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Bank consolidation carries the threat of financial oligarchy

12 October 2012 / 22:10:10  GRReporter
5117 reads

Victoria Mindova

Financial market consolidation has its pitfalls, which became clear from the conversation of GRReporter with the economist and professor at the Aristotle University of Thessaloniki Dimitris Mardas. He believes that Greece has a lot to do to improve the business climate in the country but the most important problem is the provision of funds to the real economy.

Two large corporations (Coca-Cola and FAGE) have moved their headquarters from Greece to Switzerland. What do you think are the reasons for this withdrawal and what should the government do to keep the big business in Greece?

First, we need to explain that Coca-Cola has left Greece because of liquidity problems. In other words, it is currently turning to another market to find the resources it needs and which it cannot find in Greece. This shows us that one of the biggest problems of the current crisis is the problem of lack of liquidity in the real economy.

Another problem that creates barriers to business in Greece is the tax system. We're not the only country with higher taxes, but in combination with other factors, this plays a major role when companies choose where to settle.

Thirdly, I would cite the heavy bureaucracy that is still prevailing in the Greek administration. It creates an unfavourable environment for entrepreneurs and contributes neither to the expansion of investment, nor to the performance of common business entities. These three obstacles drive many companies to seek refuge outside Greece. In the case of Coca-Cola, the company has not moved to a tax haven but to Switzerland. The taxes may not be as low there as in other countries identified as tax havens, but the company can take a worthy position in an active financial market full of potential.

What do you think the government should immediately do to reverse this negative trend?

The government can do many things and it is not necessary to spend money for this purpose. The key is to create a more business-friendly economic climate. It would not cost the government to adopt a law stipulating that investment projects should be approved within 15 days of their submission; to connect online the companies with the tax authorities and the relevant ministries for automatic payments and online services. It requires minimal resources but frees entrepreneurs from a series of bureaucratic procedures that take time and money. As you can see, these and many other changes could have been made so far no matter whether we have an extremely high foreign debt and a crisis or not. The introduction of the new systems may require some resources but they are not significant and are not decisive. What the public administration currently needs is not money but minds to trigger these reforms.

The tax burden in Greece is extremely high and new taxes and fees have additionally burdened companies and individuals in recent years. There has been constant talk of a reform that would change the tax system in the long run and would stabilize the economy. What do you think are the main characteristics of a successful tax system?

We certainly need to reduce taxes in Greece, but it is very difficult at present. I think the government should be a little braver and should really set lower taxes, mainly for business.

Regardless of tax policy, I want to emphasize again - if we are talking about immediate actions, they must be focused on putting funds into the market. We find the solution to this problem only in the payment of the financial aid from the European Union and the International Monetary Fund. Of this, 26 billion euro will go directly to rescue banks. The government should ensure that the majority of these funds are put into the real economy, which has literally dried up and has no available funds.

Everyone agrees that banks should resume lending in order for the market to revive, for enterprises, suppliers and manufacturers to start working. However, aren't we forgetting the problem of high interest rates? Many experts are adamant that there will not be economic development until interest rates fall.

Of course, the high cost of money plays a role, but the major problem remains the fact that banks have no money to lend. Interest rates depend on various factors. It is difficult to decrease the interest rates for the time being, because banks are trying to strengthen their business in the best possible way.

What do you think are the advantages and disadvantages of bank consolidation in Greece? Piraeus has bought Agricultural Bank and now, the merger between the National Bank of Greece and Eurobank follows. How do you assess this realignment?

There are hundreds of thousands of banks in European countries. In Germany, there are 1,100 banks; in other countries similar in size and population to Greece, there are 80 to 100 banks on average. This proves that the majority of banks can operate in a smaller market, if there is the will to do it, no matter if we are talking about commercial, cooperative, investment, regional or any other type of banks.

Currently, this consolidation process is taking place in Greece, which will create two or three large banking giants and we will end up with an oligarchic financial market. This is an obstacle for competition and transparency in which certain actions are performed or decisions made. In this development, we cannot expect a wide variety in the value of interest rates, or in deposits.

On the other hand, we cannot ignore the obvious difficulties, which the banking sector is strongly experiencing today. Lack of liquidity is forcing banks to do what they can to reduce their operational costs. A merger would reduce management costs by hundreds of thousands or even millions of euro. The merger of activities and the consolidation of operations is a logical consequence of the current situation in the country.

In your opinion, what is the formula for establishing a stable financial system at this time?

The best option is for the number of banks to foster competitiveness. We should be able to maintain a balance, in which there will be enough banks in the financial market so as to be stable, but to be able to maintain different levels of interest rates in accordance with the differences in the policies they pursue.

Greece is once again in the eye of the cyclone in Brussels. It is awaiting a financial aid that depends on the implementation of delayed measures. Do you think that the Greek programme is applicable?

I think that it is not applicable in this form. There will also be an extension of the implementation of the fiscal consolidation programme and a new haircut of the debt.

What is the basis for your conclusions?

The account doesn’t balance otherwise. In this situation, Greece will be unable to pay its obligations.

What changes has Greece fatally delayed in your opinion?

Privatization. It was supposed to be triggered. There is no other option but to start it from this point. These processes will give a boost to the economy. The majority of funds from privatizations will go to repay part of the debt, but another part can be redirected to other activities. Even if this does not happen, the fact that companies that are making a loss or are uneffective, or companies that are just not working at full capacity will have a new, more ambitious owner than the Greek state is a positive development.


Tags: EconomyMarketsDimitris MardasForeign debtBanksCrisis
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