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Victoria Mindova

The Greek problem is increasing from year to year and instead of limiting the crisis, the reforms implemented so far have transformed it and created new shocks. The problems related to the country's macroeconomic indicators have revealed serious deviations in the activity of the local economy and the state's structure. GRReporter sought the opinion of one of the best Greek business journalists, Ilias Siakandaris, about the development of the events and his comments on current issues related to the crisis, the recovery programme and the future of Greece.

Greece has implemented a lot of reforms, but unfortunately the results do not meet the expectations. What is the reason for this?

The public sector remains the main reason for frictions between the government and the mission of the creditors. The political system in Greece doesn't have the power to face its own creation, which is today's giant public sector. The parties, which are now involved in the coalition government, are the ones which hired the hundreds of thousands of voters for state jobs and today it is very difficult for them to tell those employees, "Thank you for keeping us in power for so many years. Now you are fired."

Another big problem in Greece is that there is no single mechanism for assessing the quality of work in the public sector. Such a mechanism would give a clear picture of which organizations are needed, which ones are not necessary for the state, which officials meet the criteria required and which do not meet them and are therefore unnecessary.

Hence the main problem in Greece - a culture of behaviour, which has been built for decades, needs to be changed in just two weeks. For example, the assumption that the state service is a constitutionally guaranteed job and no one can make you leave, regardless of whether you work effectively or not.

I think that by the end of the year, some kind of a personnel assessment will start so that the unnecessary burden can be slowly and gradually relieved. I do not think that 30,000 or 15,000 people will leave by 2013, but I think the process of shrinkage of the public administration will start more actively.

What do you think about the possibility of Greece leaving the eurozone and returning to the drachma?

This would be a very good opportunity for the country's development, if Greece had serious production, high employment, effective administration with no corruption and if the economy wasn't ruled by various lobbies.

Unfortunately, knowing my country, if Greece is outside the eurozone at this time, this will allow the people, who are responsible for its current situation, to print unlimited money. And not in order to change the economic model of the country and make it a competitive exporter, but only because they will have the opportunity to do so. I can tell you that Greece had serious inflation in the past and in the eventual return of the drachma, nothing will stop it happening again.

It will be very difficult for the country to survive independently outside the euro, given the economic situation in Greece and the financial culture of the Greeks. The drachma will benefit only those who have already secured a large capital abroad.

In a period in which we have almost no confidence in the political system, to trust it with the right to print money is almost a nightmarish scenario. On the other hand, I do not think that Europe has the most logical policy on the absorption of the debt crisis. It is constantly changing its position on key issues, it doesn't make bold decisions, and this does not inspire confidence. This means that of two bad situations, you choose the less bad one.

Privatization processes in Greece are dramatically delayed. Why is this happening?

Privatization is still a major issue in the Greek recovery programme agreed with the foreign creditors. The truth is that the plan for privatization revenues, amounting to 50 billion euro by 2015 from a market with tumbling prices, was incorrect and unrealistic from the very beginning. Many and various questions arise when one is trying to sell in a shrinking market.

Nobody would volunteer to privatize in such a situation. The political situation remains toxic - if the government changes, who can tell whether there won't also follow a change in the strategy and court trials for a withdrawal of the deal.

Different challenges are encountered at the majority of privatization sites. The case in point here are not some assets which are ready for sale. These sites have problems in terms of their ownership, management and rights of use. The first list of state assets for privatization includes limited liability companies, which are more easily transferred.

Furthermore, privatizations are inevitably associated with layoffs, which will surely meet with huge resistance in the country.

What needs to be done in order for the privatization programme to become feasible?

Firstly, I think that the government, in agreement with the creditors, will set more realistic goals to accumulate funds. Probably the new target for privatization revenues will be between eight and ten billion euro by 2015.

A favourable combination between the internal state of Greece and the external environment can lead to a good result. We should not forget that Greece is not alone in this crisis. All countries of the eurozone periphery are currently entering the market in order to sell and to seek buyers. All of them have their own version of some kind of a privatization. The more realistic goals, as well as the creation of appropriate conditions, will make the privatization successful.

Some privatizations should have happened long before the beginning of the crisis. Then the prices at which the assets could have been sold might have been much higher than today's. But this did not happen and now we are paying the consequences.

Which are Greece's best cards in the privatization?

The old Athenian airport in the suburb of Hellinikon is an important asset which has a great potential for development and can create a new economic stimulus in the capital city. In addition, the state lotteries OPAP, the airports, the harbours and the rest of the assets in the list of the first privatizations are also good cards.

The only two airlines in Greece - Olympic Air and Aegean - are making a second attempt to merge. How do you envisage the development of this merger?

The two airlines are not the only ones operating in the Greek market. Therefore, the merger can be successful. Cyprus Air already has flights in Greece and their corporate strategy is to increase the number of flights in the country. This will reduce the objections of the European Competition Commission to authorize the merger of the two companies.

The first attempt to merge two years ago failed due to suspicions that it would create a monopoly. Today the situation is different, there are new players in the market and the financial crisis is providing conditions for the merger to be approved.

The banking sector is currently going through a major metamorphosis. Piraeus received billions of state aid in order to buy ATEbank for millions and it also took Geniki for one euro. Alpha bank acquired Emporiki bank, and now the merger between Eurobank and the National Bank of Greece is pending. How would you rate the transactions and mergers carried out so far?

The problem with the recapitalization and the aid to the Greek banks is huge. Both Greece and Europe are responsible for this problem, because of the way they created the plan for financial aid. Refinancing of banks is experiencing a dramatic delay.

The banking sector in Greece as a whole should be reduced, it has to shrink. During the last month and a half we have seen some actions in this direction. Surely, there will be more. I cannot give an evaluation of whether these actions have been performed correctly. The current situation is unique for the country. There are decisions which are met with a great discontent. On the other hand, these decisions show that something is starting to move, unlike the previous two years. The Greek financial sector should have shrunk a long time ago. However, measures in this direction are being taken only now. There will surely be criticism of the way the market is shrinking, regardless of the way the reform is performed. The management of a healthy banking sector is very difficult worldwide - regardless of the way it is done, there will always be criticism.

I can say that a consolidation of the banking sector in Greece should certainly take place. The sector proved to be too big for the country's economy and for the Balkans, where the Greek banks have agencies. Currently, the banks are unable to lend - which is their primary goal - and to finance the development of real economy. The financial market is shrinking and this will also reduce the number of the banks serving it.

A major part of the assistance tranche Greece is now expecting is aimed at the stabilization of the banking system. At the same time it is delayed because the government cannot agree on the final version of the fiscal consolidation measures associated with the aid. Does the funding of the Greek banks need to be separated from the general financial assistance to the country?

Officially, Europe is constantly changing its mind on this matter. At the summit of the leaders in Europe this summer it was decided that the banks will be funded directly by the permanent European Stability Mechanism (ESM). Two or three weeks ago, Germany, Austria, Finland and the Netherlands said that it can be used from now on, but not for the countries which are already using financial assistance from Europe, as is the case of Greece, Portugal and Ireland. Yet another change in the position followed, when Angela Merkel said that an exception could be made for the separation of the banking sector's funding from the general aid for Ireland.

Ultimately, it is now believed that Europe has no specific position on the matter. We see that if the markets start to seriously pressure one another, Europe may approach a separate funding only of the banks which are outside the macroeconomic rehabilitation programme of each country. On the other hand, if voters raise their voice against this, then the independent recapitalization of the banks will not happen.

It would be very good for Greece if the banks' recapitalization is separate from the implementation of the fiscal consolidation measures. Funding from the European Stability Mechanism (ESM) will bring significant relief to the external debt. But Europe has to decide on its official position on the matter first.

Greece's external debt remains unstable in the current situation. The country needs another two years in order to implement the recovery programme under the contract for financial assistance. Meanwhile, the public debt will be burdened additionally. What should be done so that it can fall to 120% of GDP in 2020?

Currently, the negotiations both of the coalition government and the creditors, are centred around Greece to being granted an extension of the assistance programme in its present form for another two years. A central problem arises here, which goes beyond the country - the International Monetary Fund has its own inhibitions against this programme being extended. Many voters from northern Europe also do not support the idea of the financial assistance to Greece being extended. There is a clash of interests of the foreign creditors, which exceeds the powers and abilities of the Greek Prime Minister.

The International Monetary Fund insists on a new cut of the debt held by the central banks of Europe. The European Central Bank categorically refuses to accept such a scenario. Greece, its new programme and its need of healing, are somewhere in the middle.

In my opinion, the situation today stems from the creditors' desire for Greece to proceed to a symbolic change. It can be related either to lay-offs of civil servants or salary cuts, or to acceleration of the privatization processes. European leaders want to show their taxpayers that if an extension of the aid is necessary, their money will not go into the old Greece as they know it, but into a country which is trying to change and is making efforts in this direction.

The real problem comes from the fact that the symbolic change wanted by the creditors, appears to be the change which is most strongly opposed by the Greek political leaders. Therefore, the Greek side of the negotiations is not strong.