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Greece is in a state of sceptical shock

09 November 2012 / 17:11:35  GRReporter
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Greece is in a state of sceptical shock - lenders are afraid to invest, consumers are afraid to consume. The crisis is already hitting not only the sectors from which the state has withdrawn its protections but also sectors, which have been steadily developing. This is the common opinion of the participants in the conference on risk management organized by Economist magazine.
    "80% of companies with capitalization of less than 30 million euro report losses, 37% of medium-sized companies incur losses. And big companies like Coca-Cola and FAGE leave the Greek market," the professor at the London School of Economics, Michalis Yiakovidis, recalls. According to him, loans in Greece are being granted to everyone in accordance with his needs and by everyone in accordance with his means. This is an anti-market principle that banks should abandon. "Banks at present are only prolonging the agony of companies that are already dead by continuing to lend to them. These are zombie companies, which are being forcedly supported. This is not healthy. They must either die or replace their owner with someone who knows what to do. We have to deal with troubled companies and troubled banks," the professor is adamant.
    The economist claims that the notorious lack of liquidity is due to the fact that since the beginning of the Greek crisis, GDP has dropped by 18%, deposits - by 30% and lending - by only 6%. That is to say, that lending has been decreasing more slowly. At the same time, the demand for loans has collapsed and in the construction sector, for example, it has shrunk by 70%. "The problem is not that banks do not lend but that there is no reasonable risk that it is worth lending for," Michalis Yiakovidis thinks.
    He argues that confidence in Greece will not be restored unless a solution is found on how to make the country's debt sustainable. This requires the right government policies, which the professor believes Antonis Samaras’ government is pursuing and a public administration to implement them. "And here is the biggest problem. Minister of State Administration Manitakis makes the life of Finance Minister Stournaras miserable. Greece ranks 96th in terms of competitiveness and 111th in terms of efficiency of institutions. If public administration is not reformed, Greece itself will not reform," Michalis Yiakovidis concludes.
    "Why do banks support zombie companies? It is because if they allow them to die, it would hurt their own balance. Black Rock described these cases and we all know that there are many of them," the vice president of the Hellenic Federation of Enterprises Aristotelis Aivaliotis, asks rhetorically. In his opinion, zombie companies are being supported by taking the money of healthy companies, offering them impossible conditions for lending. "I am afraid that after the adjustment of the banking sector this practice will further intensify. No Greek enterprise can be competitive abroad if interest rates are two times higher than the eurozone average. Banks want interest rates of between 8% and 10%. It's too much," the businessman states.
    Aristotelis Aivaliotis claims that banks have laid their hands on the companies and are taking advantage of them. "Foreign suppliers want assurance for their goods, loans between businesses have been discontinued. The state is charging the companies with onerous taxes. The only salvation for entrepreneurs is banks. They know it and squeeze them as they can," the vice president of the Hellenic Federation of Enterprises concludes.

Tags: Risk managementBanking sectorDebt crisisRecapitalizationLoansStructural reforms
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