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Maria S. Topalova 

A favourite Greek proverb of mine says that you known who the good seamen are when the storm comes. There is hardly anyone in the world who does not know that Greece is currently in the heat of an unprecedented economic crisis. Without causing or deserving it, the Greek banks ended up in the eye of the storm, which put the "head" of the local economy on the scaffold and would guillotine it any minute. The responsibility of the people managing the Greek financial system is huge, and any mistake would be costly to the taxpayers in the country. But how do these people manage – do they carefully consider the consequences of every action they take like experienced chess-masters or take undue risks like sworn poker players?

This is the question that the Conference on The Future of Banking in Greece organized by the Financial Times should answer. The event was attended by leading bankers, investors, consultants, financial brokers, insurance experts, economists and journalists. It seems that the Managing Director of Piraeus Bank Alexandros Manos outlined the picture of the current state of the Greek banks most accurately.

"The banks in Greece have normal difficulties in a normal market. The problem is what is normal in Greece. Figuratively speaking, the Greek banks are in a box in which there is only liquidity outflow, but not an inflow," he explained. The magic term deleveraging (this is the process by which the bank or the investor reduces its assets to the amount of the property that would be left to the owner after the liquidation and meeting all obligations to creditors), which is recommended by many financial experts as a panacea for the financial crisis, according to Alexandros Manos actually reduces the deposits, but does not reduce the gap in the funding for banks, and in the case of Greece – it even reduces their profits.

"To stop the liquidity outflow, the Greek economy has to reach the bottom and to begin to push away from it to recover. Currently we are in a state in which the economy has not yet reached the bottom, so there is no solution to the banking problem. What should happen to get to the bottom? There should be a budgetary surplus able to pile up. This should be the top priority of the government. And the second sign that we have hit the bottom is the tax system. If the government and the opposition should agree on something, it is the minimum taxable price of real estate which should be kept for a long period of time to allow investors to invest. This is the bottom. Then comes the recovery," was extremely accurate and precise the Managing Director of Piraeus Bank.

The CEO of Eurobank EFG Nicholas Nanopoulos was not less explicit in his assessments: "The clientelist model in which we used to live until recently collapsed irretrievably and we have found ourselves in a deep economic crisis. Despite the sacrifices and the efforts made over the past 12 months, the public sector continues to spend 10% more than it produces and the state as a whole consumes 10% more than it produces. There is no way out. Further bold decisions and actions are necessary." He recalled that the measures of the medium-term program would be painful. They should focus more on cost reduction and fighting tax evasion and less on increasing the taxes themselves.

"There are no magic measures and simple solutions. We must convince the world that we are able to fulfill what we promise. This would create better investment conditions and would lead to prosperity," said the banker. He noted that for the past 10 years real estate prices in Greece have been growing more slowly than in other countries and this has prevented banks from toxic investments in mortgage structures. The financial institutions have developed through traditional banking practices. "The banks maintain high levels of capitalization and take actions to reach even higher capitalization. We have turned our eyes to the region right on time, helped the Greek businesses in neighbouring countries where we made careful, consistent and correct steps. So, now we are controlling an average of 25-30% of the banking sector in the new Europe," said Nicholas Nanopoulos.

According to him, at a time when large foreign banks are struggling to operate in Greece, Greek banks successfully are competing with large foreign banks in emerging markets. "The problem is not in capitalization, but in liquidity. The systematic downgrading of our banks is extremely difficult," admitted the CEO of Eurobank EFG. He stressed that the development of the banking system is linked to the economic development, which should find a new model of development based on the private sector rather than on public procurement. As for the bank, which he himself manages, he said that it reduced its costs by 13% for the past ten years, and is expected to reduce them by another 15% by the end of 2011 compared with the period before the crisis in 2008.

Retention of profits by reducing costs is one of the challenges facing the Greek banking system, according to Theodore Pepanides from the Greek branch of the consulting firm McKinsey & Company. But: "Unfortunately, the revenues of Greek banks are decreasing much faster than their costs," he stated. The other challenges facing the financial system, according to the consultant, are preserving the quality of the bank assets in a deep recession, deposits outflow and the difficulty in funding the banks, opening them to the Greek government debt, which is estimated at 49 billion euros for the first quarter of 2011 and again deleveraging, which would ensure a healthier profile of funding, independent entirely on the European Central Bank as is the situation at present. "Banks know that it would be much harder to make money from now on. Funding should be competitive, revenues would increase through very intelligent decisions, banks have realized they are accountable to society and this is something that would change the way of their management fundamentally," concluded Theodore Pepanides.

Now is not the time to delay the reforms, was the message of the Senior Resident Representative of IMF in Greece Bob Traa, who also spoke at the forum. "It is clear to all that Greece is at a critical crossroads whether to continue the bold reforms or slow down. The second option, according to us, would be a big mistake. Structural reforms are delayed. If they are not made, the Greek economy will balance at lower incomes and lower standards. This is not our goal, however," he said. In his opinion, the aim of the supervisory Troika is to achieve a balance of higher incomes and higher standards for the population.

How to achieve this? "The government should not simply present, but implement the measures, consolidate public enterprises, restructure the public sector, privatize bravely. The business environment and labour relations should be changed - the practice of collective labour agreements should end, investment procedures should be simplified, closed professions should be opened. The Greek political system should speak with one voice in order to leave no doubts in its partners," said Bob Traa. He called on the Greek banking system to play its role. "It is clear that the crisis has pressed the banks. There is an outflow of deposits due to the recession and because of rumours of debt restructuring. Banks should cut their costs and offer fresh money to the market. The state guarantees for the banks are effective in our opinion. There is uncertainty about how the recession and the financial consolidation would affect them and that is why there is the requirement for greater capitalization. The public sector should be separated from the banking system, all state banks should be privatized, and there should be a merger of banks," were the words of the IMF Resident Representative in Greece.

Asked when exactly the fifth tranche would be paid to the troubled Greek country, Bob Traa answered carefully: "The mission of the supervisory Troika was completed with the consent of both parties (of the government and the Troika) on those parts of the program, on which Greece should continue working until the tranche is paid. As far as the payment itself, I could not say anything. An important meeting of the European Union will be held on the 20^th of June and this issue will be discussed."

At the forum had to speak the Minister of Finance Georgios Papakonstantinou and the Minister of Regional Development and Competitiveness Michalis Chrisochoidis who refused to participate at the last moment because of the ongoing debate of the medium-term program for the economic development of Greece in the Council of Ministers. As to the fundamental question whether banks are in the hands of experienced chess-masters or of adventurous poker players only time would show it.