Euro zone’s architecture will change without the OSI

15 April 2013 / 13:04:58 GRReporter

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Maria S. Topalova

    North European countries should reduce their growth just as Greece is carrying out fiscal consolidation to reduce its budget deficit in order for the euro zone crisis to be resolved. According to Minister of Finance Yiannis Stournaras, this can be achieved in many ways, one of them being the remission of part of the debt to the lending countries (OSI - Official Sector Involvement). "What else can Europe do to emerge from the crisis? The banking union should not be delayed. Our government is seeking to change not only Greece, but Europe as well," said Yiannis Stournaras.
    The head of the mission of the International Monetary Fund in Greece Paul Thomsen admitted that Greece's debt was far from its normal level but agreed with the Greek Minister of Finance that Europe availed the resources and tools to reduce this burden on the Greek economy. He confirmed that this morning, the representatives of Greece's lenders have agreed on the implementation of the programme and that the next tranche of 2.8 billion euro would be paid in the coming weeks. "The high recession and the haircut of bonds held by private institutions have put banks in a serious situation. But deposits are insured - 30 billion euro have been allocated among the banks for this purpose," admitted Paul Thomsen.
    The representative of the Economist Intelligence Unit, Laza Kekic, however, stated that the economists’ forecast was gloomier than the official one in Athens. "In 2013 - 5% recession, in 2014 - 2% recession, in 2015 - growth, which will be very weak and vulnerable. In the short term, I do not see Greece out of the euro zone, but it is not excluded in the long run in order for it to restore its competitiveness. There will be many difficulties at first but the benefits will be great in the long term. When the others see it in practice, there will be other countries, which will leave the euro zone," anticipates the Economist Intelligence Unit.
    According to Paul Thomsen, the reason for the much greater than expected recession is namely the uncertainty about the road that Greece will take as well as the political instability in 2012. "The reason for the great recession is confidence. Let us not forget that economy means confidence. Last year, there was great uncertainty – elections, questions as to which road Greece should take, the result of which was distrust among investors and among depositors. Greece must implement the fiscal programme, which it has signed. A small portion is yet to be done and the signs of growth will soon occur," said the representative of the International Monetary Fund.
    Minister of Finance Yiannis Stournaras believes, however, that the discussion about Greece’s exiting or remaining within the euro has already ended. "Not only Greece but also Europe is to blame for the Greek public debt. The moment Greece began registering large deficits the north countries began registering large surpluses. It took Europe a long time to realize it. We are happy that we have obtained a loan that is much greater than our GDP and at interest rates for which others envy us," the Minister was honest.
    The open issues facing Greece are a more effective fight against tax evasion, which continues to assume dangerous proportions, market liberalization and the opening of closed professions in order for prices to decrease, as they have remained high despite the long recession, and the collapse of the taboo regarding the redundancies in the public sector. This is how Paul Thomsen summarized what Greece must do in the coming months. Yiannis Stournaras stated that the tax administration in Greece was becoming increasingly independent, adding that many celebrities were already in prison for tax evasion. Stournaras pointed out that he had been among the most ardent supporters of the opening of closed professions and of the market liberalization while heading the Institute for Industrial and Economic Research. And the reform of the public sector was starting at full pace.
    The president of the Association of Greek Banks and the National Bank of Greece, George Zanias, pointed out in turn that 92 billion euro had left the Greek banking sector since the beginning of the crisis but the Greek banks had not ceased paying deposits to the citizens even for a moment. According to him, the size of the Greek banking sector is smaller than the European average therefore the deposits in the country are fully guaranteed. "Greek banks had a leading position in South East Europe until 2009 and now, they are beginning to recover their leading position," added Zanias.
    Paul Thomsen confirmed that the greater part of the 50 billion euro needed for the bank recapitalization was already in the Greek bank vaults. It will remain there as a guarantee for depositors and investors that the Greek financial sector is stable.