treaty, which was signed in
last April and provides that 10 new members will join the
European Union, it is expected that these countries will also adopt the euro.
The euro area will thus become one of the largest multinational monetary areas
in the history of mankind.
’s participation in EMU for granted. But all of us who have
worked towards this goal know that the initial outlook was very different. In
the early 1990s,
was sliding into economic instability and was diverging from
the European Union. Very few could have assumed then that
would become a member of EMU by the end of the decade.
we persevered. We carried out one of the most ambitious programmes of fiscal
consolidation, and, indeed, we did this without jeopardising
’s growth potential. We secured the consensus of all
citizens and we combined our consolidation programme with policies aimed at
structural reform as well as with the steady monetary policy of the Bank of
Greece. We thus achieved the reduction of inflation and of interest rates, and
became a full member of EMU.
celebration, today, of the Bank’s 75th anniversary gives us an opportunity to
take stock of what the Bank has accomplished since its establishment and to
consider its role under the new conditions brought about by EMU participation
and the changes in the global financial environment.
Bank of Greece was established in the late 1920s, at a time when
was in great need of fiscal consolidation, monetary
stability and a solution to its refugee problem. Following exhortations by the
Fiscal Committee of the
League of Nations
, and in order to secure a loan from the League, the right of
money issue was transferred from the National Bank of
to a new bank, whose exclusive mandate was to be the conduct
of monetary and exchange rate policies. This is how the Bank of Greece came into
being in 1928, while at the same time the drachma was pegged to gold.
those first years, the
Bank of Greece was forced to operate under adverse conditions with limited
resources. Nonetheless, it was able to rise to the occasion. During the early
1930s and in the midst of a deep crisis in the world economy, the Bank helped
bring about the smooth exit of the drachma from the gold standard. In the same
decade, the Bank became a key institution for the management of the economy,
helping to attract savings to the banking system.
World War II, the legitimate Administration of the Bank rescued the Bank's
foreign exchange and gold reserves and worked together with the Greek government
in exile. After the hyperinflation, which made the country suffer during the
Occupation, the Bank contributed greatly to restoring monetary and economic
stability. By the early 1950s, inflation declined dramatically and the drachma
was successfully pegged to the dollar, something which would last for about 20
the successful stabilisation of the currency, the Greek credit system came up
against insurmountable difficulties. In fact, in the post-war period the
operation of the credit system was subject to a strict regulatory framework
established by the Monetary Committee. Given the shortage of capital, the
Committee aimed at allocating finance to selected sectors of the economy. This
policy was initially successful, but the restrictions eventually turned the
credit system into a mere instrument of the Monetary Committee.
1980s and the 1990s, the Bank proceeded to the gradual deregulation of the
financial system. The modernisation of the financial system was rendered
’s membership of the EEC and by the prospect of the
creation of the single market. Modernisation was a prerequisite, so that
domestic banks could stand up to cross-border competition and could face the
consequences of the liberalisation of capital movements. Thus, for the first
time in the post-war period, banks began exercising their traditional function,
i.e. to raise funds and to allocate them to the most productive sectors of the
economy according to criteria of private economy.
deregulation of the banking system coincided with the implementation of a fiscal
consolidation programme and with the “hard-drachma” policy. These policies
were crucial for ensuring a smooth entry into the Exchange Rate Mechanism of the
European Monetary System in 1998 and into EMU on
January 1, 2001
the same time,
fulfilled its obligation under the Maastricht Treaty to grant political and
economic independence to the Bank of Greece. In our country,
the law granting independence to the Bank of Greece was passed in December 1997.
Of course, in a democracy independence does not mean absence of accountability.
The democratic control of the Bank of Greece is ensured, inter alia, through the
submission to Parliament of two reports each year on monetary developments and
policy, and through the testimony by the Bank’s Governor before Parliament on
matters within the Bank's mandate.
The past 75
years have taught us a good deal about what a central bank can and should do.
Foremost, experience has taught us that monetary policy and fiscal policy are
interconnected factors, which are instrumental in ensuring price stability and a
country's welfare. In an economy, citizens need to have confidence in the value
of the currency. The citizens who live in the European economy need to have
confidence in the ability of the monetary authorities to ensure price stability
and promote prosperity in the
the Bank of Greece is an integral part of the Eurosystem and contributes to the
exercise of its functions. As a member of the Governing Council of the European
Central Bank, the Governor of the Bank of Greece takes part in the formulation
of the single monetary policy.
, the Bank continues to be responsible for the smooth
operation of payments systems and for the implementation of monetary policy.
Most importantly, it is responsible for banking supervision and for safeguarding
the stability of the Greek financial system.
experience we have acquired over the last few years from the operation of the
financial sector leads us to conclude that this sector is strongly inter-linked
with the real economy. This means that whenever one branch of the financial
sector faces difficulties, it can easily “bring down” the entire sector with
it, with serious negative consequences for the economy and for growth. This is
why, in addition to banking supervision carried out by the Bank of Greece, the
Government has strengthened the supervisory powers of the Capital Market
Committee and plans to set up an independent authority for the supervision of
insurance companies. It is important that these authorities work together
harmoniously so as to better safeguard the stability of the financial system.
joined the euro area, a stable macroeconomic environment has
been established in our country, which is guaranteed by the Government’s sound
fiscal policy, by the Bank of Greece’s prudent supervision of the banking
system and by the European Central Bank’s steady monetary policy.
's next target is to achieve real and social convergence. To
achieve real convergence, we must accelerate economic growth. This is why we are
carrying out one of the largest infra-structural investment programmes that our
economy has seen in the post war period. At the same time, we are deregulating
all sectors of the economy, we are privatising public enterprises and we are
modernising the institutional framework that governs the operation of individual
markets. “Competition” and “competitiveness” have become key words in
our everyday policy vocabulary.
has recorded significant economic and social achievements in
recent years. The standard of living of Greeks has increased remarkably, while
’s growth rate is currently the highest or second highest
. But this is not enough for us. We
want this high growth rate to persist. And we concentrate all our efforts
on our next major challenge: the achievement of real and social convergence.