Hardouvelis’ …pulse

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Gikas Hardouvelis, the Greek Minister of Finance

Gikas Hardouvelis, the Greek Minister of Finance

During his brief stay in London on the occassion of Athens Exchanges’ 9th London Road Show, the Greek finance Minister Gikas Hardouvelis gave an interview to Bloomberg’s journalist Guy Johnson for The Pulse. 

We bring you this interesting encounter, where indeed it was sealed by the Minister’s pulse!

Pulse: I am glad to say we are joined now on the Greek finance Minister Gikas Hardouvelis. Good morning.

Minister: Good morning Guy.

Pulse: There are I suspect a lot of EU politicians that are watching what has happened overnight and breathing a huge sigh of relief.

Minister: Undoubtedly, I mean this we were all worried about today politics plays a major role in Europe, we went through a major crisis, the breakup of the Euro-area was a big worry two years ago and if the UK was broken up it would send a very negative signal to the rest of Europe.

Pulse: Do you think it would have encouraged to think there is still possibility that it will encourage the fragmentation of the EU. Unemployment remains incredibly high in many parts of the EU; political fringes are gaining traction, clearly in your country and in many other countries. Do you think that actually the fact that this referendum has been held and it was so close will encourage that kind of action.

Minister:I don’t think so because we went through the crisis unemployment indeed is very high in certain regions of Europe, in certain countries but within countries there are no major issues like you had in the UK.

Pulse: Right, so not even in Catalonia?

Minister: Catalonia is doing a lot better than the rest of Spain, Belgium is doing I mean various regions are doing fine so I don’t think we experienced the unemployment and the economic problem that was experienced in the north here.

Pulse: OK Scotland in terms of economic affordment actually is one of the better parts of the UK (inaudible) necessary applies the economic story in Scotland was actually quite good and almost that was what encouraged the fact that they could go alone, they felt that they had the prospects of independence so you could have got another perspective which is “hey we are Catalonia we are doing great why do we need these guys?”

Minister: Well, I cannot speak for the Spanish, obviously, but I think the fact that the Scottish people voted to stay within the UK is positive for the rest of Europe and for the project of European unification.

Pulse: Do you think that this will encourage Brussels, do you think this will encourage European capitals to maybe provide more assistance to London and ensuring that the UK stays within the European Union?

Minister: Now you are entering real fine politics and usually Europe works within (…) so things do not happen overnight.  So we’ll see, we have to wait and see.

Pulse: OK. Lets talk a little bit about what’s happening closer to your home. Syriza is ahead in the polls, we have presidential elections next year we may need snap elections before that; the political story is heating up to say the least. Can I talk to you a little about that in a little bit more detail? Do we need to have snap elections in Greece next year?

Minister: I don’t think so and I think the fear of snap elections is not there, really, I mean the population does not want another round of elections. Me as an economist I know that frequent elections hurt economic growth, hurt projects, hurt investments so you don’t want to have it.

Pulse: Nevertheless we have a party ahead in the polls that is still talking about writing down significant chunks of Greek debt. Is that viable? I suspect the Germans are taking a very dim view of this is there an option for Greece?

Minister: I don’t think it’s an option I mean a lot of our debt, debt you write down if it’s held by private investors. Now about 70% of the Greek debt is held either by the ECB or by the other countries so you cannot write it down I mean you can do other things you can extend the maturities, you can fix part of the variable rate debt but writing it down I mean it has to go through various parliaments no one would accept that.

Pulse: Yes you’ve had PSI but private sector involvement; public sector involvement would be a much harder story. (GH: it’s a different story yes). You bring up the ECB and I am curious about your expectations of the trajectory of Greece and its debts and the issuance of debts; we saw yesterday the TLTRO this targeted long term financing operation designed to push liquidity into the financial system in Europe to help small or medium sized companies. Didn’t do quite according to plan, could have been a little bit bigger, people now are talking about full blown QE being part of parcel of what we are going to see in the Eurozone; is that your expectation and are you planning for that?

Minister: I think what will work for countries like Greece where liquidity is needed but the collateral is not there is the asset-backed securities that ECB just announced cause you can securitize loans and then you have the ECB buy the securities and therefore liquidity is targeted exactly where it’s needed; I think that will work.

Pulse: How does Greece take better advantage of that? The ABS market is pretty small.

Minister: It’s very small it has to be developed I mean one reason why it never occurred up until now is exactly because you need to fix it, you need to arrange it but the moment the ECB targets it I think it will happen, supply will be generated.

Pulse: Yes you need the rules to be changed; there are structural elements that need to be freighted in to make that happen, it’s not that easy expecting a switch.

Minister: Yes but we have seen asset-backed securities for ages now especially in the US, we know how to do it so it’s not a problem.

Pulse: ECB supervision, Troika supervision of your economy has been part of parcel of your life for the last few years. There is very clear talk coming out of Athens that the third bailout is not going to be required. Could Greece actually exit earlier, is it possible for that actually you would forsake the money that are still on the table for exiting the umbrella that the troika provide.

Minister: Well, all the possibilities are up for grabs in the following sense. The European programme ends at the end of this year, the IMF programme ends in the first quarter of 2016 so there is a gap between the 2 programmes. So, on the sight of the lender they both feel uncomfortable about 2015 as to what might happen. The IMF doesn’t want lend alone. The Europeans feel itchy about having the IMF loan lend but themselves staying out. So we need to find a solution to that.

Pulse: And your expectation for what the solution would look like would be?

Minister: It’s something that’s under discussion.

Pulse: OK its kind of full/broad parameter coming out.

Minister: No it’s very difficult at this point to say anything about it but there will be a solution.

Pulse: Mario Draghi talks about structure reform. He talks about the need to improve the pays of structure reform, deregulate industries and provide some sort of a demand impetus for the European economy. We had a whole series of CEOs on the show sitting on the chair you are sitting on, yesterday. The sense I got from most of them was “Wow things still move slowly in Greece and we need to get things moving more quickly.” I (inaudible) for how many years now in 2001 I think it was shut down and we still haven’t got to the point where we can develop it. We still haven’t got many things in places that we need to have. Is the structure fast enough?

Minister:I think they are. If you look at the OECD indicators as to who is doing better in reforms, Greece is number one across the world

Pulse : Could it be doing better?

Minister: Of course there’s you know, there is always better of course but we are number one. We are moving fast; you talked about privatizations. Privatizations now are speeding up because finally people are willing to invest in Greece because the economy is stabilized now they only see upside. There is no downside risk. So they are lining up to buy assets.

Pulse: OK let’s just flip the conversation. It’s great that you talked about that because that can come full circle. Do you worry that the political polling, the possibility of upcoming elections, the presidential elections next year could start for politics back on the table and that that would deter investors from maybe coming back in.

Minister: Frankly investors think long-term. They do not think, they do not have a horizon of three or four months. And this issue about the presidential elections

Pulse: It did for a while.

Minister: For a while, they were looking remember Greece the GDP dropped about 26% over 6 years, so no one was sure where would this end. Now we are finally stabilized. Now they can see the upside. So investors are willing to bet. I mean the presidential election is a minor nuisance I think for the long-term.

Pulse: Nice to see you. Thank you very much indeed for coming to speak to us. It’s been a great pleasure

Minister: Thank you.

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