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Anastasia Balezdrova

A week after the meeting of finance ministers of the euro zone member states, at which their Greek counterpart Yanis Varoufakis put his signature under the general statement requesting an extension of the bailout, the government in Athens seems to be determined to fulfil the commitments just in words.

Only today, the ministers of Alexis Tsipras’ government announced changes aimed at restoring the old and corrupt policies that are far from being defined as reforms. These include the re-launching of the state broadcaster ERT and reinstating to work all the 2,600 employees who had been made redundant, abolishing the supreme council for the selection of personnel in the public sector, revising the project for expansion of investment in the gold mines in Halkidiki and conducting a parliamentary inquiry on the Memoranda of financial assistance.

At the same time, the country is threatened with the lack of money, while next month it has to repay the loan to the International Monetary Fund (IMF) that amounts to 1.5 billion euro. The government is preparing to bring money to the state funds by combating tax evasion and corruption, while the continuing outflow of deposits from the banks is making the situation even more difficult.

Business consultant George J. Prokopakis talked with GRReporter about the agreement in the Eurogroup, the future of negotiations with the lenders and the prospects for the Greek economy.

Mr. Prokopakis, what is the significance of the Eurogroup decision for Greece?

I think the decision of the Eurogroup states basically the following: "Let Greeks stew in their own juice since they have not yet decided what they want to do and how, or since they are not yet saying what they have decided, and since they do not want to observe their commitments. We are obliged to protect the euro and the banks." Therefore, the only thing that this decision has actually achieved is avoiding banking panic to allow for a balance in the banking system.

Everything else is in an even worse condition than in the period before the elections. The only thing the government has failed to attain, although according to some commentators Samaras, and any other Greek Prime Minister, would also fail to achieve, is reducing the primary budget surplus required in 2015 from 3% to 1.5%.

But this is something that, more or less, reflects today's reality. This 1.5% corresponds to almost 3 billion euro. Meanwhile, the incorrect actions and the reduced government revenues have increased the expected hole in the budget from 2.5 billion euro to 5-7 billion euro. This means that these 3 billion euro, which will be the result of decreasing the target of the budget surplus, virtually do not exist, because the state has no revenues. An example of this is that one of the first actions of today's government was to delay for one month the payment of VAT due in January. This is madness - on the one hand, there is no money in the treasury and on the other, you are telling those who are criminally liable if they do not pay VAT not to pay it.

But beyond my judgment, we have yet to see the consequences of the decision of the Eurogroup.

Greece's main problem is that it has no arguments to use during the negotiations and that it is cornered all the time. This whole thing with the negotiations over the past three weeks, the show and the rhetoric of the cabinet made no sense because the lenders had to do nothing but wait until last Friday, when the outflow of bank deposits would have been so significant that the Greek government itself would have had to close down the banks. This is why Minister of Finance Yanis Varoufakis changed his rhetoric at the specific meeting of the Eurogroup. The document, which he refused to sign at the previous meeting, claiming that it was different from the document originally proposed by Commissioner Pierre Moscovici, was ultimately better than the solution that he signed on 20 February. That is, as time passed, Greece was finding itself in a more difficult position.

This continues today, for the simple reason that money is used up while no measures have been taken to ensure the financing. Yesterday, President of the European Central Bank Mario Draghi said that Greece would receive about 1.9 billion euro from the profits from the Greek bonds only after the evaluation of the programme implementation, i.e. after the end of April. Therefore, now there is no source of funding. Currently Greece entirely depends on the goodwill of its European partners to allow it to issue more government bonds to pay both its obligations to the IMF in March and the salaries and pensions to the detriment of banks. Athens has to find a way to show "good behaviour" in the course of negotiations in order to stay afloat.

According to the State Minister, Greece may not be able to repay the loan to the IMF next month. Is there a risk of it failing to pay salaries and pensions?

The only source, in addition to the lenders, is state institutions such as social insurance funds. Although one of them yesterday refused to put money into repo transactions with government securities, the government will still be able to provide a certain amount. It is claimed that the total amount available to these institutions is about 3 billion euro. The government will be able to take half of it. The amount is in the form of renewable term deposits with maturity after 15 days or one month, which may help solve the problem of lack of liquidity. But this is a very temporary measure. If the negotiations with the lenders do not proceed well, things for Greece will become very bad by April.

I believe that the government will be able to reach an agreement with its European partners, according to which over the next two weeks it will fulfil all commitments and will replace those which it cannot meet with others with the same financial effect. In this way, it will be able to alleviate the strict decisions of the European Central Bank, which needs guarantees to accept Greek government bonds in return for liquidity. In the case of Greece, the guarantee is the bailout.

Therefore, Greece will labour along until it comes to an agreement. It will not be allowed to default through a credit event due to the failure to repay the loan to the IMF next month, but this will involve many difficulties as the loans from the Emergency Liquidity Assistance are expensive and the term bonds are even more expensive, etc. Anyway, this situation cannot continue for a long time.

According to various sources, Greek banks have about 150 billion euro. At the same time, the outflow of deposits continues. How can it stop and what could happen if it does not stop in time?

It can stop only by improving depositors’ confidence, as they have to be sure that there is no problem and there is nothing to worry about in terms of their deposits. In this case, they have no reason to keep their money at home or in the case of businessmen in foreign banks, and they will deposit the money back in Greece. But to be fair, we must say that their actions are reasonable. It is not possible for businessmen to risk leaving their money in Greek banks and being forced to close their businesses if the banks close down. For them this is a matter of survival. All of what I have described is true in the case in which the system is allowed to recover by itself.

However, it is unfair that the people who are aware of the matters and have money had taken care earlier to transfer it abroad. Companies have opened accounts in other European countries and transferred their capital to protect themselves. The same is true for rich people who long ago transferred their money to foreign banks. Now we are at the end of this process of capital flight and the people who go to banks to withdraw their money are small depositors. The amounts that flow out are great because their number is very large.

I do not think that this will lead to the closure of banks. Although there is no available data yet, there are no queues at banks. But if capital flight continues, an alternative solution is to restrict capital flow, not necessarily through haircutting deposits, but through imposing a strict control on the funds that are transferred abroad and restrictions on the money that can be withdrawn from ATMs.

Is there such a probability now?

It was very likely to happen if the agreement with the Eurogroup had not been concluded last Friday. If, at some point, the negotiations with the lenders become complicated, imposing the feeling that they will not lead to a good end, citizens will go to the banks and withdraw the remaining money from them. Then the Greek government will have to impose such measures that will be its own decision and which it will not be able to attribute to the "bad" lenders. It will be a defensive action on the part of the Greek cabinet and the Bank of Greece, which will aim at rescuing the banking system. In this way, the government will pay the moral and material price for the apparent destruction of the Greek economy.

The government lays its hopes on the fight against tax evasion. How much can it rely on this measure in order for money to flow into the budget?

Combating tax evasion involves two stages. The first is to establish the offender who has concealed a certain amount and to verify it, after which the road to the actual receipt of money is very long.

It goes through the court, the debtor's inability to pay, etc. There is no use if the debtor has no money because he has invested it in construction and the state has to seize the building.

Tax evasion can be established relatively quickly and the amounts can be quite high. Such was the case with the notorious expression of George Papandreou, "There is money." He had said that his government expected to collect 31 billion euro from tax evasion. In the end, it managed to collect about 1.8 billion euro over the course of 3-4 years.

I think the new government will apply various methods, including tax amnesty and cuts in tax obligations. They could bring revenue, but they would decrease the verified amount that is due. That is, if I owed 100,000 euro and agreed to repay half of that amount, the state fund would obtain 50,000 euro but the balance would be burdened with 100,000 euro because my entire debt would be written off. So, it takes time to see the result.

However, the fight against tax evasion and corruption essentially are long-term measures, which certainly have to be implemented, but they are not able to solve short-term financial problems such as the payment of the loan to the IMF in March, not to speak of the bonds due to the European Central Bank in July and August. In addition, they are not able to substitute the implementation of horizontal measures such as cuts in salaries and pensions that provide direct results.

Are pension and salary cuts possible?

It depends on how tight things will be. I am reading that the government circles are even discussing options such as not paying in full salaries and pensions in the public sector. For example, paying later the remaining 500 euro of a salary/pension that amounts to 1,000 euro, or paying it in the form of bonds or something else. In essence, the measure is equivalent to a forced loan.

However, concessions in other liabilities need to be made to enable the citizens to bear this burden. For example, if a person receives half of his or her salary he or she will need to be able to shop on credit from the grocery or not to be pressed by the tax officer to immediately pay the taxes due.

Actually, all this is spread throughout the system and it is doubtful whether the measure could be successful. On the other hand, if the state has no money, it will have no option but to suspend payments.

Accounting for the fact that no reforms are being implemented yet, how long can Greece manage without a third bailout?

I think that, in terms of reforms, the government will carry out the easy ones and those that are attractive to part of its supporters. For example, it will carry out the reform in universities, because it will cost nothing. I will not consider if it will actually be a reform or anti-reform. In any case, it will do some of the things that have no financial implications for the budgets. In terms of economy, however, the government tends towards anti-reforms rather than reforms.

As for the third bailout package, to be fair it should be noted that, according to the report of a commission of technocrats from 1 October 2014, Greece would still have a fiscal problem in June 2015 even if the programme of Samaras and Venizelos were applied. In other words, this problem is not the result of the actions of the new cabinet alone. Things have been moving in this direction anyway.

The experts considered this problem last September and estimated that Greece would be short of 10-15 billion euro. Now, their estimates show that it will need 20-30 billion euro.

My personal opinion is that a third bailout, whether it is a new memorandum, credit line or anything else, is absolutely required. There is no doubt about it.

What will happen in Greece after June will be the subject of discussions in April and May. Then its requirements will amount to 7 billion euro for bonds maturing in July and August, government revenues will be in a very poor condition, a year will have passed since the banks have stopped lending and the economy has been stagnant, liquidity will be bound to term bonds, etc. The country will have no trump cards in the negotiations and it will literally be pressed to the wall. Therefore, it will abandon all theories of the Minister of Finance that the loans nourish the Greek crisis and will gladly accept the third memorandum.

At the same time, the majority of people in Greece do not seem to realize the seriousness of the situation.

Yes, people believe that something will always happen to improve the situation. And it is because something always happens. But what politicians and the media do not say is that every time when things are difficult in Greece, Europe rescues it, and it happens on the basis of an agreement.

For example, in the summer of 2012, Antonis Samaras transferred from the camp of anti-memorandum to that of its supporters first, a few days later, Mario Draghi allowed the government to issue government bonds and only then was Greece able to repay the bonds due in August, thus avoiding bankruptcy. The same thing happened last Friday when SYRIZA turned upside down in terms of its major positions. It was a huge setback.

Economic growth was expected and was ultimately attained last year, albeit low. What are the forecasts this year, what will happen to the real economy?

The forecast was for a 2.9% increase in gross domestic product. A few days ago, the European Commission decreased it to 2.5%, but the expectations are that, in this course of developments, economic growth will probably be below 1%.

As already pointed out, the current situation is not only SYRIZA’s fault, it is the fault of the previous government too, because the economy has stagnated since May 2014. This will slow down economic development and the increase in government revenue. The banking system is already paying dearly through the funding from the Emergency Liquidity Assistance, flight of deposits, loss from interests on loans, which they would normally have granted.

I think we should not expect changes in the economy until September. We will labour along until June, because the negotiations on the agreement will be in course, July and August, anyway, will be "dead" months and the only active sector remains tourism. If the agreement with the lenders is successful, we will see how things will develop from September onwards.

With all these delays and evasions Greece has found itself at least a year back in the course of its recovery. If the government of SYRIZA had requested an extension of the programme on the first day after its election, it would have won three weeks in which to discuss the conditions, there would have been no outflow of deposits from banks, foreign investors who wanted to buy sites in Greece would have considered how to proceed. At present, all these things are gone, there is no money in banks, there are no investors. If the government had made its famous "roll" then, Greece would certainly have been in a very good condition. Under current conditions, however, I do not see how it can achieve any economic growth.