Stability and discipline mark Central Bank’s role
HUGE STRIDES HAVE BEEN TAKEN TO MODERNIZE THE FINANCIAL SECTOR, AND CONSOLIDATION AND LIBERALIZATION HAVE STRENGTHENED INSTITUTIONS

The financial services sector in Greece has come a long way in a relatively short span of time. The benefits of liberalization in the banking sector during the 1990s have filtered through and the industry is stronger as a result. The economy is on an even keel and Greece is leading Europe when it comes to GDP growth.
There has been a wave of consolidation. About 10 years ago, there were around 40 banking institutions in Greece; today, the figure is closer to 20. The top five banks control roughly 80 percent of the market, one of the highest ratios in Europe.

LUCAS PAPADEMOS Vice-President of the European Central Bank

Above all, the country has made the successful leap into the European mainstream, launching the euro at the beginning of the year alongside the western powerhouses of Germany, France, Italy and Spain.
Much of the credit for the country’s smooth transition from the drachma to the euro rests with the respected former governor of the Bank of Greece, Lucas Papademos, widely acclaimed as one of the chief architects of the modernized financial system and the new-found economic resilience.
The appointment of Mr. Papademos as Vice-President of the European Central Bank (ECB) earlier this year was a testimony to the man’s credentials and track record in the management of monetary and foreign exchange policy.
Since he took over the central bank in 1994, Mr. Papademos – who holds a doctorate in economics from the Massachusetts Institute of Technology and worked as a senior economist at the Federal Reserve Bank in Boston – is credited with shepherding the high-inflation Greek economy into the eurozone, an immense task at the time, and instilling discipline into what was once Europe’s most wayward economy.

More than that, his appointment at the ECB was a source of immense pride for many Greeks, pleased to see one of their own recognized among the best of European financiers.
In June, the Bank of Greece’s new governor, Nikolaos Garganas – who enjoys the confidence of Prime Minister Costas Simitis – was sworn in to take up the post vacated by his esteemed predecessor. Mr. Garganas, the former deputy to Mr. Papademos, says that his main priority will be to achieve the goals of the Bank of Greece within the framework of the euro system. It is a time for consolidating all the hard work and success that has gone before.
Despite all the efforts of Greece in the past decade, several important issues remain to be confronted. These include keeping a lid on inflation, reducing public debt, raising productivity, and speeding up the pace of liberalization in Greek markets, as well as to reforming the social security system.

EUROPEAN INTEGRATION should result in greater demand for many different kinds of products.

Mr. Garganas has already called for bolder steps “to continue with the economy’s structural adjustment in order to improve efficiency in product, labor and capital markets.” He has also called for restraint in wage negotiations, noting that unit labor costs were accelerating in Greece while slowing in the eurozone.
Nonetheless, the outlook for Greece overall is vastly improved. The build-up to the 2004 Olympics continues to drive development, while most commentators agree that the arrival of the euro has bolstered the state’s financial standing.

According to Christos Gortsos, secretary general of the Hellenic Banking Association (HBA) – an organization that represents the banking industry – the country has made huge strides in the past decade in terms of improving the institutional framework of the local banking system. “The introduction of the euro was very successful here in Greece and this is no coincidence,” he says.
The association itself was involved in extensive training and educational programs to prepare bankers for the launch of the new currency and to educate people on the realities of the changeover. Much of the HBA’s work is now closely linked with the European Banking Federation.

“We didn’t play any role in the shaping of the macro-economic conditions, but we played a very decisive role in the preparation of the banking sector for the introduction of the euro,” he says. “We were very active in the shaping of the national legislation, and we also had a very intensive communication strategy.”
Mr. Gortsos says there have already been many benefits, including greater monetary stability through coordination with the ECB, as well as lower interest rates, an important motor for business and the financial services industry.
Further European integration also bodes well for the development of local capital and money markets. He thinks it will result in a greater demand for all kinds of financial products in the years ahead. “This means that we expect the financial sector to grow up,” he adds.

A measure of the growing status of the Greek banking sector is the HBA’s development of an educational center – the Hellenic Banking Institution – to provide professional training to local bankers and those abroad. It has already successfully promoted the idea in parts of Europe and Asia, including Bulgaria and Russia.
Mr. Gortsos believes that financial stability is no longer an issue in Greece. There is a depository scheme which provides guarantees to investors, although the country has not faced any major financial crisis for many years.
“The regulatory framework for the banking sector in Greece is quite similar to all other banking states,” he says. “Financial stability is guaranteed here by the same tools and means of every other member of the EU. I don’t believe that financial stability is a problem for the market.”