The Greek debt debacle seems to be over – at least for now. The crisis is fading and the dreaded restructuring of Greece’s obligations – sharply reduced in value for investors – went smoothly. Despite riots and strikes, Greece moreover seems willing to pay whatever price necessary to stay in the Eurozone, an outcome few outside experts foresaw. Recently in Paris, Gateway House’s Head of Research, Akshay Mathur, spoke with Kostas Botopoulos, Chairman, Greek Financial Services Authority, on the pain and commitment of the Greek decision.
Akshay Mathur: Why didn’t Greece choose to default? The devaluation of the currency and separation from the Eurozone may have enabled faster recovery.
Dr. Kostas Botopoulos: I’ve never supported the idea of Greece leaving the Euro. I’m not an economist, but many research reports have shown that it would be devastating for both the Greek and European economy if the Euro were to begin unraveling. So I think this is out of the question. A large majority, around 80%, of Greeks also do not want to leave the Eurozone. Of course, there are some parts of the Parliament that now say we should renegotiate but they are not in power, and if they ever came to power they would change their opinion. There are extreme right and left-wing opinions but a majority, both in the political spectrum and in society, wants to be in the Eurozone.
AM: This is a Eurozone crisis but it affects the global economy. Shouldn’t you engage the emerging countries? It is time to think out of the box.
KB: We are thinking out of the box. The world has changed dramatically. The ‘G’ now has 20 countries (G20) and the emerging powers are more and more important. We are trying to have financial partnerships with every country that is willing to work with us. We have built a strong partnership with China for example. It would be a very good idea to have the same relationship with India.
AM: But I have not seen any movement toward India.
KB: No, not yet. But it is important. I know that our stock exchange has been going all over the world and seeking opportunities for funds to come from foreign countries. So this is an invitation for Indian investors to come to Greece, see first-hand what is happening, and invest here. Our tourism industry is one obvious starting point. Infrastructure, maritime and energy sectors are also very lucrative.
AM: The rest of the world is surprised by the slow decision-making process. Why couldn’t the stakeholders agree on a deal sooner?
KB: This process has been going on for more than two-and-a-half years. The outside world must understand that it is not an easy process for us. The procedures in the European Union (EU) are by essence very slow because you have to build a consensus with 27 different countries that have different interests. We also have numerous institutions – the EU is guided by the European Council and the European Commission, which is approved by the European Parliament. In addition, the respective national parliaments have to ratify the main political decisions. So you need agreement from all stakeholders for a final arrangement. It takes time, it’s very difficult, the negotiations are very lengthy, and the end result is always a compromise.
AM: Private bondholders of Greek debt have agreed to a 75% haircut. Are you happy with the number?
KB: Actually, if you count the Collective Action Clauses (CACs) participation in the Private Sector Involvement (PSI), it will be close to 95%. Voluntarily acceptance was 85% and the CAC forced most of the remaining 15% to also participate.
AM: What are the other elements of the deal?
KB: One hundred and seven billion Euros have been erased from our books. There is a €30 billion aid package for the banks and another €30 billion on top of that will be given to combat recession in Greece. The goal is to reduce debt from the private sector and restart the Greek economy. It seems voluntary but it really is a global arrangement. We didn’t know the exact numbers up to the last minute. The 85% is high. This is the first time ever that a PSI of such scale is going on in any country in the world. Argentina’s debt restructuring totaled $60 billion whereas we finished at roughly double the amount.
AM: It seems that Greece was initially reluctant to accept default and was not using the bail-out money productively.
KB: Greeks are the first to blame because the political system and the society have lived very carelessly for many years. But there have also been delays by the EU. Some European packages with considerable funds lacked incentives to boost growth in sectors such as infrastructure. They were pumping money into the Greek economy without a clear idea of the results they wanted to achieve. That’s a problem. A lot of money has been given but not as a present. It has been lent, albeit at a very good rate, but it has been lent. So this is something to keep in mind. What has been lacking up to now is a strategy for putting the money where it counts; that is, in the real economy, and in the banks; then making sure that the banks lend it to the real economy and not keep it for themselves.
AM: What are the reforms demanded by the stakeholders?
KB: This is a global political program that has been imposed on Greece after very little negotiations, to be frank, on a sovereign state. In this program, one good thing, but not popularly discussed, was the series of important structural reforms such as abolishing privileges for legal and pharmaceuticals sectors that were over and above normal European standards. The second example of reform demanded is that of the tax system. This is a big problem because we have high tax evasion. Every government wants us to fix it but it is very difficult to put into force. Another example is reform of the social security system.
These reforms have been put into place, even if imperfectly, to avoid default and keep our place in the Eurozone.
AM: What are the signals you are getting from the market?
KB: I hope everybody will understand now that there is no danger of Greece’s defaulting and going out of the Eurozone. This should calm foreign investors because they account for 55% of our exchange. Foreign participation is very important and we are opening up to new markets. We hope this will provide a healthy shock in order for the system to restart.
Dr. Kostas Botopoulos is Chairman of the Greek Financial Services Authority.
Akshay Mathur is Head of Research, Gateway House: Indian Council on Global Relations.
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