Bank of Greece Governor Warns Against Sharp Wage Hikes

Bank of Greece (BoG) Governor Yannis Stournaras has warned that a sudden and steep wage increase could put the country at risk of bankruptcy. Speaking in a radio interview, he underlined that any pay rises must be backed by productivity gains, stressing: that “there is no money tree.” The central banker emphasised the importance of Greece adhering to the European Commission’s fiscal rules, which cap state spending but currently provide greater flexibility than they did in the past few years.

The former finance minister and current governor of BoG expressed optimism about the trajectory of the Greek banking system, pointing to the emergence of a “fifth pillar” alongside the country’s four systemic banks. Cooperative banks, he said, have also strengthened competition, with the Karditsa cooperative bank singled out as a success story for its support of local communities after natural disasters.

Despite early challenges, this fifth pillar has already begun attracting deposits and market share. Looking ahead, Stournaras noted that new foreign players are entering the Greek market. After Italy’s UniCredit, which acquired a 26% stake in Alpha Bank, the UK-based fintech Revolut is expected to expand into Greece. He urged Greek banks to lower interest rates, predicting that Revolut would win part of the domestic market.

Inflation pressures and inequality

While growth indicators are positive, Stournaras acknowledged persistent difficulties for many households. Inflation in Greece remains higher than the eurozone average and its projected to hit of 3.1% for 2025, while gradually falling to 2.6% in 2026 and 2.4% in 2027. The central banker stressed the need for targeted government support for the most vulnerable of its citizens.

Stournaras also talked up Greece’s progress in reducing public debt over the last few years. According to the BoG governor the debt-to-GDP ratio is shrinking by ten percentage points annually—an achievement he described as the country’s most important success in recent years.

He cautioned, however, that repeating past mistakes—such as distributing one-off handouts—could reverse progress and return Greece to conditions similar to the 2010 debt crisis. Instead, he advocated for reforms and redistribution through income tax policy rather than cuts to value-added tax.

Productivity and wages

The governor underlined that sustainable wage growth must follow improvements in productivity. “If we increase wages by 30% tomorrow, we will go bankrupt,” he said, explaining that productivity comes from reforms and investment. Greece, he added, has seen a 60% rise in investment, with the vast majority directed into productive sectors.

Addressing the issue of the minimum wage, Stournaras noted that in all countries it is shaped by state intervention, but clarified that governments do not determine average wages, which are driven by market and productivity dynamics.