Greece not out of woods, must stick to reforms: finance minister

ATHENS Thu Jan 17, 2013 6:08am EST

1 of 7. Greek Finance Minister Yannis Stournaras is seen in his office in Syntagma square in Athens January 16, 2013 during an interview with Reuters. Greece must resist internal political pressure to slow economic reforms in a year that will dictate whether it avoids bankruptcy, Stournaras told Reuters in an interview. Picture taken January 16, 2013.

Credit: Reuters/Yannis Behrakis

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ATHENS (Reuters) - Greece must resist internal political pressure to slow economic reforms in a year that will dictate whether it avoids bankruptcy, Finance Minister Yannis Stournaras told Reuters in an interview.

With EU partners starting to praise Greek efforts to exit its worst crisis in decades and some economic indicators showing fledgling signs of recovery, demands are increasing on the government to give up crippling austerity and reforms.

"What scares me is the big pressure from society, media and parliamentary deputies from all parties to ease the programme. We must resist ... it's too early to declare victory," he said from his office on Syntagma square overlooking parliament.

Stournaras, an economist recruited by Prime Minister Antonis Samaras's conservative-led coalition after it won elections in June, said there were signs Greece was starting to exit the three-year debt crisis that shook the euro zone.

Money is returning to Greek banks, bond prices are rising and the 2013 primary budget will do better than the troika of international lenders predicted for the year, registering a 0.4 percent surplus, despite a crippling recession.

"The primary deficit is what we are judged on. The troika expects it at zero but we believe we will do slightly better," he said. "This means that there is a good chance our partners may further reduce our debt."

The International Monetary Fund agreed on Wednesday to pay the next aid tranche under the country's 240-billion-euro international bailout and said Athens was moving in the right direction. But IMF chief Christine Lagarde urged it to do more to boost productivity and lower prices.

Greece's euro area partners agreed last year to extend the maturities and reduce the interest on the nation's bailout funds to help cut its debt mountain to a more sustainable level of 124 percent of GDP in 2020, from an estimated 173 percent this year.

More debt relief might follow if Greece hits its fiscal targets and posts a balanced budget in 2013, they said.

Stournaras ruled out this including another debt buyback and said there was no discussion of a haircut of the country's debts to its euro area partners. Debt reduction may instead come in other ways such as cutting interest rates, he said.

He acknowledged unemployment, the euro area's highest at 26.8 percent in October, would take longer to start declining and only after the economy starts to grow, which is expected in late 2013. GDP is expected to decline 4.5 percent this year, the country's sixth consecutive year of contraction.

"Unemployment is our big thorn," he said. "There is a time lag between GDP growth and unemployment decreasing and it's a serious problem, both economic and social."

A public fed up with waves of tax hikes and salary cuts has taken to the streets, in often violent protests, and lashed out at politicians they hold responsible for the crisis.

Stournaras, who served as chief economist for the socialist government that brought Greece into the single currency in 2001, said people must show patience and solidarity for one more year.

"We are facing a huge crisis, we have not yet left the hot zone of bankruptcy," he said. "We are doing better but we can't say that we have escaped all danger. The year 2013 will determine whether we will."


Greece expects to meet this year's privatisation revenue target of 2.6 billion, with investor interest coming mainly from China and Russia for state companies going on the block, including natural gas distributor DEPA and gambling firm OPAP (OPAr.AT), Stournaras said.

The banking sector has almost completed its consolidation through a wave of mergers and may not need all of the 50 billion set aside from Greece's massive international bailout for bank recapitalization.

"Synergies from mergers have not been taken into account - National with Eurobank, Alpha with Emporiki, Piraeus with Agricultural and General. In the end, they may need less than 50 billion," Stournaras said.

It will be more difficult to keep the lenders in private hands as investors seem reluctant to put up cash for the 10 percent requirement to avoid nationalization.

Stournaras said the government did not want to manage state banks but would take them over if needed, not to run but supervise them.

"If the crisis has taught us something, it's that supervision was lacking," said Stournaras, who has also served as head of Emporiki bank.

The minister dismissed concerns the shaky ruling coalition may buckle under pressure, saying Samaras and his junior leftist partners were fully committed. The government has seen its majority in parliament fall as deputies have been leaving in protest of harsh legislation.

But he said he was more fortunate than others in the government because, as a technocrat, he did not have to face a political cost.

"I'm not a politician and that's an advantage in a crisis, Stournaras said. "Right now, I am under pressure from media, social groups, professional groups, special interest groups and even MPs on whatever you can imagine -- not to shut down tax offices, to lower the tax on heating oil, to raise salaries, to relax the programme.

"I will not be the one to destroy what we have achieved with sweat and tears in the last six months," he said. "Credibility is very hard to build and easy to lose."

(Editing by Mike Peacock/Jeremy Gaunt)

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Comments (3)
ARTIMID wrote:
“…and the 2013 primary budget will do better than the troika of international lenders predicted for the year, registering a 0.4 percent surplus, despite a crippling recession”

Just ask Mr. Stournaras how much money the Greek State owes to Greek companies (suppliers, utilities and other businesses) before jumping to any conclusions about the Greek “surplus”…

Jan 17, 2013 4:53am EST  --  Report as abuse
dareconomics wrote:
Mainstream media outlets have been publishing stories advancing a recovering Eurozone narrative. It is one thing to claim that Ireland’s performance is improving, because economic indicators have at least stopped cratering. Greece is a basket case, but you would not know this after reading Reuter’s puff piece interview with Greek Finance Minister Yannis Stournaras.

Reuters starts the article by touting that “some economic indicators are showing fledgling signs of recovery” and adds other supposedly good news to the pot to create the recovery stew. Is it a good stew? Let’s see how the ingredients hold up.

Money is returning to Greek banks. This is technically true but omits any discussion of the amplitude of this trend. Greek deposits fell from a peak of about €240bn in 2009 to €156bn in June. Since then they have risen €8.3bn, which means they are at May’s levels. The depository base is still dangerously low.

Bond yields have improved. This is technically true, too, but is presented without context. Greek yields have fallen dramatically because the troika implicitly guarantees Greek debt with bailouts and a printing press. Falling yields do not support a Greek recovery. Greece remains shut out of international bond markets and will not gain access for years.

There will be a primary budget surplus of 0.4%. What this means is that Greece covers it expenses before interest expenses are paid to current bondholders. After accounting for interest, Greece is still running a massive budget deficit, which means its debt pile is growing by the day. Let’s not forget that Greek budget forecasts have missed by the downside each and every year since the beginning of the crisis.

Privatization receipts will hit €2.6bn this year. Since the first bailout, we have been told by officials that Greece would begin raising lots of money by selling state assets. These funds have yet to materialize. Even if they do, Greece has €340bn in debt. Projected proceeds are less than 1% of the debt load. If Greece owed $1oo, privatization would account for about 75 cents. Once again, the amplitude is being ignored.

The banking sector may not need the €50bn in recapitalization money. This statement is made without basis. In fact, one can make a compelling argument that banks will need more recapitalization funds. Greek banks took a large capital hit in December due to the bond buyback. They were forced to recognize losses and lost an income stream. Additionally, bad loans have risen to a record 24%. These factors add billions of euros more to the tab.

To this chef, it appears that someone is using subpar ingredients in their recovery stew. It’s not going to taste too good. Moreover, there are more bad ingredients. Unemployment is still rising hitting a record 26.8% last month. GDP is falling projected to shrink by another 4.5% in 2013. Signs of a civil war have begun appearing with bombings, assassination attempts and shots fired on political headquarters.

The only thing keeping Greece afloat is that the troika has made a cost-benefit analysis and determined that stringing it along is much cheaper than letting it fail. The 3rd bailout of December was meant to support Greece until German elections past, but it is becoming more likely that another crisis will erupt before then.

Jan 17, 2013 2:40pm EST  --  Report as abuse
APP wrote:
@dareconomics, your analysis of the ”success” of the Troika-Stournaras greek program is excellent.

I would like to add a few more points here as to why this program is designed to fail:

The aggressive salary/pensions/benefits cuts, coupled at the same time with severe taxation of any form of income,business, real estate etc., and huge increases in the price of vital goods ( electricity, heating oil) has resulted in severe reduction of internal consumption, lack of liquidity, thus hampering severely any prospects of the so advertized by this Government prospect of ”Growth” from within Greece .
And the , again, touted ”huge tax evasion” in Greece was ”measured by the fact that, in 2003 and a few years after that, a number of professionals took loans disproportionally high compared to their declared income.

And this publication concludes :
” our evidence suggests that industries with low paper trail and industries supported by parliamentarians have more tax evasion.”

-Note the ”parliamentarians” in the above comment – it just so happens they are the same ones governing Greece today.
This is why they are NOT taxing only the guilty parties, but everybody, thus resulting in extreme povertization of a large part of the population in Greece.

This is why , all these rules and cuts imposed by the Troika-Greek Govt. will NOT result in an improvement of the economy, but , as you wrote, ”The 3rd bailout of December was meant to support Greece until German elections past, but it is becoming more likely that another crisis will erupt before then.

Jan 18, 2013 7:38am EST  --  Report as abuse
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