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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 The crisis is already hitting not only the sectors from which the state has withdrawn its protections but also sectors, which have been steadily developing.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.

    Eurobank’s chief economist Gikas Hardouvelis talked about the reforms and Greece too. He made a comparison between the structure of the GDP of Greece and of eurozone countries, which shows that consumption in Greece is 74.6% of GDP, whereas this rate in the eurozone is 57.4%. The data are for 2011. Of this, public consumption is 17.4% and it is 20% in the eurozone. Greece’s export creates 25% of GDP and the rate in the eurozone is 44%. The structure of Greek GDP must change and become similar to that in the eurozone.
    "Since 2009, banks have had a serious liquidity problem because they do not have access to the interbank market and the market for government securities. The reason for that is the downgrading of the country and the banks. The third market – the one of deposits – has dropped by 20 billion euro. An additional source for liquidity is the option of redeeming the securities held by the banks. But this is not a solution either, because they are highly devaluated," is the opinion of Christos Gortsos, general secretary of the Hellenic Bank Association. He believes that the biggest blow to financial institutions was in February 2012, when the PSI took place.
    "Now, there is an intense discussion on where the money from the recapitalization of banks will go. Society refuses to understand that banks do not grant loans out of their share capital. Banks borrow money to lend. The share capital is for the purchase of securities, so as to ensure the solvency of banks," Christos Gortsos further explains.
    According to Andreas Athanasopoulos, Greece is a country of small companies, their number is more than 900 thousand and they are smaller in size than the European standards for small businesses. He believes that the profile of entrepreneurship in the country must change and shift from sole proprietorships to larger companies that will keep the necessary accounting.
    Solomon Beharas of Piraeus recalls that after the examination of Black Rock and after the PSI, everyone knows that the Greek banking system is in a very poor condition. "After 30 years in the banking sector, I'm optimistic that we'll learn from our mistakes and we’ll prepare ourselves for the next crisis that will come for sure," he said. In his opinion, the new banking model of Greece will have lower growth, profits will be lower, there will not be a too ambitious strategy, but it will be much more sustainable and more responsible to shareholders, investors, customers, employees. "After the recapitalization, there must remain only healthy banks that are viable, competitive and able to produce profits. A huge reform of the risk assessment system is necessary too," Solomon Beharas concludes.
    "Greece is suffering mainly from the lack of confidence. To restore it, it must first introduce the financial stabilization programme and execute it in compliance with the plan approved by the lenders. But even that will not be enough. Lenders should change their message to the world media. Two-thirds of the fiscal adjustment have been completed. There is only one third to implement. The lenders should officially recognize it. Otherwise, there will be no change in the economic climate," is the opinion of George Zanias, president of the Hellenic Bank Association and the National Bank of Greece. And according to Panagiotis Thomopoulos, the head of the Greek Financial Stability Fund, if economic reforms are implemented, the upturn will start as soon as in 2014.
    Dimitris Tsigos, CEO of Start Tech Ventures, talked about venture capital as an opportunity for economic growth. This capital is totally absent in the Greek economy, and it is much less in Europe than in the United States. "The European Union put in venture capital a total of $ 4 billion in 2009 and the United States invested in it $ 18 billion," he said. According to him, in order to change this, Europe needs to form a culture of failure and this should be done through education and through legislation. "In Europe, bankruptcy laws are very outdated. If you go bankrupt here, it's a disaster for life. This is not the case in the United States – you go bankrupt quickly there to be able to get on your feet again." He recalls where the venture money comes from - from four sources. They are the state, the banks - both sources went bankrupt in Greece. So, there remain the other two - private investors and corporations, but they need incentives and the government should create them.

Tags: Risk managementBanking sectorDebt crisisRecapitalizationLoansStructural reforms
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