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Georgi Ganev is an economist, he graduated in the US in 1997 and ever since he has worked in Bulgaria, mainly in two places - he is a lecturer at the Economic Faculty of Sofia University and programme director at the Centre for Liberal Strategies, which is an independent research institute. He is a member of the Bulgarian Macroeconomic Association and was chairman of its management board in the period 2008-2013. He is particularly interested in macroeconomic analysis, macroeconomic and monetary policy, monetary theory, development economics, institutional economics and political economy. Polina Spartyanova talked with Georgi Ganev.                                                    

      To what extent would GREXIT be possible?
      Firstly, let me specify that I am not a lawyer and I am not familiar with the legal side of the issue, namely with the legal details and nuances, and whether it is possible to exit the euro zone without leaving the European Union. Another very important legal question is in what currency Greece’s current debt would be denominated. It is also a legal issue and I have heard different interpretations of it. It is of key importance unless Greece does not simply decide to default, once again in its history, and to cease to service its debt.
     In economic terms, it is completely possible to leave the common currency, it is not particularly complicated, except for certain important decisions that must be taken, mainly on the initial exchange rate of the new national currency, the choice of monetary policy regime (or in technical language, the issue of choosing a nominal anchor). By the way, Greece had already done something similar - it had left the Latin Monetary Union of which it had been a member from the 1860s until its collapse due to World War I. In this sense, Greece’s exiting the euro zone would be nothing new. It would be news for the euro zone itself, but not for the history of monetary unions or even that of Greece itself.
     How would it affect the Greek investments in Bulgaria and the trade between the two countries?
     As far as the Greek investments in Bulgaria are concerned, I see the possibility of two opposite trends, without being able to guess which of the two will prevail. Firstly, I assume that the new Greek currency would be much cheaper than the euro, as exiting the euro zone would be meaningless from an economic point of view if it remained so expensive. This would cause an escape from this expectably weak and expectably weakening currency (at least for a certain period). The escape from the currency usually takes the form of capital outflow from the country and part of this capital that would flow out from Greece would probably (even very probably, at least through banks) be directed to Bulgaria, where there already is a serious base of Greek companies and working capital. Secondly, my assumption however is that Greece itself would experience drastic hunger for capital at least for a certain period after leaving the euro zone, which would reduce the ability of the Greek capital to be directed wherever else, including abroad and including Bulgaria. The situation of Bulgaria itself has been the same for decades - the internal hunger for any capital dominates whereas the export of capital from Bulgaria is extremely modest (though it has apparently increased over recent years). Under the first assumption, we could expect growth of Greek investments in Bulgaria and decline under the second. I do not know which one would prevail.
     As to trade, in view of the considerable devaluation of the potential new Greek currency that I expect and hence, the relative appreciation of the lev to it, the most probable result would be a significant reduction of Bulgarian exports to Greece and a significant increase of Greek exports to Bulgaria. Here I must warn that many people accept the cliché that such a development (reduction of Greek imports and increasing Greek exports) is good for Greece, but I totally disagree with that cliché. The depreciation of the possible Greek currency would mean one thing: official recognition and announcement of a dramatic impoverishment of Greeks compared to all countries and people who receive their income in the stronger currencies. The change in the balance of trade would simply reflect this relative impoverishment. This was precisely the situation in Bulgaria in 1997 – a significant improvement in the current account balance, which, however, merely reflected the sharp impoverishment of Bulgarians compared to the other nations, due to the hyperinflation of the lev.
     Will there be direct consequences for the Bulgarian economy in such a case?
     There will be some, but they will not be significant. I have already mentioned for years that the primary significance of the Greek economy for Bulgaria is not so much associated with the banks, nor with the Greek investment and companies, nor even with the Greek know-how of doing business, of the absorption of European funds for the utilisation of resources that the Bulgarians have not used, such as abandoned land (though all these things are very important). The most important connection of Bulgaria to the Greek economy is the significant employment rate of Bulgarians in Greece. Unfortunately, a serious weakening of a possible Greek currency would make Greece less attractive to these people and the income that they would continue to generate there would fall, just like the income of all Greeks compared to that of Bulgarians. Obviously this would not be good news for Bulgaria neither in economic nor in social terms. For me personally it would be a new demonstration of a fact that is totally clear to every economist (but unknown to nationalists), namely that it is better to have wealthier neighbours than poorer one.
     How would this affect the stability of the euro and the euro zone?
     Since I do not expect anything positive to happen to the Greek economy, the Greek income and the social status of the Greeks (things like poverty and inequality) in a possible Grexit, especially in the short term, the news from Greece after it eventually leaves the euro zone would stabilise the euro area. The reason for this would be that the news from Greece would create political impetus for the euro zone countries to undertake significant reforms and to do so faster and more decisively.
     In the case of transition to national currency, like the drachma for example, could the introduction of a currency board similar to that in Bulgaria play a stabilising role in Greece's finances and to what extent?
     For me as a Bulgarian economist the assumption of Greece leaving the euro zone to introduce a currency board is contradictory in terms of logic. From the perspective of Bulgaria, where there is a currency board, even with all the turmoil in the euro zone, it is perfectly clear that it is better for the country to be in the euro zone than to introduce a currency board. It is preferable to be a member of the euro zone rather than to introduce a currency board pegged to the euro. It is not clear to me how it is possible for the situation of an economy, which is already a member of the euro zone to improve if it leaves it to be pegged to the euro again through the currency board.
    Here I must emphasize that pegging the Greek currency through a currency board to any other world currency other from the euro would be a direct invitation to a catastrophe of Argentine type - such a currency board cannot endure by definition because the Greek economy is dominantly tied to trade and capital flows invoiced in euro.
     Even if the new Greek currency were pegged to a new, lower exchange rate, the currency board would prohibit further devaluation of the Greek currency, which would inevitably block again Greece’s ability to reduce, through currency devaluation, the pain of its loss of competitiveness due to its failure to implement the reforms. Therefore, it should carry out equally painful reforms, and perhaps more painful because of the postponement, but already after the loss of living standards due to the weakened currency.
     Not to mention that the question as to where the international reserves to ensure the currency board in Greece would be taken from has no answer at present. The IMF came to Bulgaria in the past but Bulgaria is not just a rare exception, but the only one – it is the only case in the history of a board approved and supported by the IMF. Do not forget that the IMF is part of the Troika and Greece’s exiting the euro zone would be an essential, rhetorical and moral rejection of the Troika on the part of Greek society. Therefore, the IMF would not be happy and it would hardly support the new regime. The expectations are simply wrong.
     If Greece remained in the euro zone, many analysts fear that it would be at the tail end for a long time because of its unwillingness to carry out reforms. What is your opinion?
     It is the opposite, simply because I do not accept the thesis that there are no reforms in Greece, referring to the macroeconomic data of Greece and to my personal observations of Thassos, where I have spent my summer holidays with my family for 8 years now. Yes, there is resistance against reforms, they are implemented much slower than in other places, for example, in the Baltic states and Ireland, which acted quickly and decisively, paid a high price in the short term but have already forgotten about the whole thing and they are now growing at an impressive pace. But reforms have been implemented, the over-bloated state sector has shrunk, both in terms of money and people, real wages that had reached highly unsustainable levels before the crisis have decreased, competition niches in the Greek economy that have been closed until recently have opened due to incentives for increased productivity.
     It is true that a lot remains to be done but what has been done is significant. Years ago, it was impossible to obtain a receipt while on Thassos. Now not only do they issue receipts regularly but I can also pay my holiday through the bank, which means paid taxes, not through a Western Union transfer of which the Greek Minister of Finance is unable to be aware.
     The Greek budget before debt service has had positive values for some time and it continues to improve. Unemployment has been falling for a whole year, albeit slightly. Employment is rising, particularly during the last two quarters for which there is data available. The economy has been growing over the past 12 months for which there is data available, almost twice as fast compared with that of Bulgaria. Real household consumption also increased throughout 2014.
     Reforms have been implemented and they are giving results. My expectation is that if Greece remained in the euro zone and continued with the reforms (even renegotiated in terms of scope and time), it would grow faster than the euro zone itself for a long time. To the contrary, I expect Greece to be at the tail end for a long time if it left the euro zone, thus abandoning the reforms and starting, in the short term, to reduce the pain of that refusal through continuous currency devaluation.

     What "many analysts" should always stress if intellectually honest is that the important variable is not the "membership or non-membership in the euro zone" but "implementing or not implementing reforms." If Greece carried out reforms, it would not be at the tail end, whether it would be a member of the euro zone or not. I think it would be better if it were a member than if it were not but it would not be at the tail end in either case. If Greece did not carry out reforms it would be at the tail end regardless of whether it would be a member of the euro zone or not. By the way, the situation here would be better, i.e., the bottom would be slightly higher if it were a member of the euro area than if not.
     What is the safest course that the Greek economy should take in the coming years, according to you?
     It is the course of reforms in combination with remaining in the euro zone. As my answer to the previous question indicates, from the perspective of long-term Greek prosperity, implementing reforms is dominant over non-implementing reforms and remaining in the euro zone is dominant over exiting the euro zone. The reforms are aleady giving results, which Greece can clearly show to its partners, as long as it has sufficiently convincing political arguments to do so whereas the scope and timing of reforms can be renegotiated to reduce their short-term social price (it cannot be reduced in the long term, it can only be delayed over time).
     From the perspective of political economy, I think today's Greek government is in the unique position of being able to take advantage of the already good political news that is appearing as a result of the painful reforms carried out by the previous governments. It can "ride", politically and rhetorically, an economy that is recovering because of its inner vitality, inevitably take advantage of the good news, carry out gradual reforms, obstructing corruption, putting down the ‘entrenched’ oligarchic interests, taxation of rich people who enjoy different privileges being particularly popular, and run in the next elections as a clear and popular favourite.
     How do you assess the strategy of the ruling SYRIZA party to terminate the austerity mode in Greece?
     The "austerity mode" in Greece cannot be terminated. This is just because the term "austerity mode" has only a rhetorical sense in ideological and political disputes, concealing an inevitable fact of life, which is that you have to fit in your own means and abilities. In the period from the beginning of the century to the present day, Greece has lived beyond its means, beyond the capabilities and productivity of its economy. This cannot continue.
     This would not continue if Greece remained in the euro zone, because its rules prevent someone from living beyond their means, with loans, for a long time. This would not continue if Greece left the euro zone because it would have to abruptly live within its own means through a sharp decline in the relative standard of living due to the devalued currency. Then subsequently, the desire of world capital markets to finance such a life would dramatically discipline the ability to live beyond your own means, with loans, just as Bulgaria is currently restricted and disciplined.
     Greece cannot continue to live beyond its means, with loans. There is no way for the period of the first decade of the century, when the average product per capita in Greece was about three quarters of the product per person in the EU and the average consumption per person in Greece was higher than the average consumption per person in the EU to continue indefinitely, whether we call the alignment of these two ratios "austerity mode" or not.