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Victoria Mindova

It is obvious that Greece’s return to economic growth goes through the private capital investment in ports, airports and other public infrastructure organisations, said the Minister of Finance Georgios Papaconstantinou. He spoke at the business forum organised by the The Financial Times newspaper, which brought together Greek and foreign experts in the banking and insurance sectors, government officials and investment experts from around the world. The Greek Minister of Finance stressed that the country could unleash its enormous investment potential through privatisation in the energy, gambling and a range of other sectors. The privatisation program will have a double impact because it not only will help to quickly return to positive economic growth, but will be positive for the efforts to reduce the foreign debt.

Papaconstantinou stressed that the government plans measures much larger than the 15 billion euros needed for reducing the deficit. The reason is that the additional efforts have to cover the rising costs in the payment of the current obligations to the foreign debt and the high interest rates. "Only the interest rates have increased by eight billion euros, which obliges us to consider not only the deficit reduction, but the costs of the foreign debt." He stressed that to achieve the objectives, the government has reduced the cost of salaries in the public sector, streamlined the operation of public institutions, allocated the social benefits more equitably and tries to reduce the widely spread tax unfairness. The Minister promised that there will be neither horizontal increases in the tax rates, nor general reductions in salaries, known from 2010.
 
Georgios Papaconstantinou stressed, however, that the changes require the support of the whole society. "We are in the middle of the recession," said the Minister of Finance. He stated that when the country is at the bottom, usually everything is seen in the worst light. However, he played his role of a politician and reiterated that the economic crisis is not something unknown to date, and Greece has the power to recover. Papaconstantinou gave the example of the recession across the euro area, which followed the financial collapse in the U.S. in 2008. Today, the area registers positive growth. As for Greece, he said: "If we look at the last quarter of 2010, we will see that it is the worst since the beginning of the program, but the first quarter of 2011 has already improved." Following this line of thought, the Minister explained that the first positive growth in the country could be expected after the last three months of 2011.

"The first necessary condition to talk about positive economic growth is confidence. There will be no confidence on the other hand until we reduce the deficit," Papaconstantinou stated explicitly. He said that this is the main and indispensable objective of the government and a detailed plan for its achievement will be presented in mid-May, when the mid-term plan for financial recovery will be announced. According to him, Greece will implement strictly the outlined measures and there is no risk of debt restructuring. "If all these measures, which we apply, will not lead to economic growth, why do we take them?" he asked rhetorically. Papaconstantinou explained that to reduce the deficit and reach the formation of primary budget surpluses ingredients are necessary which will stop the speculation about debt restructuring.
 
The economic advisers to the three major Greek banks also supported the idea that debt restructuring is a topic outside the agenda of the socialist government. They were adamant that the debt reform should neither be discussed, nor applied for such a development would cause much greater harm than benefits to Greece and Europe as a whole. The chief economist of Eurobank EFG Gikas Hardouvelis said that if the debt was to be restructured, it had to be done until May 2010 when Greece signed the Memorandum of financial support. The economic experts from Alpha Bank, National Bank of Greece and Eurobank EFG supported the idea that the first priority of the government today is to strictly implement the recovery plan.

Michalis Mazourakis, chief economist at Alfa Bank was clear that the issue of debt restructuring is beyond any logic. Like the President of the European Council Herman van Rompuy, he said: "I have not met anyone who could tell me the advantages of a similar scenario." He stressed that the compliance with the program for fiscal consolidation and the implementation of the structural changes will be the way out of the current crisis. Michalis Mazourakis referred to the last year report of the International Monetary Fund, under which even if half of the foreign debt of Greece disappears as if by magic or is cnacelled, the country will still need at least 3% of primary budget surpluses, so that the foreign debt to the GDP ratio be stable and the debt be repaid easily. "So, whatever we do concerning the foreign debt, its restructuring will not solve our problems, and the implementation of the recovery program is obligatory. Otherwise, we could not form primary budget surpluses," said Mazourakis. He added: "I do not want the "I do not pay" slogan to spread throughout Greece and to become something general, instead of a peripheral movement what it is now."

According to the economic analyst at the National Bank of Greece Pavlos Milonas, the government should try not only to meet the objectives set out in the Memorandum of financial support but also to endeavor to further measures that would give advantage to Greece. Pavlos Milonas explained that the capital markets now see only an increasing foreign debt. They doubt it could be paid. It is, therefore, crucial to meet on a monthly bases all planned measures related to both the fiscal consolidation and the structural change without gaps in achieving the objectives. The logic is that budget surpluses should be formed and large enough to cover the debt obligations, after having met all other budget obligations." If we could not do that, why we should be lent again? And then, we would really need to talk about debt restructuring."

Similar were the comments of the economic analyst of Eurobank EFG Gikas Hardouvelis, who said that Greece will succeed with the program for economic recovery, because it has no other choice. "We are cornered and achieving the objectives set in the Memorandum of financial support is our only way out." He gave serious consideration to the long and continuing distrust of the capital markets to the will of the Greek government to deal with this crisis and has repeatedly stressed that more should be done. "The most important thing for all is Greece to return to the free lending, but at these interest rates that is not possible." Hardouvelis sent a message to the government that it has to act quickly and take additional measures so as to regain the confidence and the difference in the interest rates of the Greek to the German government bonds to decrease. "It does not matter whether we love or hate the capital markets, they should be convinced that Greece is making real efforts to change."

The CEO of EFG Eurolife Alexandros Sarrigoergiou criticised the statesmen too. He said that the time has come to bust the myths about the way of operation of state pension insurance. "The time has come to break our old beliefs which a larger part of the political circles in Greece perceive as sacred cows."

The first myth that it is time to be taken from the pedestal on which it stood for years is the mutual assistance between generations concerning retirement. The system under which the working people pay the pensions of retirees proved particularly unsuccessful and the evidences are the scarce pension funds. The problem of the aging society in both Greece and Europe is that the people who work today have to provide pensions both for their parents and for themselves, because the resources in the funds are exhausted or have never been accumulated. "The minimum pension the government set last year was 320 euros. Compare this amount with the standard of life that surrounds us and you will find that the sacred cow of this policy is not so sacred."
 
The high standard of living provided in the last decades could not be covered by the minimum state pension. Sarrigoergiou said that the average life expectancy for every European after the age of 65 is still 25 years at least. This means that after an average of 40 years of work, pensions have to be paid another 25 years in terms of an aging Europe. The old continent has a problem with the reduced labour force and the increased number of elderly people who are entitled to a pension after they have been working the whole of their lives. Among other things, Europe is becoming less competitive and produces much less and much more expensive products than countries like China or India, which flood the world market. The Executive Director of EFG Eurolife stated that the model needs to be restructured so that each working person will invest in his or her future old ages to be guaranteed a pension after many decades of work.

The second sacred cow which it is time to be put to the sword is "the state, which provides everything," said the insurance expert. Alexandros Sarrigoergiou explained that a typical insurance product as the voluntary private pension carries some risks, but also much greater capital for their security. To ensure maximum avoidance of potential risks, the Solvency II rules come into force early next year. The new regulation will allow in-depth measurement of the risks and the capital value of investments will be guaranteed based on the results, so that the contributions of the people to be protected in the highest degree. Sarrigeorgiou said that the guarantees of a service in private insurance will require five times more capital than the initially imported value. All this applies to private insurance and, in particular, to private pensions. And here it turns out that if the provider of the pension service is a private company which is bound by the Solvency II rules, it is required to guarantee that capital, but it will not be able to and will abandon the service because it becomes unprofitable. At the same time, if the state must provide the same service, it will be guaranteed by government bonds, which, as we all know, could lose their value in no time as is the case with the Greek government bonds.

The other problem is that state pensions in Greece take 90% of the market in the country. According to experts, the attempted reform in 2002, when the law on the branch insurance companies was adopted, has made a fundamental error, namely that the government has made the second pillar of the insurance system mandatory, thereby duplicating the functions of the first one. At the same time, the state transferred the branch pension insurances to the relevant state pension funds, thus taking the private insurance companies and the alternative insurance funds out of the game. "We need to restructure the system. The savings should increase to cover the deficits in the state pension funds. Then, capitalized pension system should be formed in which every citizen in this country should have his or her own savings for the old ages," explained Alexandros Sarrigoergiou. The country should establish strong tax incentives by legally establishing the role of insurance companies in the branch insurance and to ensure strong supervision for the proper functioning of social security and insurance sector, so that to make the today's younger generation save for pension.