The governor of the Bank of Greece spoke at the Economist Conference about the consequences of crises and the challenges of our time
The assessment that the problem with inflation concerns the next 12 months, as long-term inflation expectations have risen but are still relatively low Gikas Hardouvelischairman of the Board of Directors of the National Bank, professor at the Department of Finance and Banking Administration of the University of Piraeus from the podium of the Economist conference.
If we do not reach the expected inflation, after 12 months, the chances of entering, globally, into an inflationary spiral, increase, he pointed out in his position, underlining that there is also a positive effect of inflation on public finance indicators: “for for example, at the end of 2022, the ratio of public debt to GDP will have decreased from 1.93 to 1.70”.
Referring to the possibility of recession, he noted that for the USA the chances are 35% and for the EU 33%. “According to academic research I’ve been doing since the 1980s – and so far it hasn’t been wrong in its prediction – if the yield curve, that is, the yield spread on ten-year bonds compared to three-month bonds, turns negative for more than a quarter, then next year comes a recession. Now that doesn’t seem to be the case,” added Mr. Hardouvelis.
According to Mr. Hardouvelis, households are aware of the problems in the economy and face the situation maturely, just like businesses. “There are businesses that survived the financial crisis. Many businesses could have borrowed from government programs during the pandemic, but did not. Bad loans are not increasing, for now. Tourism is doing very well. Much will depend on the developments in the Russia-Ukraine war”, he added, expressing the assessment that Greece must follow a reliable policy “and it does, at this stage”.
Yannis Stournaras, governor of the Bank of Greece
The governor of the Bank of Greece, Yannis Stournaras, spoke from the conference platform about a very demanding international environment for policy makers, noting that while we had managed to take a breather from the global financial crisis, we received the “blow” from a series of negative shocks. Mr Stournaras referred to the effects of the pandemic, the energy crisis and the Russian invasion of Ukraine, stressing that inflation has climbed to record levels in the Eurozone, necessitating the normalization of our monetary policy.
The governor of the Bank of Greece pointed out that a new instrument to mitigate fragmentation episodes is being considered, while adding that there will be flexibility in the way of reinvesting maturing bonds under the extraordinary PEPP quantitative easing program.
According to Mr. Stournara, the aim is for inflation to return in the medium term and for this an improvement of the architecture of the euro zone is needed.
Mario Centeno, president of the Central Bank of Portugal
The president of the Central Bank of Portugal, Mario Centeno, spoke at the Economist conference about an environment with upheavals, due to the pandemic and the unjustified invasion of Ukraine, stressing that one of the primary goals is to overcome high inflation.
As Mr. Centeno mentioned, the European banking sector proved its resilience during the pandemic and financial stability was maintained, but – according to him – the problems are not over. “We must act gradually, flexibly and expand our toolbox. It is very important to see what happened in the spring of 2020 when we operated in a spirit of coordination.” At the same time, he referred to the increase in interest rates, which – as he said – also entails risks, pointing out that the Fed’s policy is different because the reality in Europe is also different compared to the USA.
Konstantinos Herodotou, governor of the Central Bank of Cyprus
Constantinos Herodotou, governor of the Central Bank of Cyprus, characterized the banking sector in Europe as of key importance in dealing with the crisis. “The challenges for banks are to overcome the crisis of the pandemic and the war and this will be the fuel for growth,” he noted. In addition, Mr. Herodotou said that we are all feeling the impact on prices from the invasion of Ukraine, stressing that stable and low levels of inflation are what we need. “We have given further guidance for rate hikes in July and September, while promoting anti-fragmentation tools. We live in uncertain times that will last. The important thing is to be coordinated and united,” he added.
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