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Yannis Stournaras: The joining of Bulgaria in the euro zone will be beneficial for everybody

22 January 2010 / 23:01:02  GRReporter
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Professor Yannis Stournaras is the director of the Foundation for economic and industrial researches. Before heading the foundation he has been a vice president of the National gas company (1994 – 1997), chief economic advisor of the Ministry of economy and finance (1994 – 2000), chairman and executive director of Emporiki Bank and vice president of the Association of the Greek banks. He has graduated “Economic theories and policies” at the Oxford University. Victoria Mindova spoke to professor Yannis Stournaras.

The assessment agency “Moody’s” predicts the “slow death” of the Greek economy and Financial Times talks about the “Greek tragedy”. As a whole the image of Greece through the eyes of the foreign markets is not too good. How did we get to this position?

- Everything started because in 2009 all of a sudden became clear that the national deficit is not 3% nor it is 5% of the GDP as the government had stated in the beginning of the year, but it is 12,7%. This was the beginning of the whole problem.

According to you can this be interpreted as a lack of trust on the part of the international appraisers in the powers of the government to deal with the economic situation in the country after the first 100 days of the PASOK government and how can we restore our lost positions?

- In the current situation the only thing which the international markets expect the Greek government to do is to immediately undertake the necessary measures, which should correspond to the seriousness of the problem (high national deficit and high foreign debt). These measures we are talking about are included in the Program for stability and development of the government and faced positive reactions of the European partners. Nevertheless the government has to act firmly and apply immediately all possible economic mechanisms to fight the crisis and along with that stabilize the competitiveness of the market. It has to act immediately – there is no time to waste.

You say that all economic mechanisms have to be put in action immediately. At the press conference after the ECOFIN meeting few days ago, the minister of finance Georgios Papakonstantinou said that if until June this year the national deficit hasn’t dropped to 10,7% of the GDP, the government will enforce additional cuts in the expenses. What do you think about this waiting?

- Two points decrease in the national deficit until June is a step in the right direction, however all economic mechanisms have to be put in action immediately. We have no time to wait for the results of the development of the Greek economy. It is necessary to apply all measures stipulated in the Program for stability and development including the additional once like increase of the excise duties of the fuels, freeing the “closed” sectors on the market etc. Like this we would find new sources of incomes, we will effectively decrase the value of the spread indexes and will secure a cheaper crediting and at the same time we will save some expenses of the public funds.

I would like you to explain us a little more detailed about the so called “closed” profession on the Greek market. Which are they and how will their freeing help for the rehabilitation of the financial equilibrium in the economy? 

- The closed professions are monopoly organizations of the market operating in contradiction to the principles of the market economy. The transportation of goods and the cabotage in the ferry boats are two examples of sectors from which the Greek economy is loosing billions of euro from unused incomes, duties and taxes. These sectors are currently closed for new entrepreneurs and there is no competition at all in the offered services.

Many international experts suggest a sharp cut in the expenses of the public sector in order for the country to deal with its dual problem – the high national deficit and the enormous foreign debt. Do you also share this opinion and why? 

- Yes this is absolutely true. The problem of the Greek economy grew in the last few years as a result of three new trends. The first two were related to the excessive increase of the expenses for salaries in the public sector (this includes the unsystematic hiring of and unreasonable increase of the salaries and the supplements for the public sector employees) and the expenses for pensions without the respective incomes in the social-security funds. The third is the long term lack of measures to fight tax frauds and the optimization of the control over the particular payment of the social security installments. The Foundation for economic and industrial researches presented to the government a set of suggestions on how could we efficiently deal with these problems. Some of the measures were included in the Program for stability and development of the new government. Unfortunately not all of our suggestions found their place in it. It is our recommendation for the governors to take into consideration all measures we have described. One of the examples is that the government has to finally present to the public what they intend to do to fight the problem with the social security funds.

Many economic experts are saying that in the period of recession in which is Greece right now, taxes have to be lowered in order to have some movement on the market. We are currently witnessing exactly the opposite event. What is your opinion about the income policy of the government and the tax reform as a whole?

            - Look the ideal case would be to immediately start the cuts in the public expenses. This in a public-social plan is not possible! We cannot turn back the policy of the previous government which at the time of its management hired over 50 thousand public employees. It is not possible for the new government now to lay off these 50 thousand people in order to cut the public expenses. So we are left with the collection of income from taxes as an emergency measure. The main goal is one – to decrease the national deficit. All possible means for the achievement of this goal are necessary and this includes the increase of the taxes. In its nature the problem of Greece is not in the current recession, but the lack of trust of our international partners.

According to the program for stability and development the positive economic growth will be registered at the end of 2011. Until then the national deficit has to decrease from 12,7% of the GDP to 5,6%. Is it possible to decrease the national deficit in a period of negative economic growth as it is stipulated by the current government of PASOK?

- The program for stability and development contains all the necessary instruments to decrease the national deficit. Unfortunately we have to be decisive and regardless of the negative economic growth we have to immediately start its execution. Even if the deficit does not decrease to the stipulated 8,7% of the GDP by the end of the year it is of great importance to register an improvement in very short terms. We do not have the necessary conditions to wait for a positive growth of the economy in order to take actions.

How will this affect the everyday life of the normal Greek citizens?

- Compared to the current life style, some restrictions might be necessary, however we have no other choice. Like they say for many years the Greeks have had a life style, which in its nature they could not afford.

Greece traditionally is a country which has a well developed tourism and merchant marine. What could the government do to stimulated the entrepreneurs in these two sectors in order for them to help the Greek economy out of the recession?

- There is a lot of space for development especially in the field of tourism in Greece. There are great possibilities for improvement of the services we offer and the tourist packages. The idea is not to limit the tourist business at the sea side and the beaches for few months a year, but to utilize the full capabilities of the country – nature and culture. In respect to the merchant marine the market there is quite opened, however there is more to be done. For example with respect to the reinforcement of the tourism in the whole year (not just in the summer months) we could work in the direction of the development of seasonal programs, which will allow competitive prices of the tickets for the winter season.

What are your expectations and recommendations as an economic expert for the execution of the program for rehabilitation of the local economy?

- My expectations are of consistent, stable and conscious application of the stipulated in the Program for stability and development measures. I expect from the government to show determination and not to “back up” because of fear from the political price they have to pay! I am confident that it is in our powers to deal with the economic situation today. We live in a time, which gives us the opportunity for a new progress by ending the crisis.  

In the press are published amounts of billions of euro which are already drawn from the banks and directed towards countries like Cyprus and Bulgaria. What do you think could the government do not just to attract more foreign investments, but to also keep the funds that are already in Greece?

- I believe that dumping in the corporate taxation is not beneficial for the countries of the European Union. In their essence the countries could not function correctly with too low income from the taxes. What could on the other hand be done by the government in order to attract new investors is to remove many administrative procedures which have grown morally old in the age of the internet and communications. They make the access of the foreign investments to Greece excessively heavy. A centre of the type one-stop-shop could be created which will have as main activity to issue licenses and permissions for the foreign companies to carry out their activities within the borders of Greece. In regards to the Greeks who export their deposits outside the borders of Greece I believe they are making a tragic mistake. At the end of the day they would be losing money, not saving them. This is true because currently the Greek banking system is stable, while the banks abroad are at risk.

How will the recession in Greece affect the economies of countries like Bulgaria and Romania who are directly dependant on the amount of the Greek investments?

- There is a chain of related to each others’ activities and results of them so that all the countries are more or less affected by the world economic crisis. Of course currently we are witnessing a progress in an international plan so Greece has to undertake the necessary actions for restoration of the trust of the world markets. It plays an important role on the Balkans and the stabilization of the local economy will affect in a positive manner the productivity, employment and the volume of GDP of the countries in the region.

Is there a probability that the Greek banks draw back their funds from the Balkan countries?

- Definitely not! There is no such probability and if somebody does it, it would be a great mistake.

What is your personal prognosis for the progress of the euro zone? When do you expect the joining of new countries to the common European currency and more precisely Bulgaria and how do you think this would affect the local economy?

            - I would like to believe that Bulgaria will join the euro zone as soon as possible. I find the spread of the euro in countries like Bulgaria to be beneficial. It will affect positively not just the European Union, but also the countries with smaller markets. Despite of the fact that in the first two to three years it is possible to observe low or even negative economic growth, in the long term the introduction of the common European currency will set credibility and fiscal stability of the local economies.

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