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The supervisory Troika is not strict enough with Greece

20 September 2011 / 21:09:10  GRReporter
5090 reads

Victoria Mindova

Crisis, reforms, recovery program and structural changes are words familiar to every Bulgarian, born the '90s. All the generations that remember the communism in Bulgaria, remember the dark years that followed our newborn democracy with high inflation rate and even higher unemployment rate and lack of money. Today, the situation in Greece is similar. It missed the right moment to carry out the recovery measures quickly and decisively two years ago and now it is facing much more serious consequences.

In the overall situation of economic uncertainty, GRReporter turned to Krasimir Angarski to analyze the situation and to draw the parallel between the Bulgarian crisis in the mid 1990s and the Greek instability in 2011. He is the man who introduced the currency board in Bulgaria in 1997, consolidated the Bulgarian banking system and was a crucial figure in stabilizing the local economy.

Angarski was CEO of the Bank Consolidation Company, which restructured the Bulgarian banks and created seven large banks from 40 small weak financial institutions. In 1997, he became the Minister for Economic Reform in the government of Stefan Sofiyanski and Secretary for Economic Affairs to President Petar Stoyanov, having assumed the task to put the finances of the country in line with the support of the currency board. Then follow key posts at key institutions such as CEO of DSK Bank, in March 2005 he was appointed CEO of DZI Bank, part of the Bulgarian financial group DZI. On March 1, 2007, he became an adviser to the Board of Directors of Postbank and the management of Eurobank EFG Group.

Angarski is clear that if Greece is willing to avoid bankruptcy, it should immediately sell heavy public enterprises, reduce the public administration and start a bold privatization program to attract private direct investment. He said the International Monetary Fund and the European partners are not strict enough with the Greek neighbour, and if they really wanted results they should first check that the reforms are implemented and then sign a contract for financial assistance.

Do you think that Greece’s bankruptcy is inevitable?

If no decisive measures are taken, there is no way to avoid bankruptcy. Everything depends on Greece, the will for change and reform. Both political and public will is necessary. It is important to know as soon as possible that without domestic reforms, significant fiscal consolidation and structural changes bankruptcy will be the only way for the country.

Does bankruptcy mean ​​that Greece will have to leave the euro zone?

Not necessarily. There are different ways to announce bankruptcy. It could be done within the euro and by leaving the single European currency. However, I would like to stress again that bankruptcy would not be necessary if the political forces in the country carry out bolder reforms to limit the cost as much as possible to be able to resolve the debt crisis faster.

What would be the impact on the banking sector if Greece goes bankrupt? How would this affect the banks in the region, which have serious Greek participation?

A possible bankruptcy of Greece could affect banks in neighbouring countries if they are strongly dependent on the parent banks in Greece and if they have not taken care for their financial independence. However, if they have good capitalization and strong performance, they have to worry about nothing. Everything depends on the banks’ individual policy but financial institutions with good capitalization and without unnecessary panic will have no problem.

Do you think that the eventual bankruptcy of Greece is threatening the Bulgarian banking sector?  

It is threatening it as far as the psychosis, which we saw in Greece, is concerned. There was mass withdrawal of deposits from local banks to banks abroad. This could inevitably lead to bankruptcy. This, I think, is the most serious risk for our banking system, and hence, for the financial stability of the country. I hope that the government and the Bulgarian National Bank have developed an Action Plan concerning this risk, and have accurate estimates and concrete measures.

They should provide for specific measures in case of eventual bankruptcy of Greek banks having ownership in banks in Bulgaria. They should have accurate means of action if the customers of banks in Bulgaria are worried. There should be measures for possible bankruptcies of Bulgarian banks. For better or worse, still in 1997 we have predicted and provided legal regulations that in case of a banking crisis, in which there is a systemic risk, the Bulgarian National Bank is allowed to intervene partially, but the question now is where the money will come from.

Given that the availability in the reserve is only BGN 4 billion, in case of a new banking crisis we would have to seek loans or give up the currency board. All this would lead to the situation, which we know from the recent past.

Therefore, you recommend a stronger capitalization of the banks in Greece and the region.

Yes, I do definitely. Greeks should follow our steps - to capitalize, recover, merge in order to obtain new larger and more stable banks.

The first major bank merger in Greece after the crisis is between Eurobank EFG and Alpha Bank. How will this affect their Bulgarian branches?

Tags: EconomyMarketsGreeceBulgariaCrisisBanking sectorInstabilityKrasimir Angarski
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