AMBASSADOR RIES CALLS ON GOVERNOR OF THE BANK OF

UNCLAS ATHENS 000263

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EINV GR AMB
SUBJECT: AMBASSADOR RIES CALLS ON GOVERNOR OF THE BANK OF
GREECE


1. (U) SUMMARY: Ambassador Ries paid an introductory call on Greek Central Bank Governor Garganas on January 20 and thanked him for his efforts, and those of his staff, in combating terrorist financing. They discussed the January 17 ECOFIN meeting, which covered measures Greece must take to bring its deficit in line with Stability Pact obligations. Garganas indicated that the ECOFIN meeting went "quite well" from the Greek perspective. He added that the Bank of Greece would not support major changes to or the abolition of the Stability Pact, as has been discussed by other members of the Eurozone. Garganas also stated he is not overly concerned about the growing levels of consumer credit in Greece. The Greek standard of living, according to Garganas, is simply catching up to the EU average. Finally, Ambassador Ries offered the view that economic structural reform was required in order to attract additional foreign direct investment. END SUMMARY.


2. (U) In their first meeting on January 20, the Ambassador thanked Garganas for his efforts, and those of his staff, in combating terrorist financing. The Ambassador noted the importance of our cooperation and remarked that Greece is an example to other countries. Garganas responded that the Bank of Greece remains quite willing to help in the endeavor.


3. (U) The Ambassador asked Garganas about the January 17 ECOFIN meeting where one of the issues was what measures Greece should take to lower its fiscal deficit to below 3 percent of GDP as required by the Stability Pact. Garganas commented that, although he had not been present, Minister of Finance Alogoskoufis had told him the meeting went "quite well" from the Greek perspective. The Commission has been tasked with reviewing Greece's program for deficit convergence. Garganas expects that at the next ECOFIN, and on the basis of the Commission report, Greece will be given two years to bring its deficit to the prescribed level. While the GoG anticipates a deficit of 5.3 percent for 2004, Garganas predicts the deficit will turn out even higher because of the Olympics and government hand-outs during last year's elections. In addition, Garganas acknowledged the Commission's prediction of a 3.6 percent deficit in 2005 is more accurate than the GoG's prediction of 2.8 percent.


4. (U) Garganas also mentioned that while some Eurozone members wanted to make major changes to, or perhaps even to abolish, the Stability Pact, the Bank of Greece would not support either of these actions. Garganas indicated he might support improvements in the agreement's implementation.


5. (U) When the Ambassador asked Garganas about the growing levels of consumer credit lending in Greece, Garganas replied that he was not overly concerned yet. Greek consumer credit currently stands at only 65 percent of the EU average for consumer credit levels relative to GDP. The increased levels of consumer debt indicate that the Greek standard of living (and borrowing) is simply catching up to the rest of Europe, according to Garganas, who added that the same thing is happening in all of the countries with standards of living below the EU average. The Bank of Greece has the power -- and will use it -- to increase loan provision requirements for commercial banks should consumer credit levels become worrisome.


6. (U) At the conclusion of their meeting, the Ambassador noted that Greece had the least US direct investment proportional to income of the EU 15. He added, however, that some economic structural reform was required before US direct investment in Greece would increase. Garganas responded that the Bank of Greece has long encouraged economic structural reform, even dedicating an entire chapter to suggested reforms in its latest annual report. RIES