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Victoria Mindova

The inaction of the George Papandreou’s government and the lack of effective measures to cut the budget costs are in the base of Greece’s need of Memorandum 2, which brings even higher taxes and even more serious fiscal measures. This is the opinion of the lecturer of economics at the Aristotle University of Thessaloniki Dimitris Mardas, who spoke for GRReporter exclusively and did not hide his disappointment with the current governing of troubled Greece.

What are the specific measures that were not implemented on time and led to the fatal diversions and the need of Memorandum 2?

First, the cost of a bunch of public enterprises, public institutions and organizations had to be reduced significantly. Deliveries in health also could be cut seriously as well as the indiscriminate spending of funds from local government organizations. These are problems known since last year. There was no need to end up in this situation and the government to realize that it should start to discuss the implementation of such actions. These three sectors are the main culprits for state money wasting.

All assume, but you economists do say it specifically that the Greek government did not do what it had to do and now Greece would pay a dear price, right?

That is right. What was agreed was not done. We will not discuss now how real or feasible the things agreed were. In my opinion, of course, what was agreed in the Memorandum was exaggerated in some cases, especially regarding the problems that from the outset were known to be extremely difficult to solve. As a result, two major problems have occurred which led to the failure of the Memorandum. The first was the lack of agreement with the measures of many ministers in the cabinet. The second major problem was the lack of thorough knowledge of the subject of preoccupation of the heads of various institutions. In simple words, the ministers do not know well the scope of activities of their ministries.

Could you specify who those ministers are who have proved incompetent in the George Papandreou’s governmentf, according to you?

You see, there is no point of telling names, but I can tell you that there are capable people who understand both the development and implementation of strategies, but also know the various sectors very well. These people should be given advantage today, because otherwise we could not complete the reforms that the government plans. In addition, the rulers should continue their actions with a different, faster pace, so that targets can be met. We should forget all the negative examples that we have seen recently to be able to apply Memorandum 2 with the least negative effects. For example, the entire process on the utilization of state property could be applied in a much different and more effective way only if there was a different strategy by individual ministries.

We are talking about severe economic measures and the difficulties in the Greek economy. Today, more drastic actions are being prepared to cope with the budget deficit and the foreign debt, which are specified in the mid-term recovery plan. For example, the extra tax of a permanent nature by 2015. Do you think they could actually be implemented and if implemented, could they bring the expected results?

There is no recovery of state finances as we have touched neither the restructuring of public enterprises, nor the real reform of state administration or local organizations. They are not functioning effectively and are wasting public funds. The same is the situation with the uncontrolled spending of public hospitals. You see that the solutions based on the new higher taxes are extra firefighting measures. In other words, the absence of measures to reduce spending in the budget leads to the inevitable increase in revenue. Those are actions that the government can not avoid. It can not cope and reduce the costs, there is no economic growth yet, and it finally resorted to new measures to increase revenues.

Given this uncertainty in general and the measures of dubious outcome, do you think there is a danger that Greece would not receive the fifth tranche of the financial support?

I think that issue has been solved and Greece will receive the fifth installment of the Memorandum. We could have not achieved the objectives set in the contract, but the second Memorandum shall enter into force and it includes the objectives that were not met with the first one. Once it was established 12 billion euros will be paid. They could not but pay us the fifth tranche as we agreed for the second contract for support.

Do you think there is the necessary political will to implement the second Memorandum correctly? I mean not only the lack of agreement between the ruling PASOK and the opposition New Democracy, but also the problems within the parliamentary group of the socialists and inside the cabinet?

Political will has two aspects. The first is that there are measures with which the government agrees but is has no power to implement them, because it fears the consequences. The second is the complete disagreement with other uses and therefore there is a lack of any will to implement the necessary measures. Both problems are currently observed in Greece and the entire burden of the behaviour of politicians is transferred to the people. For example, when some ministers disagree with the government policy and disagree with the action program, they are not doing their job properly. So, they have to resign. They should be replaced with people who agree with the objectives and are ready to work to achieve them.

To be honest, I can not understand how there are ministers who do not agree with the general policy and have not resigned yet. This is lack of dignity and at many levels in society.

The problem with Greece’s foreign debt is also serious. There are increasing rumours that there will be a voluntary participation of private owners of Greek government bonds in the rescheduling of debt payments next year. How do you think this will affect Greece?

All were saying that this can not happen, when we were talking about renegotiating or extending the repayment of the foreign debt. So, we had to use other words - voluntary participation of private owners. This means that they themselves would agree Greece to pay its obligations to them later. In a nutshell, we are doing the exact same thing (renegotiation), but we are using another term. This decision was made long ago and this is what will happen.

If the extension happens, or even haircut is necessary, won’t the credit rating agencies immediately interpret it as a credit event and activate the insurance market for government bonds CDS?

It is important to understand that we are not talking about voluntary haircut now, but only about deferring the payments on some of the bonds maturing in the next two years. The haircut will come after 2013, when Greece will enter the permanent European Financial Stability Facility and this measure is provided in it. Then the Greek government will negotiate with private banks that have Greek government bonds and will take a joint decision on the percentage of the haircut. It will surely happen, because it is institutionally embedded and will come after two years, but not today.

What will the consequences be for Greece and the local economy? Do you think the country would lose the chance to borrow from capital markets for many years to come?

No, there will be no such consequences because these arrangements are within a voluntary process and it will not be a unilateral decision by Greece. The country lost the right to take this decision in May 2010. If we ourselves had to decide that we would not pay part of the foreign debt it had to happen before the signing of the Memorandum.

The profile of Greece’s creditors will change to 2013, if I am not wrong. Then a larger part of the country's obligations will be to countries, mainly from the European Union, rather than to private investors and banks as it is now. Is that right?

That is right. The loans currently being paid are granted mainly by private institutions and then we will enter the new procedure of payment, which will include mainly countries. This means that the money on loans or bonds to be allocated will be under much more adverse conditions than the present.

Do you believe that the rescue program for Greece could be applied effectively?

I think anything can be done. This does not mean that I agree with this program and I do not think that other tactics could not be applied. But given that we ended up here, it should be implemented correctly and it is not allowed any politician to sabotage it.

Which rescue strategy would you apply if you could make such a decision?

This is a very big issue that is difficult to fit in an interview. I can tell you that I argue that we had to discuss the foreign debt restructuring still on the January 1, 2010, but not today, from the outset and also within the voluntary participation of creditors. I think we would then have better outcomes than those that we will achieve in the current situation. Greece is part of the euro zone. The collapse of any country of the monetary area would have disastrous consequences for the whole Union, i.e. it would affect the euro zone first, then the country itself. We did not consider this properly from the outset, as a country. Europe itself did not properly evaluate the threat of such an event earlier than the problem was born. Only with recent developments European leaders evaluated the depth of the problems of the possible collapse of a country from the monetary union.

Do you believe that banks will withstand the impact of the crisis?

Banks have a small cushion called European Central Bank. If it did not exist, Greek banks would have already gone bankrupt. They can be lent up to 120 billion euros without any problems. After that amount, they can be financed by meeting certain conditions, but generally when they run upon a rock, they can always turn to the European Central Bank. The banks of Argentina, most of which went bankrupt, did not have such a cushion.

Does your darkest scenario contain the option Greece to return to the drachma?

The drachma no longer exists as a currency. A dialogue in this direction is a complete nonsense. The whole theory that if Greece fails it should return to the drachma is fundamentally wrong and I do not know what nourishes it. This is a theoretical possibility. Another option is keeping the euro in any case. Returning to the drachma would not solve the problems, on the contrary – it would exacerbate them because it would show that the "Euro" system could not cope with the difficulties. It could also mean a complete disaster for the country itself.

First, Greece would lose the banks’ rescue belt, called the European Central Bank. Secondly, it would leave the European Financial Stability Facility. Third, the currency would be devalued, which would make the foreign debt more than 200% of the GDP. Fourth, I am not certain about the whole theory that the drachma would significantly enhance the competitiveness of the country because our economy is not focused on exports. We import much more than we export, and tourism is not able to bear the entire burden of growth - it is not so large a sector. After the return of Greece to the drachma it could not raise so much revenue from tourism, so as to compensate for the reduction of the effect of devaluation. In other words, even if the tourist flow and the proceeds thereof double this would not compensate for the devaluation of money.