Stournaras in outspoken mode


Under the seemingly sedate title “The global economy in the 21st century: From globalization to a multi-centred world”, an academically-minded conference gave the floor to Bank of Greece Governor Yannis Stournaras (for an opening address). The result was somehow unexpected since Stournaras took the opportunity to dig into important political economy ground.

For one, he made the point to the – largely non-economist – audience that one should never bypass the main difference between the US Fed and the EU’s own ECB: the latter remains constrained by a charter that entrusts it with the singe mandate of price stability, while the former is under the obligation to also aim for full employment. Especially in crisis situations, all the more so in times of unconventional monetary policy and then of pull-back of such polity measures, this difference is of capital importance.

Furthermore, he explained the salience of keeping in mind the g-r function that is the gap between achieved growth and prevailing interest rates, when faced with the conundrum of debt.

When the world was shocked to see that the low-interest era came to an end (since Central Banks reverted to the goal of the throttling inflation), while at the same time growth collapsed (especially so in Europe), few realized the real danger resided in g-r turning negative. Which means the debt burden becoming less sustainable (Fortunately for Greece, the average interest rate of its public debt following the extensive debt restructuring of 2012-2017 is still below the growth rate achieved by its economy. Moreover, the latter stands at 2.4% – clearly more buoyant than the 0.4% in the EU/the euro area).

Another pointed remark of Stournaras had to do with the fact that both Banking Union and Capital Markets Union are lagging in EU negotiations, a state of things which further compounds the fact that the EU is still far distant from a federal or even a really confederal entity. This, in turn, means that extraordinary situations are more difficult to manage whenever black swans appear.

But perhaps the sharpest of Stournaras’ comments was the reference he made to “parochial reflexes of major factors” of the EU future, who tend delay progress if not prevent it from happening altogether. Such language, even covertly taking aim at e.g. German reflexes and/or the high and mighty of the financial world is not used often.

Since the (3-day) Conference went on to deal with subjects like the lending  policies of the IMF in times of crisis (Greece-Argentina), the WTO as an international economic regime, the impact of economic crises on state interventionism (“Preventing the Worst Beats Radical Reforms Back), the political economy of reforms, multilateralism vs. minilateralism and de-globalisation and so forth, it might seem somehow parsimonious to limit one’s reading of the event to the analysis of the Bank of Greece Governor.

Still, it is quite refreshing to see that a central banker adopts so straightforward an approach to things – in public.