Stournaras outlines Greek lessons for Bulgaria's euro adoption
Bank of Greece Governor Yannis Stournaras welcomed Bulgaria into the euro area, sharing Greece's experience and outlining key lessons for successful participation. He emphasized prudent fiscal policy, structural reforms, and strong banking supervision.
Bulgaria's milestone, Greece's early challenges
Bulgaria's adoption of the common currency is a historic milestone, strengthening the euro area and anchoring the country further into European institutions.
Greece's 2001 entry brought significant benefits, including the elimination of exchange rate risk, reduced transaction costs, and enhanced monetary credibility, fostering trade, tourism, and investment.
However, Greece's participation was not without setbacks, entering a profound sovereign debt crisis almost a decade later.
This crisis stemmed from an overly expansionary fiscal policy in the mid-2000s and real wage developments that far exceeded productivity growth, resulting in gigantic 'twin' deficits of 15% of GDP each.
Structural problems like large tax evasion and a non-viable social security system aggravated the situation, compounded by borrowing costs that fell below economic fundamentals, a situation mirroring 'irrational exuberance'.
Rebuilding and key lessons learned
Greece subsequently lost market access, requiring official financial assistance.
The banking system underwent large-scale recapitalisation, restructuring, and consolidation, reducing nearly twenty banks to four systemic institutions.
The crisis exposed vulnerabilities in national economies and the euro area's architecture, leading to significant reforms.
These included the creation of the Banking Union, the European Stability Mechanism (ESM) as a permanent crisis management tool, and a macroprudential policy framework via the European Systemic Risk Board.
These strengthened architectures have proven effective, with the banking sector showing resilience to recent shocks.
Key lessons for new members include maintaining prudent fiscal policy, fostering structural competitiveness, and ensuring strong banking supervision.