Galery

2

1

"In the coming years I expect the increase of pressure on public finances in Bulgaria,” said in an interview with Maria Spassova the chief economist at Alpha Bank Michalis Mazourakis, who claims that right now is not the good time for Bulgaria to become a member of the eurozone.

 
    - How does economic crisis in Greece affect the performance of Greek banks abroad? 

    - The poor economic situation of Greece influences the performance of Greek banks abroad. We went through a major recession in 2009 and in Bulgaria, the GDP fell by about 5,1% and therefore the demand for loans in Bulgaria fell sharply. Before about a year ago the credit growth was about 32% and now it is below 4 percent. So just like in all Europe the demand for loans has fallen in Greece and in Bulgaria. The question is now how much loans do banks give, but because of the recession, the question becomes how much is the demand for loans, because it is falling sharply. We do not have different policies for geographical reasons. Whatever our policy is in Greece, it is the same in Bulgaria as well. We will continue to give loans to our good customers, those that are likely to pay the loans back, and this is true for both Greece and Bulgaria, without any discrimination. Of course, we hope that the situation will quickly improve, because Greek banks are currently experiencing a problem with financing from abroad, although funding from abroad is not as big. The ratio of loans to investment in Greek banks is very small, it is about 113%, including loans and investments not only in Greece but throughout Europe. Therefore we depend to a lesser extent by funding from international markets. However, international markets, because of the existing problem with Greek government bonds, offer very bad credit conditions. Currently there is a refrain from lending to customers of all Greek banks, but that does not mean that we do not give loans at the moment. We do give loans but we are simply more careful than usual when the situation is better. 

    - Alpha Bank has been on the Bulgarian market for few years now. What is your experience there? 

    - Our experience is positive, because we believe that Bulgaria's economy is very strong regardless of what happened in 2009. The country has very good development opportunities. We are a Greek bank that wishes to be represented to the north, where there are many Greek investments and they are developing dynamically. Of course, we are not a bank, which searches only for quick advantage. When we invest, it has a long-term goal. We want to be in Bulgaria for another 10, 20, 30 years and we want to develop as we developed here in Greece. I.e. Our presentation in Greece is stable and the fact that currently we are experiencing some problems does not mean anything. If you look at Greece during the 90s, then we had many difficulties - continuing devaluation of the Drachma, but we recovered. Of course, in difficult times like today, we want to be careful. Until September last year we opened 100 new branches in Bulgaria, but since the crisis came, we stopped building new branches. We currently have 120 branches in Bulgaria, employing approximately 1000 people. We estimate that it is inappropriate to expand right now not only because there is no demand, but also because there is great uncertainty. But I have a feeling that sooner or later we will continue to expand in Bulgaria, when better times come. 

    - How do you assess Bulgaria's chances to join the eurozone? 

    - According to me this is very difficult. I read that your Prime Minister admits that the atmosphere in Bulgaria is not suitable at the moment and pointed to Greece as a factor that adversely affects the chances of Bulgaria to become part of the ERM (Exchange Rate Mechanism) as a first step before the introduction of the Euro in 2013. I see that the Bulgarian Finance Minister is optimistic that the government will continue to support the country's accession to the eurozone. For us, it certainly is the best that can happen, because this is an uncertainty that exists. On the other hand, let us not delude ourselves that the eurozone is a panacea and it solves all problems. The important thing is to have a proper financial policy, which Bulgaria has right now, but the question is whether it will maintain it in the future. The time is not right. I do not think the ECB will look positively at the request of either country to enter the eurozone because the Euro is under attack right now. The fact that Bulgaria meets the criteria for membership is very positive and if it can keep the same good economic results, it has big chances to enter the eurozone when things improve in few years. What bothered Europe in the past were the big deficits, which were over 20% of GDP. This year, thanks to the crisis, the deficit fell to about 8% in 2009 and in 2010 it can fall even lower. Of course, deficits do not matter for a country in recession, such as Bulgaria. What matters is whether it will maintain the same level of deficits, once it develops with growth of 5-6 per cent, which we believe is the normal pace of development of a country like Bulgaria. I.e. there are still issues that worry the Europeans - how mature is the Bulgarian economy in order to enter the eurozone. Standing is also the question of linking the Bulgarian currency to the Euro, which has lasted for more than 10 years and needs to be recalculated. Look, when there is great economic growth, many investments, inflow of capital from abroad, many loans, cheap money, no one knows how the Bulgarian economy will work if the conditions change. And they have changed. Years ago, Bulgaria was running ahead very fast, now we are in crisis, we are trying to deal with it and there is recovery in Bulgaria. The question is whether the Bulgarian government can keep public finances under control. We are already seeing some trends there. While you had budget surplus of 3-4 percent in 2009, we had a deficit that may persist in 2010, but we might also have a balanced budget with a zero deficit. I.e. there is uncertainty whether the needs of the Bulgarian society, which is the poorest in Europe, can only be tackled by economic growth without creating budget deficits. You need better infrastructure, better hospitals, better schools, better public infrastructure. Except for infrastructure in tourist resorts. During the upcoming years I expect an increase of pressure on public finances in Bulgaria. 

    - If we speak more generally about the Greek economy, how do you assess the government's efforts to put order in the tax system, to change the social security system and to restrict squander in the public sector? 

    - It cannot do anything else. We have reached deficits, which are very high. International markets hardly give loans to Greece, they want high interest, the government debt reached to about 113% of GDP and the outlook for this year is to reach around 120% of GDP. In this situation it is imperative to begin any attempt to reduce the deficit. The Greek government announced a program of stability in which there are many measures to curb the deficit and of course, to reduce it. I believe a lot of things were done and we have entered in a reform process, which will reduce tax evasion, which for Greece is a major phenomenon, it will solve the problem of deficit in social security and of course there will be some order in the appointments and salaries the public sector. These are the three sectors that have give birth to the Greek budget deficit and the only way this can be solved is by applying long-term reforms. Many measures have been undertaken and right now they are in process and will soon become laws and shall be approved by parliament. This way there will be drastic change in the way enterprises will be monitored and will be forced to pay taxes – something, which was not done so strictly until now. Moreover, in social security, we see that the government has decided to increase the average retirement age from 61 to 63 years. This is very nice and deep change. Moreover, the government has the ambition to change the pension system and ensure that pensions are a result of the collected savings of workers throughout their active working life. This is something that is not happening right now. At this time in Greece you can get to retirement with much less years of service then 30 or 35. Of course, this is a small pension, but it gives many people the opportunity to go into retirement at a relatively early age and thus to burden the pension system in the country for many years to come. In terms of employment and wages in the public sector we see an attempt to reduce employment and certainly not to increase salaries. The government has already announced a moratorium on employment in 2010 and from 2011 onwards one in every five people that leave, will be appointed. There is a cut in income in the state sector by 10 per cent and it was also announced that there will be no salary increase in the public sector throughout 2010. So measures are being taken. But due to the weak confidence in the Greek government, our EU partners are pressing for more radical reforms and more stringent measures - something that the Greek government is doing at the moment. 

    - We are witnessing how the Greek government is making claims to international financial institutions. On the other hand, it became clear that the Greek government has used the services of the investment bank Goldman Sachs in order to conceal part of its debts... 

    - I do not think that these institutions have harmed Greece. Greece has deficits it must reduce. Of course, many times analysts and rating agencies are under the influence of the general negative climate that was created by publications, newspapers, journalists... Even the European Commission, when it announced its forecasts in October last year, warned that if no changes are made in the economic policies, the deficit will grow over 12 per cent of GDP in the next few years. This means a debt of about 150 percent of GDP! Well, people who do not have time to read all about Greece, read these assumptions and formed their opinion that Greece is going to bankrupt. This was an opportunity for markets to attack as well. Credit rating agencies did not bother to check what exactly the case was. Not that Greece has no problems, it has big problems, but in no case can they be blamed on the international agencies. As for Goldman Sachs, there were some transfers for the management of the foreign debt in early 2000, which were quite legitimate and approved by the European Commission. Such transfers are done by all countries, not just Greece. This is a case of technical operations for debt management. Why is this topic so painful now? Certainly there is a link with the behavior of certain markets to "undercut" the price of Greek bonds and to create the impression that the confidence in the country is very low. They are using what has happened in the past as evidence, but it has nothing to do with what is currently happening in Greece. 

    - What could Greece do in order to regain confidence in itself? 

    - Trust is lost for the second and regaining it takes years. We will not regain confidence in ourselves before we begin to implement the promised measures. We have promised many things, but very few of them have become laws. Almost nothing of what was announced. Logically, therefore, analysts, markets and everyone else have doubts. But in a democracy, nothing happens overnight. I feel that these measures will be undertaken, because this is our only way out. If we cannot borrow money from abroad will have enormous problems. Therefore, these measures will be undertaken. It is just that markets are moving much faster than the ability of the Greek government to act through democratic procedures approved by parliament. 

- There are many discussions in the eurozone of what the economic aid for Greece should be. What do you think?

    - It is not a question of aid. I am one of those who believe that Greece should be pressed to take all necessary measures that will show the world that something has changed and that steps in the right direction are made. Anyway, already there is a decision of the European Council, which says that the eurozone countries are prepared to do everything necessary to stabilize the Euro. And this is an informal assurance that if the need comes, if the markets are no longer looking for Greek bonds, there will be intervention in some way. This is an approach which we call tough love. When you are interested in someone and you care for his best then you are trying to improve him by being very strict. Well, something similar is happening now and in the European Union. It wants to pressure us so that the Greek government will take very strict measures to ensure, without any doubt, the objectives of the Stability Program. And that is accepted by the government. Now, whether there will be some tangible financial assistance from the eurozone, it is difficult to predict. 

    - How do you see the development of the eurozone? Will there be other countries in the situation of Greece? 

    - There are other countries in the eurozone, which have large deficits. Of course, they have less debt than Greece, but they have fewer opportunities from Greece to reduce their deficits. In recent years we have not we made any savings, on the contrary - we had bigger and bigger deficits. Now there are huge opportunities to reduced costs, since in recent years we crossed the border with the appointment of public employees and with the increase of their salaries each year. I.e. we have great opportunities to save money, greater than in other countries. Spain has a deficit of more than 11.5%, which is a result of the great economic crisis. The construction industry in the country has literally crashed and unemployment reached over 20 per cent. With high unemployment you have extremely high costs benefit payments. This is something that cannot be changed in one day. There should be economic growth. Therefore, Spain will have a very difficult time reducing its deficit. Well, if the markets understand that, they may strike there as well. 

    - Do you have any projections for the inflation and economic growth in the eurozone and the behavior of the Euro against the Dollar and the British pound? 

    - This year in the eurozone we will see growth of about 1%. There are projections of about 0,5 per cent and for 1,5 percent growth. It will be a difficult year, because many of the measures to boost public finances, which the Government undertook in 2009, have been exhausted. Monetary policy is gradually entering. There will not be many events in 2010, but rather at the end of 2010 and early 2011 we may witness increase in interest rates. And also at the end of 2010 we will see more and coordinated action to reduce budget deficits in some eurozone countries. We will have growth, we are not going to witness a negative growth of -0.4 per cent, which we experienced in 2009, but I do not believe it is going to be more than 1%. Inflation is not a problem. Having 1%-1,5% inflation is no big deal at a time when economic activity is very dull. The rate of the Euro against the Dollar will be determined on whether the U.S. economy will recover faster than Europe one. The Dollar can strengthen if the recovery of the U.S. economy is quicker and the monetary policy begins to raise interest rates much earlier than in Europe.