Bank of Greece: Economic Bulletin, issue 55

07/29/2022 – Press releases

Today the Bank of Greece published the latest issue of its Economic Bulletin (No. 55 / July 2022).

Articles published in the Economic Bulletin reflect the opinions of the authors and not necessarily those of the Bank of Greece.

Issue 55 contains the following four articles:

Sofia Anyfantaki, Yannis Caloghirou, Konstantinos Dellis, Aikaterini Karadimitropoulou and Filippos Petroulakis: “Skills, management practices and technology adoption in Greek manufacturing firms”

So far, the Greek economy has failed to reorient its production structure towards more complex and high value-added activities incorporating knowledge-intensive practices. Greece lacks a systemic dimension of “activating knowledge”. Given the country’s low performance in innovation and knowledge diffusion compared to its EU peers, the article focuses on two specific problems of Greek industry: skills and management practices. Both of these areas are essential conditions for achieving robust productivity growth, in which Greece has been chronically lagging behind its peers. First, the authors offer an in-depth review of skills indicators to identify the scope for action, particularly to address the mismatch. A notable finding is that, using mismatch indicators aggregated from microdata from the recent OECD Survey of Adult Skills which was conducted as part of the Program for the International Assessment of Adult Competencies (PIAAC), they show that Greece has the highest overqualification rate for professional occupations. The study also supports previous findings regarding the negative relationship between skills mismatch and firm productivity. Second, the authors use firm-level data from the World Management Survey (WMS) to review management practices in Greek industry and explore the quality of these practices and their association with productivity. Finally, they use information from a new survey on entrepreneurship, technological developments and regulatory changes, and examine the structural characteristics of Greek firms that innovate and tend to adopt new technologies, with a focus on the role of size, ownership structure, global value chain ownership and human resource practices. The empirical findings of the study provide a valuable contribution to concrete policy proposals aimed at increasing productivity in the Greek manufacturing sector.

Christos Catiforis: “Post-pandemic inflation: Phillips curve, trends, drivers and lessons”

After several years of very low inflation, the global economy in 2021 and 2022 faced a sharp and persistent rise in inflation rates not seen in decades. This article examines the main factors behind the surge in consumer price inflation in advanced economies and possible differences between them. It assesses the relative role of excess demand resulting from the reopening of economies after restrictive COVID-19 measures, global value chain and supply disruptions, rising energy prices, “base effect” and labor market pressures. The author finds that prices were initially pushed higher by the rapid recovery in global demand combined with global supply disruptions, but eventually, especially since the war in Ukraine, energy prices have become the main driver of rising inflation. Differences in the contribution of the core inflation component in advanced economies, in particular between the United States and others, reflect output gaps and labor market tensions, while pressures on Unit labor costs remained subdued almost everywhere. Given that inflation is expected to remain elevated for longer than initially expected, monetary authorities should become more “conservative” again, defending their credibility. Past experience suggests that, with an economic downturn becoming inevitable, the short-term costs of a gradual and orderly normalization of monetary policy for activity and employment are likely to be lower than the potential longer-term costs of a more popular prolonged accommodative policy. Anchoring inflation expectations is not “a free lunch”.

Nikos Ventouris and Georgios Palaiodimos: “Proposals for the reform of EU fiscal rules”

The aim of this document is to contribute to the ongoing debate regarding the reform of the EU fiscal framework, with a particular focus on Greece’s fiscal sustainability. The main policy proposals for EU fiscal rules build on lessons learned from past experience, findings from relevant studies and fiscal sustainability risks faced by Greece and other highly indebted countries in the euro zone. To this end, the authors use the European Fiscal Board compliance monitoring dataset to assess compliance with the existing Stability and Growth Pact framework. In addition, they use the Bank of Greece’s Debt Sustainability Analysis (DSA) model to identify potential fiscal sustainability risks for Greece in the medium to long term, taking into account alternative economic policy scenarios. (including a debt rule scenario). The main conclusions of the document indicate that the revised fiscal framework should focus on the need to improve public debt sustainability as a key priority, setting a debt anchor as a medium-term fiscal objective, with a single operating expense that promotes the countercyclicality of fiscal policy. Current benchmarks could be maintained and supplemented with appropriate flexibility in the rate of debt reduction to deal with heterogeneity across countries and avoid the self-destructive effects of fiscal policy. In the case of Greece, despite the favorable characteristics of public debt, short- and medium-term fiscal policy should focus on accelerating deleveraging. The exposure of Greece’s public debt dynamics to market and interest rate risks is expected to gradually increase as public sector debt is replaced by market financing, thereby changing the structure of public debt and intensifying the need to build fiscal buffers to increase its resilience to future adverse macroeconomic shocks.

Sofia Anyfantaki, Petros Migiakis and Aikaterini Paisiou: “Green finance in Europe: actors and challenges”

Addressing climate change through mitigation and adaptation requires shifts in policies, technologies and consumption behaviors towards a low emissions growth model. These structural and technological changes require appropriate financial solutions, in order to increase the financial flows that support sustainable growth. This paper focuses on the European dimension and examines the role of financial markets in the process of reducing greenhouse gas emissions and promoting climate change mitigation and adaptation. Global green bond markets have grown rapidly in recent years. Based on issue- and issuer-specific data, the authors find that global market activity for project finance in green bond issuance has accelerated in recent years. years, the total amount of bonds issued during the 2019-21 period tripled compared to the 2014-18 period. Moreover, they show that European markets and issuers are leading this development, while private sector entities are increasingly using green bond markets as a source of funding. On the other hand, funding from green bond markets has been directed to a few sectors of the economy, which highlights the need for some policy-related initiatives. The increase in green bond issuance has occurred during a period of accommodative financial conditions, further underscoring the need for policy initiatives to strengthen the supply of incentives to investors for green finance in the landscape. today’s changing financial markets. Improving the credibility, comparability and transparency of ESG ratings and credit rating agency assessments is essential to support sound investment decision-making and risk management, including those of central banks , which are increasingly integrating climate change issues into their operations.

Related information:

Issue 55 also includes summaries of working papers published by the Special Studies Section of the Bank’s Economic Analysis and Research Department between January and July 2022.

Related link:

The full text of issue 55 is available on the Bank of Greece website: Bank of Greece Economic Bulletin, Issue 55.

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