Victoria Mindova
14 months of negative private investment is too long a period for any economy. The recent past has proven that private and public consumption are unable to result in healthy positive economic growth. It can be restored only by attracting foreign investment, competitive production, exports and economic freedom. This is the point of the Greek bankers who for nearly 20 months have been struggling with the lack of liquidity due to macroeconomic instability not only in Greece but also throughout the euro area.
According to the Deputy CEO of Eurobank EFG Nikos Karamouzis, it is clear that the state can not afford the export to be only 8% of the GDP - the lowest value in the entire European Union. Stable legislation, liberalization and removal of barriers to investment opportunities are the conditions the Greek economy needs to be able to recover and get out of the vicious circle of recession and regular injections.
Nikos Karamouzis presented his views before the speech of the Minister of Finance Evangelos Venizelos, who was invited to present the government's position on the development of Greece in the coming annual roadshow of the strongest companies on the Athens Stock Exchange. 140 bankers and financiers from 100 international investment giants will accept the Greek business delegation accompanied by Venizelos to see what new opportunities Greece has to offer. Executives and financial advisers of the most influential investment funds in the world will have to decide whether Greece is appropriate for new investments or the water is still troubled and the risk for foreign investors remains high.
The Greek businessmen found it necessary the Minister of Finance Evangelos Venizelos to be present before the investment funds because he is the only person able to provide political guarantees that the economic objectives under the agreement for financial assistance will be implemented. If the Greek government continues to deviate from its objectives, it will continue to lose confidence. However, confidence is crucial to stabilize the business climate and currently it is still lacking.
Venizelos’ speech to the Greek bankers on the presentation in London made it clear that the implementation of the objectives under Memorandum 1 and 2 is not possible to be guaranteed. He also prompted that the government will try to renegotiate the objectives set out in the contract for financial assistance during the next meeting with the supervisory Troika. Obviously, George Papandreou’s government is not able to meet the planned reforms within the timeframe of the Memorandum with the European countries and the International Monetary Fund and the deficit reduction will lag behind the initial plans.
The local business is concerned that the government does not act quickly enough or adequately in terms of the deepening crisis in order to take the country out of the difficult situation. Venizelos admitted that many of the decisions in economic policy taken in recent years have been quick solutions to pressing problems rather than serious reforms of long-term nature. There will be no new direct private investments in Greece until local and foreign investors see in practice the political will for change expressed in words so far, which means that there will be no positive growth too.
After one-hour speech on what will happen and how Greece will flourish, the Minister of Finance Evangelos Venizelos allowed the Greek bankers and businessmen to ask some more specific questions about the real prospects of the country. The first question asked the Chief Economist at Alfa Bank Michalis Masourakis, who seriously doubts that the budget deficit will be reduced to 7.5% of GDP by the end of 2011.
The Chief Economist at Alfa Bank Michalis Masourakis:
Mr. Minister, all market analysts you will meet next week will be mainly interested in one issue - will you be able to achieve the goals of reducing the deficit to 7.5% as planned in the budget for 2011?
Minister of Finance Evangelos Venizelos:
You know that I follow your economic analysis and I would myself ask you to answer the same question. I will give you not a political, but a practical and responsible answer. We have no desire to deviate from the objectives. They are fully applicable to the budget deficit for 2011.
Of course, the main forecast, which is the base of the action plan, is not the original version of the budget – it is the final version of the austerity plan, and a fiscal adjustment in the amount of recession has been made. Our ultimate prognosis together with our partners (the Troika) at the end of the spring was that the recession would be 3.8%. Now, it is certain that it will be deeper and last longer. Therefore, it appears now that we should confront a more serious problem. Nevertheless, we believe that if all measures in both the revenue and expenditure sides are implemented we will be able to reach the goal.
We will discuss all this with the Troika next week; we will draw a common framework for action, because we are not two negotiating parties, we are partners in a project that concerns not only Greece but also the entire euro area and the International Monetary Fund.
Whatever we do, however, it will be agreed, reliable and part of the action strategy by 2014. You will not have any difficulties to answer this question on the roadshow.
Minister of Finance Evangelos Venizelos:
You know that I follow your economic analysis and I would myself ask you to answer the same question. I will give you not a political, but a practical and responsible answer. We have no desire to deviate from the objectives. They are fully applicable to the budget deficit for 2011.
Of course, the main forecast, which is the base of the action plan, is not the original version of the budget – it is the final version of the austerity plan, and a fiscal adjustment in the amount of recession has been made. Our ultimate prognosis together with our partners (the Troika) at the end of the spring was that the recession would be 3.8%. Now, it is certain that it will be deeper and last longer. Therefore, it appears now that we should confront a more serious problem. Nevertheless, we believe that if all measures in both the revenue and expenditure sides are implemented we will be able to reach the goal.
We will discuss all this with the Troika next week; we will draw a common framework for action, because we are not two negotiating parties, we are partners in a project that concerns not only Greece but also the entire euro area and the International Monetary Fund.
Whatever we do, however, it will be agreed, reliable and part of the action strategy by 2014. You will not have any difficulties to answer this question on the roadshow.
The chairman of construction company ELLAKTOR Anastasios Kallitsantsis:
The issue of deviation from the amount of the expected recession is in direct relation to the urgent necessity of measures for economic development. This is something essential for the business and the economics. At the same time, we found that many of the announced measures are quite controversial and many of them have a negative effect on the positive economic growth.
I am speaking about the excise duty on natural gas and electricity. With this measure, major exporters will have to pay about 12% more energy costs, although there are constant talks to support exports.
The second problem is the time of implementation of these measures. Currently, all bilaterally (from the public and private sector) funded projects are frozen. We hear about constant meetings and discussions, but there are no solutions in the given time period. What do you expect us to tell investors about this? How should we support economic development with a tax system that hampers exports and procurement of secured financing, the implementation of which is frozen?
The Minister of Finance Evangelos Venizelos:
With regard to bilaterally funded projects, funds are provided but there are many other obstacles to their implementation. The Ministry of Finance initiated intensive talks with the companies, banks and relevant ministries to ratify the implementation of these contracts in parliament and the projects to complete.
As for the taxation of natural gas - in the development of this rapid and non-human attempt for fiscal consolidation since 2010, the need for coordination of finances has always dominated. We are obliged to implement many specific goals in the revenue budget. There is no doubt that decisions were taken that normally would have been different or at least would be subject to revision. We intend to consider all possible options in the new national tax system, but I would emphasize that what is approved will not be revoked.
Our goal is to have a new bill within two months that will correct the injustices in taxation, reconcile the problems without affecting the fiscal targets. I know very well the issue of taxation of industrial production and there could be a problem in the exports after the additional tax on natural gas used in the industry. We are ready to revise all these issues.
The Economist at Eurobank EFG Platonas Monokrousos:
Mr. Minister, the decisions of 21 July this year allowed the Greek government to take a breath, given that they significantly reduce the obligations of the state not only by 2014 but by 2020. That was something the market could not take. Moreover, the decisions suggest that the reduction of debt and the fulfillment of certain conditions will take it to more sustainable levels.
However, all forecasts show that in the best case, the debt ratio to GDP in 2020 will remain unsustainable. Therefore, I believe that the key to securing sustainable levels of external debt is the government to immediately turn to measures, which will support the positive economic growth. You reported recently that GDP would drop by more than 4.5%, which means that this year the recession will be deeper and the suggested positive economic growth of 0.6% for 2012 is not certain.
If we do not go back to positive economic growth soon we will lose all the confidence in resolving the crisis. What would you say about this turn of the economic growth?
Minister of Finance Evangelos Venizelos:
If we had not intervened, we could certainly turn to the dynamics of the external debt to the GDP. However, if we do not increase the GDP by a satisfactory level, the problem will continue to grow. The parameters that you know better than me on measuring the stability and dynamics of the external debt are many. The decision of 21 July enabled us to elongate the average duration of the payment of debt obligations compared to the average cost of its service. We, in turn, have committed, through the austerity plan, to begin to produce primary surpluses in order to change the curve of the external debt.
Of course, it is all considered in view of the level of economic development. The aim, as you noted, is to have positive economic growth in 2012. I would like to believe that these expectations would be confirmed in the last quarter of this year. Allow me to say that the drastic reduction of the recession also represents a type of economic growth, right?
The chairman of construction company ELLAKTOR Anastasios Kallitsantsis:
However, let’s return to the topic of bilaterally funded companies, which is critical for foreign investors. Could you tell us something about these particular projects to present at the roadshow in London? It is really important.
Minister of Finance Evangelos Venizelos:
You will be able to say something specific. Our goal is to be able to say specific things. We make many efforts, among all other assignments.
The chairman of construction company ELLAKTOR Anastasios Kallitsantsis:
I doubt it. The topic is important because it gives the first signs of the general condition.
Minister of Finance Evangelos Venizelos:
The good news is that what is important to you is important to us.
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