Bank of Greece Governor Yannis Stournaras stressed on Monday the need to open up the Greek economy more to competition, in order to de-escalate inflationary pressures.
Inflation in Greece, he said, is expected to average 3.8% this year, higher than Europe which will move to 3%, and this difference is partly attributed to excessive domestic demand.
“Greece is a country where demand is greater than supply. We have what we call a positive production gap, while Europe has a negative production gap,” the central banker told Skai radio explaining that this is what contributes to the inflation. Of course, the service sector also plays an important role in this. “We receive about 40 million tourists in a relatively small country of 10 million. These people contribute to excess demand,” he explained.
The solution is not to reduce demand but to increase supply, as he said: “We have to make reforms, we have to make investments, so that the supply increases. We must remove all barriers to the entry of businesses into economic activity sectors,” said Stournaras. “If we want to reduce inflation, we will have to open the economy to competition,” he stressed, acknowledging that it is not an easy process but is necessary even if domestic economic interests are affected.
