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Maria S. Topalova

The measures agreed between the Greek Government, the European Commission, the European Central Bank and the IMF must be applied literally and in full. This is the solution to the economic crisis in Greece, which will bring the country on the road to economic growth and prosperity. This is the opinion of economists, politicians, bankers, academics and journalists that attended the roundtable with the Greek government, organized by the Economist magazine.

Politicians should finally realize what it means to be part of a monetary union. The loss of sovereignty is part of the rules in the union. And if that is not understood now even more sovereignty will be lost later. This was the reply of Juergen Stark, a member of the board of directors of the European Central Bank, to the Greek fears that the decisions about the future of the Greek economy are to be made in Brussels and that the country is loosing its national sovereignty. For Greece, this means implementation of the measures agreed by the Troika in full. This country has a large budget deficit - that is the real problem. Greece should have a budget surplus of 5%. If the measures are applied in full, this would happen, said explicitly the German banker popular with his conservative beliefs.

Juergen Stark described the eventual restructuring of the Greek debt as a disaster. The restructuring of the Greek debt would be the first in the EU but it is an illusion to think that it would solve the problems. It would devalue the efforts of the European Central Bank to support the Greek financial system. There would be major consequences for the banking system and the real economy, concluded the banker. In his opinion, the discussion of possible haircut of the Greek debt is supported by interested circles in London and New York and the markets are not involved in it. He presented very clearly the reasons for the crisis - erosion of competitiveness of some countries, very optimistic forecasts of the future, over consumption and indebtedness of people and countries.

The government program has not been operating in the past two months. This is the conclusion of Paul Thomsen from the International Monetary Fund. It was basically achieved in the first year. What was implied was done. There was a large deficit of over 15% of the GDP a year ago and the goal was to cut it by 7-8% for the first year – but it did not happen. We did not manage to cut it by 8%, but got a 7% cut in the deficit in an economy that shrank by 4.5%, which is a serious achievement, he recalled. The expert acknowledged that the deficit would not fall below 10% without structural reform.

"The external environment is not as favourable as we expected. The spreads are very high, despite the initial drop. The debate on the debt restructuring raised the spreads again. The public spending is not reduced, hospitals’ indebtedness is high. I.e. we saw results that could not be kept for long. Very high taxes, enough cuts of pensions and salaries. The deficit reduction could only come from the structural reform. There is the gap. The public sector should be restructured to achieve our goals for 2011 and 2012, and we are discussing it right now, said Paul Thomsen.

He warned that Greece has a long way to go to emerge from the crisis. It's hard to deal with a budget deficit of 15.5% without causing a recession. That is impossible. If we did not offer the financial support, the recession would be even greater. Indeed, the forecasts for the return to the markets proved to be wrong, but this is not a fault of the program of financial stabilization, but is caused by external factors, said the expert. He acknowledged that there is a significant political resistance to the privatisation in Greece, but he expects that this soon would change.

A different economic picture of Greece was presented by the Managing Director of the consulting company McKinsey & Co Greece Georgios Tsopelas. He said that the private sector in the country holds only 40% of the Greek economy. One of its biggest problems is its low productivity and it is due to its fragmentation and to the too small entities. The companies employing 9 or fewer workers hold a too high share of the economy and rank Greece first in the euro area. At the same time, the share of the large companies which are facing too many obstacles is very low.

"The market in Greece is too regulated and the more the regulated market, the lower the productivity," said the economist. Georgios Tsopelas pointed out the other problems in the local economy - a huge public sector, unclear labour relationships, a widespread informal economy, a poor legal system, low participation of young people and women in the labour market.

The Troika was not satisfied with the pace of the reforms in Greece last year for the first time and this inevitably started the debate on the restructuring of the Greek debt and the return to the drachma, noted the Economist Intelligence Unit’s analyst Megan Green. In her opinion, leaving the eurozone is a political decision that would sharply increase the competitiveness of the country but would be accompanied by the failure of banks, the deficit would continue to be high and the debt too, and the outlook would remain negative.