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Victoria Mindova

Europe could have afforded to finance the rehabilitation program in Greece without the participation of private investors in the restructuring of foreign debt, but it did not do it for political reasons. This is the opinion of the financier Nick Kounis, who is macro research head at ABN Amro Bank. He spoke about the results of decisions taken in Brussels on last week's summit of European leaders and firmly stated that the procedure has created more problems than it deserves. Countries of the euro area and the European Union have a real ability to deal with the Greek problem without pruning and extension of the debt held by private equity funds, banks and pension companies. However, the decision is based on political grounds.

"For Greece it does not matter where the money comes from, but it is of great important for other countries participating in the aid package," explains the specialist. Including private investors created a new problem and it is associated with the anxiety that the Greek scenario can be repeated in other European countries and thus create the domino effect. Italy and Spain are the other two countries with substantial debt. If these countries reach the level where they cannot meet their obligations then investors will be worried that they will be called again to help the situation by reducing the cost and delay claims on government securities purchased by another troubled European country.

Euro leaders argue that such incidents will not happen and the measure applies only and exceptionally in the case of Greece. Meanwhile, Nick Kounis stressed that Mediterraneans will emerge from the assessments as "partial bankruptcy" or "controlled bankruptcy" when the exchange of its old bonds with new longer-term ones comes to an end and in some cases they can be sold at a lower than the nominal value price. The financial specialist foresees that at the end of this year an increase of the credit rating of the country can be expected, which can reach the levels from two weeks ago - CCC+.

Nick Kounis was prompted to comment on how justified is the behavior of credit agencies which can dramatically change their mood towards a particular country and its finances. "Very often, credit agencies respond to information that they have had for quite some time. However, when there is a lot of stress on the market, they respond, but certainly their timing can be questioned.”

Kounis believes that there is another reason for the uniqueness of the program for the salvation of Greece and the absorption of the debt crisis. European Central Bank is now extremely troubled in accepting bonds from countries in difficulty, says the economist. According to him, if necessary, Italy could not take advantage of the program applied in Greece for the last year and a half. As a collateral to credit Greek banks the European Central Bank accepts government bonds, although the country is isolated from the capital markets and these securities are not quoted out. By entering into the European Stability and Greek Recovery Fund, European Central Bank will gradually terminate the program for the purchase of impaired bonds.

This program can be applied only to small countries that have relatively limited markets, as in the cases of Ireland and Portugal. In Italy and Spain this is different. The amounts requested in these countries are extremely large. Moreover, both countries hold a significant proportion of the euro area GDP and contribute generously to the general funds of the European Union. With the collapse of these two economies, the European Central Bank and other European credit institutions are losing a major donor and the financial aid package cannot be accumulated.

The financial specialist provided that in the next 10 years Europe is awaited by tough times, but the results of its efforts will be rewarded. All EU countries must comply with the new economic conditions and implement the necessary measures. Despite setbacks along the way Kounis stressed that in 2010 Greece has reached an enviable success by taking stringent economic restrictions within 8% of GDP to reduce the deficit for only one year by 5% of GDP. He said the first signs of growth will show in the middle of next year, but the months immediately after the summer holidays will be difficult.

Overall Kounis believes that the Greek government and society in particular, should focus their efforts in implementing structural reforms. As shown in a study by the World Bank, Greece is on one of the last places of a favorable business climate and this is largely due to the paralyzing state administration and endless procedures. Moreover, the structural reforms combined with the performed until now financial consolidation and the received partial cut of the debt are a recipe that Greece should follow strictly in order to regain its strength. He stressed that if the government relies only on measures taken to reduce the burden of external debt, the country will very soon find itself in much worst condition than it is today. This is why it is essential for the government to strictly implement the medium-term recovery program.