Europe seems to come to the conclusion that the Greek debt should be cut to around either 120 per cent, 106 per cent, or even 80 per cent of GDP. Others, like one of the publishers of the leading newspaper Frankfurter Allgemeine Zeitung, think this to be a desaster, as it would remove any incentive for hard reforms not only in Greece, but in other indebted countries, such as Portugal or Spain, or even Italy.
What is your take on this? Do you think that this is the right idea overall? Is a haircut of this kind, however it is called, unavoidable and necessary, or is it not?
I do not see how this can be done. It is not going to solve any problems anyway. If the goal is to tackle the Greek fiscal problem the way is not to find ways that call the Default with different names. Either you call it haircut, restructuring , reprofiling or selective default it all amounts to the same thing - Default. This would damage the Greek Banks and the pension funds. And the country will collapse. We are under the close inspection of our lenders and we are applying measures of their liking. If tjhey don’t work, they are also responsible. Because they proposed them. As they are responsible for the fact that we have been borrowing carelessly while the country was being monitored by the Commission. If we are to default and face the consequences we don’t need Europe to tell us how to do it. I prefer to see measures that work and lead to a real solution. 2.) With a debt ratio of 106, or even 80 per cent, do you think that Greece could solve its problems then and stay in the Eurozone, or do you think you makes more sense for the country to leave the Eurozone, and regain competiveness?
I believe that this could have been done before we entered the process of “salvation” under the auspices of the EC, the ECB and the IMF. Now it is very hard. Because we have already taken measures upsetting the market, cause widespread unemployment and imposing a hard hitting tax system. The only solution in my view is to apply policies which will bring our annual fiscal accounts to a positive denominator.
3.) A lot of economists agree that Greece needs a positive primary balance. What are, in your view, the central ways to do so? This is what I call annual surplus. We did this in the early ’90s before the insanity of euro’s low interest rates. And we succeeded because we stopped state handouts, we initiated daring privatizations and we did not agree with raising public expenditure. But of course we lost the next election after first we were toppled from office by a revolt of own deputies. There is a way therefore to solve the problem. Provided the government decides to do the right thing and our creditors insisting that they pursue the right policies. Up to now the troika (IMF, EU and ECB) have been very disappointing in monitoring and supervising the right policies. They have agreed to an absurd increase in taxes while tolerating increases in public spending!! How can you achieve a surplus when you impose taxes you will never receive additional revenue from them and you don’t cut spending, thus magnifying the deficit? Why Europe demanded the voting of the tax imposing interim program, threatening not to cash the fifth installment of the loan, and did not demand – under the same conditions – the equal reduction of spending?
4.) How many years would Greece need to turn the economy around and end up with a positive primary balance?
If there are generous cuts in spending, it can be done fairly quickly.
5.) The IMF wrote in its fourth review that, given the low internal demand, growth had to come from exports and reforms. Which sectors in export could, in your view, contribute most to growth? But the “salvation program”, initiated and by the IMF, produced the dwarfing of internal demand. How can you suddenly create an export industry? With a society in turmoil and the market in disarray this is a very difficult proposition. Competitive sectors can only be related to tourism and to the naval profession. But of course if we reduce taxes, and at the same time dramatically cut public spending, there is a chance for foreign investment. Which of course will lead to growth.
6.) FDI is dismal in Greece. Considering the huge number of reforms needed, do you think FDI can help quickly to get Greece out of the crisis?
As I mentioned before it is the only chance. Provided we initiate the necessary reforms. First, cut down taxes and keep a stable and long term taxation regime. Not so difficult an initiative provided the European Union allows us to proceed with this. Second, reduce state bureaucracy including numerous EU regulations that stifle economic initiative and discourage investors. And third, cut down the state. Less state agencies, public corporations and inspection agencies. The less you have to deal with he state the easier to produce results that end in rapid growth rates.
7.) Wide consensus exists that Greece need to reform nearly all sectors of the economy. Do you think the Papandreou Government and the new Minister of Finance is up to the job?
Unfortunately not. Based on previous experience I believe they will never dare to reduce the public sector. Because this means less jobs under the state’s umbrella and therefore laying off people there. Who are fundamentally rank and file of the main parties. Unless specifically demanded by the creditors no main Greek political party will ever dare touch the public sector employees. It is not only a matter of Papandreou or Venizelos. It is an issue related to all Greek current politicos.
8.) If the government falls and Mr. Samaras came to power, do you think you would be up to the job?
He talks about reducing taxes but he considers a red line any discussion about laying off civil servants. He is neo-liberal on the revenue side of public finance but a stern socio-democrat on the expenses. This is a clear recipy for disaster. And he supports any initiative to nullify efforts towards reform. This is a dangerous attitude. Especially if you thing that he may become Prime Minister.
9.) Given the magnitude of necessary reforms and the ongoing protests, do you think that any government can do it?
If it is a government determined to do the job disregarding its prospects in the next election, yes. It can be done.
10.) When I was last in Athens, I heard already calls for foregoing foreign debt and introduching the Drachma again. Do you think such calls will gain in popularity - and do you think it wise economically?
It will be a disaster for people of course who do not have siphoned money abroad and rely for their life on a salary or on moderate savings in Greek Banks. It will be beneficial for those who have purchased CDSs betting on Greece to go bankrupt. I would be very skeptical of the motivations behind these voices. It could have been done, with moderate success, at the beginning of the crisis. When European Banks were loaded with Greek sovereign bonds and we could count on their fear and acquiescence. Now it is too late for such a move to be safe and socially viable.
oi sofoi sas einai pragmati sofoi.bravo gia tis epiloges sas.
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