Greece's fiscal targets should be eased to help growth, central bank chief says

Governor of the Central Bank of Greece Yannis Stournaras poses for a picture during an interview with Reuters at the bank's headquarters in Athens, Greece, November 8, 2016. REUTERS/Alkis Konstantinidis

ATHENS (Reuters) - Greece’s international lenders should lower the country’s fiscal targets from 2021 onwards to help boost its growth potential, central bank governor Yannis Stournaras said on Saturday.

Stournaras told an economic forum in Delphi that primary surplus targets - excluding debt servicing costs - should be lowered to 2 percent of gross domestic product (GDP) from 2021 onwards from 3.5 percent that is now envisaged.

“The easing of the primary surplus targets, together with the implementation of the agreed structural reforms, would put the necessary conditions in place for a gradual lowering of tax rates, with positive multiplier effects on economic growth,” he said.

Stournaras said this would help Greece shift its policy from raising taxes - a main pillar of the country’s fiscal adjustment since 2010 which stifles growth and encourages tax evasion and undeclared employment- to spending.

Athens and its international lenders resumed talks on Tuesday, aiming to conclude soon a review of bailout reforms that is a key to the inclusion of Greece’s debt in the ECB’s bond-buying scheme and its return to financial markets.

The review has dragged on for months, mainly due to a rift between the European Union and the International Monetary Fund over Greece’s fiscal goals next year, when the current rescue program expires, and beyond.

In a bid to break the impasse, Greece last week agreed to pre-legislate economic reforms, including lowering the tax-free threshold, which will take effect after the start of 2019, the year parliamentary elections are due. Talks with the lenders continued on Saturday.

Reporting by Angeliki Koutantou; Editing by Catherine Evans