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Collapse in the public finances affected the Greek banks

21 January 2010 / 16:01:12  GRReporter
3311 reads

Maria S. Topalova
Another unfavorable day on the Athens stock Exchange where the main index dropped under 2000 points with grates losses suffered by the banks in the country. The greatest losses suffered the National bank of Greece, Alpha bank and Piraeus. The panic on the Athens stock exchange launched in the air the Greek spreads which jumped over 311 points.

As opposed to the rest of the European countries in crisis where the public finances collapsed as a result of the fall of the banking system, in Greece we are witnessing exactly the opposite phenomenon. This was the common opinion of the participants in the conference “The future of the Greek banking system”, which was organized by the “Financial Times” newspaper. The issue which recently gave the financial situation in Greece the definition of “Greek tragedy” gathered together investors, bankers, analyzers and politicians in order to try and give a clearer picture of the Greek finances and the ways out of the critical situation they are in.

“Let us look at the Greek economy from the point of view of the investors. What do they see? A increase of the Greek spreads. People talk about the country like they talk about Russia and Argentina who are already in bankruptcy. Greece has the largest foreign debt and national deficit out of the countries in the European Union, the greatest weight of the pensioners in the national budget, false financial statements, the financial goals set are not being reached, it is believed that the reforms which are planed will cause social protests. The competitiveness of the country is constantly decreasing, because the salaries are being increased without this resulting an increased production”. In this way Miranda Hafa, senior investment analyzer in IJPartners, Switzerland pictured the portrait of Greece in the eyes of the investors.  

She reminded that the growth of the Greek economy in the past few years was due to temporary reasons – the Olympic games and the money which the country received by the European Union for the improvement of the infrastructure, the immigration, its entering in the euro zone. Miranda Hafa explained that the foreign debt of Greece is increasing with a rate faster than the budget deficit provides for, because of the debts of the public corporations which are not mentioned in the budget and because of the debts to some particular fields – hospitals, social security bureaus etc, which are also not mentioned in the budget. All of this makes the investors more reserved towards investing in Greece she concluded.

The participants in the conference admitted that Greek banks have managed very well with the anti stress tests which they had to pass last year. They showed very good results not only in Greece, but also in their branches in South-Eastern Europe. There are four hazards remaining in front of them – the irredeemable credits, the investments in the neighboring countries whose GDP has fallen as a result of the financial crisis, the increase in the spreads and the decrease in the liquidity of the banks caused by the world financial crisis.

    Professor Gikas Hardouvelis, financial adviser and head of economic studies and forecasting division of Eurobank EFG predicts that the European Central Bank will start withdrawing the special measures and the liquidity rules and will turn to the levels from the time before the crisis. According to him the ECB will do this faster than the Federal Reserve which will wait to see stable rates of economic growth in the USA before exiting the banking market. “In Greece the crisis stopped an economic growth, which lasted several years. This is not a surprise. It could be a surprise for the agencies for credit rating, it could be a surprise for the media, however to us, the economists in Greece it is not. For many years now we have been warning about what we are currently witnessing”, said the economist.

He reminded that in 2008 and 2009 the government expenses in Greece increased by 8% a year. The entering in the euro zone became possible because of the increase of the national incomes from the mandatory taxation system of the Euro zone. At that time the governmental expenses did not change, it missed this opportunity for reforms in the public sector and to decrease it as opposed to all the other countries in the euro zone which did exactly the opposite. “That is why Greece is now standing at the bay. We have a big problem with the social security system, where if things don’t change in 2060 we will pay 24% of the GDP for pensions. Great problems are expected there. I don’t believe that Greece will recover as quickly as it is stipulated in the program for stability” was the conclusion of Gikas Hardouvelis.

The economist valued as a positive fact the regime of supervision of the Greek economy by the European commission because in this manner the problem of Greece becomes a problem of Europe. In spite of the problems of the country, its banking system remains stable. It does not suffer lack of capital but on the contrary – on every 100 deposits correspond 81 borrows. The Greek banking system is mature, it knows that it won’t be able to derive such great profits in Greece as it did in the past and that is why it has focused on the countries in South-Eastern Europe. “Some years ago people were pointing their fingers at the Greek naval magnates, today they are pointing their fingers at the Greek bankers”, determined Gikas Hardouvelis.

The participants in the conferences listened patiently to the explanations of the financial minister Georgios Papakonstantinou, who presented the government’s Program for stability and development. At the forum spoke also the deputy governor of the Bank of Greece Eleni Louri as well as the head of the Banks and financial conglomerates unit at the European commission Mario Nava.

Tags: stock exhange collapse Financial Times Greek banks
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