Ομιλία του Γενικού Γραμματέα του ΟΟΣΑ κ. Angel Gurria στην Τράπεζα της Ελλάδος με θέμα "Sustaining Economic Growth: Outlook and Challenges"
27/06/2006 - Ομιλίες
Presentation at the Bank of Greece
Introduction and roadmap
It is a great pleasure to speak here in Athens, and to share some of the
latest OECD insights on the world economy. It is also fitting to talk about
how to achieve and sustain rapid growth in living standards in this most dynamic
part of Europe.
I will first set the scene by outlining the global macroeconomic prospects including
some of the risks that lurk in the background of a seemingly reassuring outlook.
Next, I will zoom in on Europe. I will then turn to the structural reforms that
are under way or that are required to deliver faster growth and convergence.
In the process, I will address some of the key challenges facing Greece.
The global outlook
A broadening expansion
Notwithstanding high and volatile energy prices, the global expansion is projected
to continue and broaden this year and next, helped by still supportive financial
market conditions - despite recent "corrections" - and in a context
of contained inflation.
The US locomotive should decelerate somewhat, with growth settling around its
3% + potential rate - a baseline scenario best described as one of soft landing.
The projected moderation reflects a lagged response to $70 per barrel oil, rising
interest rates and some cooling housing market exuberance.
In Europe, where the cycle is less advanced, the pace of activity is gradually
picking up. However, following a series of fits and starts, the strength of
the high-frequency survey data (on orders and business confidence) has yet to
be corroborated by the less timely, lower-frequency national accounts data.
In the case of Greece, we see growth at around 33/4 per cent this year and next,
helped by some rebound in investment following the post-Olympics slowdown. Greece
is thus set to outpace the euro area average by a substantial margin. Inflation
should diminish to around 3% by next year, remaining above the euro area average
and therefore still a source of competitiveness erosion.
The world's other, Asian, locomotives - China, India and Japan - are also set
to decelerate a little, but should continue to expand vigorously. Growth in
China and India in particular is expected to be in the high single digits.
A number of risks and tensions surround this rather encouraging outlook. Let
me list only some of the most prominent ones.
Current account imbalances have reached unprecedented magnitudes, with a US
deficit now at 6½ per cent of GDP, while surpluses reach 3½ per cent of GDP
in Japan and 7 % in China. Granted, these imbalances have not entailed any major
disruptions to date. But they can hardly persist indefinitely without prompting
market-driven adjustment. Whether such an adjustment turns out to be smooth
or abrupt remains to be seen. And the potential for unpleasant consequences
should not be underestimated.
Energy prices have risen to historically high levels, in a context of strong
demand, limited spare capacity and geopolitical tensions. They could be driven
up to new heights by new supply disruptions, with adverse impacts on activity
and inflation in most OECD economies and beyond.
Long-term interest rates have already moved up significantly from their previous,
unusually low, levels. If they were to continue to rise as they have lately,
stalling or falling house prices would contribute to dent economic activity.
This is a somewhat long list of negatives, but there are also upside risks.
In particular, the high levels of corporate profitability witnessed across the
OECD area may foreshadow favourable surprises for capital formation, employment
Prospects in Europe
Let me now turn to Europe. As mentioned, the outlook is improving there, but
from a modest basis.
This is particularly striking in Germany. There, activity stalled in late 2005
and picked up only moderately in early 2006 but business confidence has reached
its highest levels since reunification, particularly in export-oriented sectors.
Going forward, the strength of the external environment is projected to feed
through to euro area domestic demand. With growth modestly above potential over
the upcoming 18 months, unemployment will decline only slowly and from a high
level of 8% of the labour force.
One of the policy priorities for many OECD countries, particularly in Europe,
and especially for Greece, is fiscal consolidation. This is both to create room
for fiscal manoeuvre ahead of the next downturn and to restore fiscal sustainability
in the face of the looming fiscal pressures associated with population ageing.
Greece's fiscal position improved significantly in 2005, with the general government
deficit shrinking by 2½ percentage points of GDP. The government's commitment
to bring it down to below 3% of GDP in 2006 is of course very welcome. But further
action is needed, including better control over primary spending, as well as
reforms of the tax system to eliminate many remaining exemptions and to further
curtail tax evasion.
The need for structural reforms
Over the longer run, Europe's economic performance and that of the OECD members
more generally obviously also depend on the quality of structural policies.
In the case of labour markets, the OECD has just published a thorough reassessment
of its Jobs Strategy. It shows how to get more people into paid employment and
boost living standards while keeping welfare systems afloat. It stresses the
need to move away from policies that discourage people from working, companies
from hiring and workers from improving their skills. In addition, reforms to
pension systems and alternative early retirement pathways are important not
only to boost employment rates, but also to ease future fiscal pressures from
ageing populations. These reforms are of course particularly urgent in a number
of European countries.
Reforms in Europe
Indeed, GDP per capita in Europe at large is about 30% lower than in the US,
because of lower productivity and because of the under-utilisation of labour
resources. Thus, the scope for reforms can hardly be overstated. This is also
true in the case of Greece, where there is substantial room for progress both
on the productivity front and as regards employment rates.
First, while overall the Single market for goods works well, competition in
a number of service sectors remains too lame. As you well know, pushing through
the EU services directive has been difficult. Yet, major welfare gains are in
the offing and not just for the EU newcomers' workers.
Second, productivity gains depend crucially on human capital and in particular
on the quality of higher education. Unfortunately, universities in Europe are
not living up to their potential. Funding is too low, and excellence fails to
be properly rewarded. There is no shortage of brilliant minds but they are locked
away in under?funded, bureaucratic and rule-bound institutions - or migrating
overseas. Europe should remove obstacles to their creativity. In fact, this
afternoon, I will be opening the meeting of OECD Ministers of Education who
will meet in Athens for two days to precisely discuss how to improve the quality,
relevance and impact of higher education.
Third, productivity growth also requires that firm creation and exit not be
impeded, and that the regulatory environment be business-friendly. In this regard:
Red tape should be low, as both the European Commission and the OECD have
emphasised in recent years, no just concerning national rules but also with
respect to the EU-wide regulation made in Brussels.
Product market regulations should not prevent competition. This holds especially
for de jure or de facto obstacles to cross-border foreign direct investment,
be it in old or new EU countries.
Governments should refrain from sponsoring "national champions"
or bailing out struggling firms via State aid or other more or less opaque forms
of favouritism. Here as well, the European Commission's vigilance is key, but
there is room for national courts to more actively help safeguard the rights
of firms penalised by the illegal aid granted to their competitors.
Reforms in Greece
In the case of Greece, with GDP per capita 23% below the euro area average and
46% below the US level, continued catch-up with living standards in the best-performing
OECD countries is the major medium-term policy challenge. While unemployment
declined to around 10%, it is still among the highest in the OECD.
Important structural reforms have been introduced lately, which should enhance
productivity and improve labour market performance. Let me just mention the
following ones :
In the area of labour markets, legislation was introduced to abolish permanent
contracts for new employees in all public entities and enterprises, measures
were taken to reduce the cost of overtime and to promote flexible working hours,
and a new law aims to smooth the integration of immigrants and to curtail the
black economy. Moreover, shopping hours have been extended.
Measures have also been introduced to improve the business environment, notably
in the form of a gradual lowering of corporate tax rates, of a simplification
of regulations affecting entrepreneurial activity, of new tax incentives for
investment projects, and of a new framework for public-private partnerships.
Last but not least, initiatives have been launched to enhance market liberalisation
and competition, including via a stronger role for the Competition Commission,
the pursuit of the privatisation programme, a new institutional framework for
the complete liberalisation of the electricity market from mid-2007, and a law
liberalising the natural gas market.
In addition, action has been initiated in a number of other important areas,
including pensions, health and corporate governance in the public sector. That
said, much remains to be done or completed. Let me highlight a few priorities:
On unchanged policies, pension outlays relative to GDP are projected to increase
more than in any other OECD country. The broad outlines of any reform should
probably include: better linking of pensions to lifetime earnings; limiting
statutory replacement rates to avoid pensions that are higher than the last
salary; and the scaling back of early retirement for certain groups.
The transition of youth from initial education to working life remains slow
by international standards. General education should provide flexibility in
the acquisition of new skills, and employers' representatives should be consulted
in the design of training programmes so that they actually develop the skills
that are in demand.
Employment protection legislation remains among the strictest OECD-wide, and
may have contributed to low labour turnover and to persistently high youth and
female unemployment. High severance costs for white-collar workers should be
brought more in line with those applying to blue-collar workers, while ensuring
that there be no discrimination against part-time employment.
Wage formation should be made more flexible by making it easier to opt out
of sectoral or occupational collective bargaining agreements in regions of high
Non-wage labour costs need to be reduced by cutting social security contributions
for the low paid.
Self-employment rates are comparatively high but enterprise creation rates
are modest, a symptom of substantial barriers to entrepreneurship. Bureaucratic
requirements for start-ups should be reduced further and flanked by bankruptcy
Political economy of reform
As a former emerging economy finance minister, I am only too aware of the obstacles
that stand in the way of such reforms. But I have also witnessed the tremendous
benefits that are to be reaped.
This brings me by way of conclusion to one of the themes that were discussed
at some length and with some passion at the ministerial OECD meetings last month
in Paris, namely the political economy of reform. In a nutshell, and to put
it bluntly, through what alchemy is it possible to reform and be reelected?
Indeed, in many countries, well-designed reforms have failed to be implemented
or sustained due to the near-term political costs they entail, and the fact
that opponents are vocal and well-organised while benefits tend to be more diffuse
This points to the need to inform and convince the broader public regarding
the benefits of such reforms - and the costs of the absence of reform. In this
endeavour, the OECD can offer a wealth of information and analysis, based on
the experience members have shared over the decades under its auspices, drawing
on the expertise of its committees and staff. I invite you to take advantage
of the unique strengths of this Organisation to support your economic reform