Restoring credibility and trust through a dynamic restart

Restoring credibility and trust through a dynamic restart

Christos Staikouras, Minister of Economy and Finance, guides us through the government’s strategy for inspiring stability, responsibility and accountability through realistic optimism


What is your reading of Greece’s economic recovery, some of the latest confidence boosters you have received and challenges that still lie ahead?

The government is implementing its own coherent economic plan. In its first four months in office, it has covered the fiscal gap observed in the third enhanced surveillance report, agreed with institutions on the budget for 2020, reduced the property tax, eliminated the remaining capital controls and re- versed previous governments’ ineffective legislation on the labor market. Furthermore, it is proceeding with a systematic solution for reducing non-per- forming loans (NPLs) on banks’ balance sheets, and is unblocking emblematic projects and privatizations. Our government has initiated the process to prepay the most expensive portion of the IMF loans, it has voted through an omnibus law for improving the investment environment and it has regulated the online gambling market. Greece, step by step, returns to normality and this is being recognized.
In this climate, we are intensifying our efforts to tackle the challenges that lie ahead. In the following period, our key policy priorities are to achieve agreed fiscal targets, to implement policies safeguarding the stability of the financial system, to implement a comprehensive tax reform that will accelerate economic growth, to enhance liquidity in the real economy, to promote the Asset Development Plan, to implement structural reforms, to introduce a fit-for- purpose framework of private debt management and to complete the process for prepaying part of the IMF loan.


How ambitious is the government’s goal to reach 4 percent growth by 2023?

This goal remains feasible despite the deterioration of the global econom- ic environment. To achieve this higher growth rate, we are setting forth two interrelated objectives. The first is how we will close the negative output gap, safeguarding, at the same time, sustainable public finances. The second is how we will improve the economy’s supply side—that is, its productive capacity.

From 2020 onwards, we expect higher growth rates as well as shifts in GDP composition and balance of payments, since the government, by implement- ing reforms in the post-program era and strengthening the liquidity in the real economy, will enhance investments and extroversion, and thus GDP.


When will Greek banks be able to restore credit to the real economy?

The positive outlook for the Greek economy has reduced the cost of bor- rowing. This is reflected in credit ratings’ upgrades and in the country’s successful bond issuances. As a result, banks’ access to money and capital markets—at a lower cost—is gradually being restored, deposits are returning to the banking system, and corporate and household credit is improving. These elements have a positive effect on financial institutions, which are called upon to restart, on solid grounds, the real economy as a lever for economic growth. Undoubtedly, the large amount of NPLs makes the necessary credit expansion difficult.

The government has understood from the beginning that solving the NPL problem is of utmost importance to the economy. For this reason, it has made significant progress in introducing, through legislation, an Asset Protection Scheme called “Hercules” that has been approved by the European Commission’s Directorate-General for Competition. Hercules is a market-based voluntary model, similar to the Italian securitization scheme, allowing banks to transfer securitized NPLs into a special purpose vehicle. The state will guarantee the best part of the securitization structure (the less risky notes of the securitization vehicle, that is the senior notes), which will be thoroughly rated. In exchange, the state will receive remuneration at market terms. Thus, the risk of the state will be limited since its guarantee only applies to the senior tranche of the notes sold to the securitization vehicle. At the same time, the significant decline in property tax has already improved the quality of banks’ loan portfolios.


Greece’s draft budget for 2020 has already received approval from Brus- sels. You have said, “There will be no fiscal gap,” in the 2020 budget. How will you ensure this?

Our European partners recognize that—according to the data so far and preliminary estimates—there is no fiscal gap for 2020. Higher growth rates, systematic access to capital markets, complete lifting of capital controls, scrupulous discipline in general government entities, adoption of realistic budget ceilings, spending reviews, enhancement of electronic transactions, regulation of the online gambling market, broad adoption of public-private partnerships and implementation of the installment scheme for private debt have created the necessary fiscal space for further tax cuts on corporate, dividends and personal income tax as well as on real estate taxes in 2020.


The country has committed to some very demanding fiscal goals. Do you see these goals being revised? If so, what is the timetable?

The government’s strategy is to build all the necessary conditions for the mutually beneficial reduction of primary surpluses. The implementation of the above-mentioned economic plan will lead to an upward trajectory.

In turn, higher growth rates, as well as low funding rates, will improve debt sustainability. To that end, using ANFA’s and SMP’s profits for growth projects, conditional upon positive Enhanced Surveillance reports, will close the investment gap and will enhance debt sustainability even more. All these significantly change our debt sustainability analysis parameters and, of course, the primary surpluses’ targets. I think we will have a positive outcome on this issue by 2020. Conditions are maturing.


On what basis are you forecasting a GDP growth rate of 2.8 percent for 2020 growth, well above the IMF’s 2.2 percent?

We are aware that at the forecast level these differences are common. Specif- ically, this difference concerns our estimation that the tax bill that we submitted to the parliament, along with other bills that have already been voted or will be voted through in the following period, will have a positive contribution on our growth rate of an additional 0.4 percent in 2020.

It should be noted that we seek to achieve this by expanding the productive base of the economy, increasing the quantity and improving the quality of the domestic product. We are trying to reinforce all key components of our GDP, with a particular emphasis on investment and exports.


What are some of the key reforms aimed at invigorating the economy and attracting foreign investment?

We have a strong political will to correct existing weaknesses. We have already voted in a law aimed at curbing bureaucracy and opacity. With the omnibus law for investments, we are simplifying the licensing procedures, improving the planning framework and facilitating the installation of business parks.

We are setting up an Infrastructure Record to better inform and attract investors along with a Single Digital Chart, improving the institutional framework, simplifying and shortening the process by which private-public partnerships receive approval. It is our goal to support export-oriented companies, removing prudential regulations, reforming the labor market and decreasing trade unions’ bargaining power, as well as investing in endogenous growth sources, like education, research and innovation.

Moreover, with the tax bill, income taxes for households and businesses are being reduced. Entrepreneurship has been rewarded, benefiting the real economy. Corporate social responsibility actions and benefits in kind have been enhanced for employees and incentives are provided, in order to attract foreign investors.


What is the progress of the Privatization Program’s implementation?

Recently, the Hellenic Republic Asset Development Fund proceeded, after the completion of a waiver agreement, with the sale of its 30 percent stake in Athens International Airport. During the bidding process, we received 10 expressions of interest from investment schemes for the 30 percent stake in the airport. Moreover, we are planning to move ahead with several other entities when projects and conditions mature. At the same time, Hellenikon progresses at a rapid pace. All pending joint ministerial decisions have been signed. Casino competition is proceeding and the bidding process has ended with two tenders.