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After 4 days, Greece will hold one of the most crucial parliamentary elections in its recent history. Over the past weeks GRReporter has presented you with the analyses by journalist Kostas Stoupas, Potami leader Stavros Theodorakis, commentator Kostis Lympouridis, political scientist Plamen Tonchev. Today we offer you an external look at the Greek reality, that of Kaloyan Staykov, an economist at the Institute for Market Economics in Bulgaria, who talked with Polina Spartyanova.

How would you explain the present decline of the euro against the dollar? Is it associated with the tense election campaign in Greece?

It is associated with the problems in Greece to some extent, as the country is turning into a serious issue amid the euro zone and the political discourse that is dominating there is creating additional risks, which are not few anyway. Speaking of the euro-dollar ratio, we must be aware of the most important fact, namely the expected quantitative easing that the European Central Bank is about to make. This in practice means printing new money and putting it into the economies of the euro area primarily in exchange of government securities, both of stable and unstable economies, which is the cause for the price decline of the euro compared to other currencies. I think this is the main reason for the depreciation of the euro against the dollar.

Of course, there are other issues, such as the ongoing structural problems in the euro area that have not been resolved. The high indebtedness of European countries is often cited too but it is only due to these structural problems. Unfortunately, since 2009, we have seen no structural reforms, only easing on the part of the Central Bank, which is actually going on. The reason for the new quantitative easing by the European Central Bank is that economies simply refuse, politically, to undertake structural reforms, including in terms of their budgets. Frankfurt is currently the only lifesaving belt for these economies. Here is a circular argument - the bank prints money, because there are no structural reforms, and their absence is the fundamental problem. These two things together seriously affect the price of the euro, in US dollars and Swiss francs.

Amid all this turmoil, Greece is another straw that may break the camel's back and it is just adding another element of uncertainty in terms of whether it will remain in the euro zone or not, if it will renegotiate the bailout or not and under what conditions as well as in terms of the policy of the new government, because current estimates show that a far-left party will be dominant in the new government, which implies a serious policy change.

What do you think the scenario for the Greek economy will be if the radical left SYRIZA party wins at the end of the week?

I think there will be no major changes compared to what is happening now and to what will happen after the elections, because Greece currently has no other choice. It has no alternatives. On the one hand, it needs external financing in order to cover its debts, which simply cannot come from anywhere else but the Troika of creditors. It is the source of financing for Greece at present. The eventual future funding could be linked to the European Financial Stability Facility, the European Stability Mechanism, but again it depends on the successful completion of the current bailout programme. If Greece says, "Mind your own business, we will not meet your requirements", it cannot rely on future funding. This is so obvious that there is no other way. Therefore, when we talk about external financing, Greece can rely on those creditors alone. If it wants to rely on domestic borrowing, it may be secured from the banks. However, foreign creditors have imposed restrictions on the issuance of domestic debt and consequently Greece must comply with them. Within this mechanism, it cannot afford internal financing in industrial quantities. If it wants to break these rules again, the banks in the country have to find funds from somewhere; they are currently funded by the European Central Bank and the institution has firmly stated that if the current rescue mechanism is not extended and the country does not receive a positive assessment for satisfying the requirements to it, Frankfurt will stop lending to local banks. This means that the government can find money from nowhere, neither from external nor from internal sources.

There is a hypothetical alternative, namely for Greece to announce restructuring of 100% of its foreign debt and to balance the budget at the same time. To say, "From now on we do not need external financing, we will spend as much as we collect from taxes, we will stop paying the foreign debt," but this will lead to new problems with the stability of the banking system. Because if you rely on your own resources alone, when banks require additional liquidity assistance you must cut other costs such as wages, investments, maintenance, pensions. Therefore, it is a highly improbable scenario. Generally, the government may not rely on external funding from the Troika or the European Stability Mechanism alone, but domestic financing depends on the continuation of this support mechanism, on its extension or on the adoption of a new one in any form.

Unfortunately, I do not see a scenario in which Greece may violate some of the requirements, except those with which the European Union is ready to agree, and continue to receive money at the same time. This political discourse, which is now winning votes, cannot justify its promises on the one hand, and is now creating many problems on the other because due to fear, people are withdrawing their deposits, exporting them abroad and banks in Greece are requiring additional funding, turning for help to the central bank. Not only are there problems at present because of the extremely populist rhetoric but there will be problems also in the future because the new government cannot justify those promises.

Is there a way to cancel part of the debt of Greece, as stated by the representatives of SYRIZA?

There is a way, if I am not mistaken part of the debt of Greece has already been cancelled twice, but the European partners are no longer willing to do this. The official position that is circulating is that the possible concessions regarding the debts of Greece can only be through the repayment of loans. I.e. to extend the term of payment to about 50 years, to extend the maturity of these debts, but not to restructure them. The European Central Bank has directly stated that its investments in Greek securities are not subject to restructuring, therefore, such a thing cannot happen and it is quite unrealistic to rely on this option. In general, the current position is that it cannot happen, which is why the political discourse in Greece appears to be primarily political and populist, it is not based on plans or options with which the partners can agree.

What is the reason for the contraction of deposits in Greek banks in your opinion?

It is solely due to the political discourse. I do not think this year Greece is worse than it was in the previous year. To the contrary, I even think things there are slowly, albeit with great difficulty, starting to be resolved, regardless of how far-fetched this term is at this stage. But the fact is that an extreme left government is expected, which is Euro-sceptic and constantly explaining how some bad Western colonisers are coming to the country, despoiling it, and so on. It should be stressed that Greece is one of the few countries in the euro area that has really implemented a policy of austerity. Yes, its debt has increased, but there are significant budget savings and the country already has a primary budget surplus, which was one of the requirements of the rescue plan. Naturally, they have not achieved the goal but it is a step in the right direction. Unlike other countries that have taken no such measures and where "austerity" is something mysterious to me because when I look at the data I see no cost cuts.

I think that the political discourse in Greece is enough to scare investors and depositors in these banks. Seeing what is happening, ordinary households, for example, are worried about their funds and they are withdrawing them from the banks and sending them abroad. This is the major problem, because if they remain in the economy in another form, the money is there, but when the funds are out of the economy, this means that they are no longer circulating in it. Even banks cannot grant them in the form of loans or invest them in government securities. The money is just flowing out of the economy, which is further hindering the economic development and the reason for this are the serious fears that when Greece refuses to comply with the requirements of the rescue plan, then it will be forced to exit the euro area and introduce the drachma, which will lead to various problems.

Firstly, there is simply no formal procedure for this to happen, whether they expel it or if it leaves alone. Such a procedure does not exist and the important question is how this will happen, what the mechanism is, what the consequences will be. The other issue is that upon introducing a new currency, its exchange rate will totally depreciate against the euro, which will mean huge losses for businesses and the people who save. And especially for borrowers because their loans are in a particular currency and the introduction of a new one that is seriously depreciated as well as the real value of their income will respectively increase the value of loans compared to their purchasing power.

Are there financial resources that are currently coming from our southern neighbour into Bulgarian banks?

It is not excluded that there may be such resources but unfortunately, there are no such statistics. I.e. bank deposits are not separated by where the money in them comes from, it is only clear if it comes from households or financial institutions. It is possible that there is a transfer of deposits to Bulgaria because the capital of several Bulgarian banks is owned by Greek banks, so it is no wonder that some of these funds are directed to Bulgaria, as a country that is relatively close in geographical terms and in view of the fact that a fair number of Greek companies have activities here. When Greece was experiencing the most serious problems we saw companies transferring their registration from Greece to Bulgaria. Therefore, such a transfer is not excluded but since no such statistics are available, we cannot speak with certainty.

Is there currently a danger for the Bulgarian banking system, as four Greek banks have requested financial assistance from the Greek state fund?

Тhese banks have requested Emergency Liquidity Assistance, which is the ability of central banks in individual countries to separately conduct a monetary policy, which, by definition, should be conducted only by the European Central Bank, to provide liquidity support to local banks, which actually increases the money in circulation. There is such a mechanism, Greece has already taken advantage of it several times and now the same thing is happening.

I think the problems in the Greek banks have never concerned the Bulgarian banks. Firstly, because the deposit base in Bulgaria, compared with the assets of the banking groups in Greece, is very small and in fact, it could hardly solve a serious problem. Secondly, the Bulgarian banks continue to be profitable, which means that if they redirect funds to the parent banks, their profits will fall and so will the value of assets. Thereafter, the banking groups may experience other problems. Another argument in this respect is that in the period 2009-2013 some Greek banks sold their subsidiaries in different countries, including Poland and Hungary, and retained their subsidiary banks in Bulgaria. This means that it is in their interest to remain in this market and I think this will be the last thing that will happen, namely to sell the assets that they have here, not to drain them, which will reduce their market price. Then subsequently, the market price of the bank groups will respectively decrease too.

In the extreme case, it may happen that these Bulgarian units are sold and judging by our experience in recent years, when banks with foreign capital are sold in Bulgaria, they relatively quickly find a new owner, usually local persons, and in no way is this connected with the problems in the market or the instability of the system.

What alternative should Greece seek in the upcoming elections?

In general, I do not see what Greece can do because there is no alternative to what is now happening. In the same way as we did not have an alternative of "South Stream". We have taken some commitments to the European Commission and other commitments that are in conflict with the first under the trade relationship with Russia. Thus, we have found ourselves in a situation in which there is no way to please both sides, and we will face some penalties. Now the future Greek government is setting exactly the same trap. It tells voters "We will do everything possible to get rid of these austerities" and at the same time, it is dependent on what is happening in Europe and what the European lenders are willing to tolerate in terms of behaviour and conditions of the rescue programme. There is no way for it to get out of this situation scot free.