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Anastasia Balezdrova

In his first interview for the Greek media after he was elected Prime Minister, Alexis Tsipras had firmly stated that the bills announced by his office would be submitted for a vote by parliament as soon as possible. "We have informed the institutions, we remain open to their suggestions but in Greece the Greek people have voted and elected the government to rule," he said in his interview for the newspaper Ethnos.

According to a report in the Sunday edition of the German newspaper Frankfurter Allgemeine Zeitung, however, the Greek Prime Minister does not exclude the probability of Greece experiencing serious liquidity problems by the end of March.

He expressed his concerns to President of the European Parliament Martin Schulz during their meeting in Brussels last Friday. The newspaper comments that the Greeks will probably have to prepare for the likelihood of not receiving salaries and pensions in full at the end of March.

The financial problems of Greece and its prospects if the pre-election promises of SYRIZA are implemented were the issues that GRReporter discussed with Bulgarian economist Georgi Angelov. He is a senior economist at the Open Society Institute, Deputy Chairman of the Management Board of the Bulgarian Macroeconomics Association and a member of the American Economic Association.
 
Mr. Angelov, the programme for quantitative easing (QE) of the European Central Bank was launched last Monday. Greece is isolated from it because it is not involved in a financial support programme as stipulated by Frankfurt. What would the material damages to Athens be and what should it do to be included in the QE in the near future?

The stimulating policy of the European Central Bank and the new quantitative easing lead to greater liquidity in markets and much lower interest rates. For example, the interest rates on 10-year government debt of major economies of the euro zone are close to zero, namely 0.2% in Germany, 0.5% in France. Even troubled countries until recently such as Spain, Italy, Portugal and Ireland have interest rates of around 1%. Greece has much higher rates of over 10% because it is isolated and does not comply with the rescue agreement. In other words, the interest rates on Greek debt are 10-20 times higher than in other euro zone countries. Moreover, there is no liquidity regarding Greek debt, i.e. Greece cannot obtain funding from the markets and it is dependent on the three lenders. In short, Greece cannot take advantage of lower interest rates and greater access to funding which applies both to the government and to banks and the real economy.

There are opinions in the financial circles that the liquidity requirements of Greek banks are great. On the one hand, they cannot obtain funding directly from the European Central Bank and on the other, depositors are withdrawing their deposits and the state is trying to use the little money left to buy Greek government bonds to ensure liquidity. What is the impact of these three factors on the condition of banks?

Greek banks have been cut off from direct funding from the European Central Bank as Greece's credit rating is very low and the country does not comply with the rescue programme. At the same time, the election of SYRIZA had raised concerns among investors that Greece could be excluded from the euro zone, i.e. that they could lose access to their deposits and this led to withdrawals of deposits in December and especially in January and February. Nothing fatal has happened because Greece is still a member of the euro zone - Greek banks have gained access to the so-called Emergency Liquidity Assistance (ELA) and use about 70 billion euro from it. These tools have enabled them to master the panic. However, if Greece left the euro zone, Greek banks would have no access to this emergency financing.
 
According to sources, the Greek government is pushing the leadership of the National Bank of Greece to sell the controlling stake that it holds in the Turkish Finansbank. Do you think that similar changes could be expected in the Bulgarian banking market accounting for the fact that the four major Greek banks are present in Bulgaria?

It will almost certainly happen. Greek banks have received state aid and have EU approved restructuring plans. These plans often involve the sale of assets and of subsidiaries and branches abroad. The same has happened in other countries such as Ireland, Belgium, Cyprus and so on. Therefore, we could expect the gradual sale of at least some units abroad but it has not been announced which of them would be sold and when it would happen.

The first bills of the new Greek cabinet relate to alleviating the consequences of the so-called "humanitarian crisis", reinstating the state television ERT that was closed down 2 years ago and to the loans "in the red". What would the macroeconomic results from the application of these measures be? Is there a risk of Greece returning to budget deficits?

Greece is confidently moving towards deficits, as tax revenues have significantly dropped and the government wants to spend much more. Anticipating a political change, many taxpayers have stopped paying their taxes, believing that the new government will forgive them. This proves to be a great delusion, as every government needs money but it will be difficult to restore the fiscal discipline, especially for a government that has promised to put an end to the fiscal burdens and restrictions. However, the problem with budget deficits is that Greece cannot finance them - it has no access to markets to obtain a loan nor can it obtain one from the lenders because it is not fulfilling the agreement. There is a lack of money, which will limit the opportunities for new spending programmes and SYRIZA will have to give up most (and the more expensive) of its campaign promises.

Do you see a risk of Greece exiting the euro zone? How would such a development affect the Greek economy regardless of how close or far off it would be?

The risk of Greece finding itself outside the euro zone is great, now this risk is historically the highest, approaching 40-50%. The consequences would be very severe, including loss of access to funding, bankruptcy of the state, bankruptcy of real business, closing of banks (as happened in Cyprus), hyperinflation, decline in real incomes, international isolation, capital flight, etc. Bulgaria experienced such a period in the 1990s and it took more than a decade to recover from it.

Do you think there is a possibility of SYRIZA fulfilling some of the promises it had made before the elections?

There are two paths before SYRIZA - one is to make a turn to the reforms and to fully benefit from the European integration and European aid (as PASOK did in the 1980s). The example of Ireland shows that this is possible - Ireland has already emerged from the debt crisis and paid off all its loans to the International Monetary Fund, it has reduced unemployment and attained higher growth. The other path before SYRIZA is to continue with its unfulfilled promises, cancel the reforms and leave the euro zone, which will mean a severe crisis. In short, the choice is either membership in the euro zone or breaking the agreement - both cannot happen at the same time as the Greek politicians and voters want. A serious decision will have to be made and soon at that.