Keynote Address Gikas Hardouvelis, Minister of Finance of the Hellenic Republic

Gikas Hardouvelis, Minister of Finance of the Hellenic Republic

Prior to his address, some questions in anticipation of what he might say, came to mind:

What key policy alterations has he made since the took over the Finance Ministry? This change is most recent after Samaras made a cabinet reshuffle with former Finance Minister Stouranas becoming Governor of the Bank of Greece.
The negotiations with the Troika includes the International Monetary Fund which tends to define in a much more stringent way what is non negotiable, so how can Greece alleviate itself from this international pressure? Samaras send for this reason a special delegation to New York to negotiate seperately with IMF director Ms. Lagarde.
Whether he has worked at all towards a budget which can be readjusted so as to support social policy is not known. This would have to be done in terms of social justice with wages for civil servants and pensions being key factors. However, it is doubtful under given circumstances that the budget is being shaped in a way that the government aspires at very least to be more socially just. It is expected that Samaras shall set other priorities, in order to secure re-election in case it comes to that.
When Jorgios Papandreou took over office of the Prime Minister in late 2009, he was in for a huge surprise since the state deficit was much larger than he had even imagined to be the case despite being till then the leader of the opposition in Parliament. What will await Syriza if they win the most seats at the next general election and come into office without knowing the real extent of the deficit although Tsipras keeps saying the deficit has not been reduced since 2009, but has increased as a matter of fact.

Notes made of his speech:

He does not remember when he spoke last to the Hellenic Entrepreneurs but he did so in the past.

He sees many friends in the room: Ministers, advisers, consultants, etc.

After listening to the Deputy Prime Minister, he will speak as a technocrat.

Greece has achieved a titanic work – thanks to the sacrifice of the Greek people and the solidarity of our EU partners.

A few things need to be done to stand again on our own feet

Recovery is close. There are but the last few meters to go. How they are handled, that can determine what will happen in the future.

They are achievements of the Greek people which we have to protect.

Achieved structural reform, competitiveness.

Country is near 1.5% of GDP and prospects are much more optimistic than ever before.

Since 2014 gradual deduction of unemployment is also on the horizon.

We owe a lot of money but which has to be paid much later so no problem for the present.

The expenses for taxes were reduced from 7,8% to 3,3% and will be 3% in 2020. We ensured financial stability.

International competitiveness has been improving.

Reforms have been made in the labour market.

Current account of balance: if we can export more than import, then things will improve.

We have already a positive income development e.g. tourism: 12% increase, shipping also out of deficit etc. and all of this entails a vast improvement margin.

It has to be admitted that there is limited size of Greek exports (due to energy costs, and unfavourable macro economic conditions due to world development)

Still improvement in competitiveness, internationally speaking, has been recorded since Greece moved up in rank by 17.

Third Quarter in 2014 will be the first time with a positive growth and it is predicted that in 2015, there shall be an average O,5% growth.

So it is to be expected that the Greek economy will take off in 2015.

Financial sector under went drastic changes; it started with the banks being recapitalized in 2012.

The second recapitalization has seen foreign investors contributing to the banking sector.

The majority of share holders in banks are private owners

There is a 11,5 billion buffer in banks which are able to obtain money for investments.

This means yields are quite good.

Big company are able to access international markets.

The problem lies in the small Greek companies which cannot enter international markets, but after some arrangements which we are promoting, improvement in liquidity can be expected.

European Central Bank assists in this recovery.

The climate which I have described has given the Greek state the possibility to go to the markets. Two types of bonds: five year and three year. We hope that we can cover the entire performance curve to bring liquidity into the market.

This was not achieved without costs: unemployment is a problem for the Greek society of today, but we need dedication to a safe programme for what lies ahead shall determine the next ten years.

The people of the market have drawn their own conclusions...

No one is talking about a low development rate below 0,5%

How to achieve this: investments – at last they are rising by more than 11%, and a positive balance of payment has been achieved. We expect in the long run that development cannot come alone from consumption, but need investments into exports, so as to turn the Greek economy into an extrovert economy.

All of this is based on decisions by the Greek government which has initiated a series of reforms, and this with the aim to return the Greek banking sector to its real role, namely to provide the Greek economy with money.

The third challenge: development projects and their implementations

All these problems will be solved from a technical point of view as well.

It is not only a matter of bringing in liquidity into the economy to reduce the public debt, but also investments (purchase of property are also investment) are needed.

We shall create logistic centres and research hubs – some international companies are interested in coming to Greece.

Need to reduce administrative costs and provide better services to companies, so he recommends the following: don't listen what the media says!

Financial squad: Right now Importers need to be present at customs, but we seek to find another procedure to save time.

Payments: Time is needed for risk analysis, hence we seek ways so that VAT returns to companies shall be speeded up but this applies only to companies without taxation problems.

The government shall help to improve liquidity of companies

Up to 10 000 be exempted from VAT – this is a proposal made yesterday.

Likewise the solidarity contribution has to be rethought.

The government shall continue payments to private companies, right now there are 7 billion Euros available to respond to needs of private sector.

Summary:

Gives priority to the elimination of the problems connected with 'balance of payments' and the twin deficits and maintains that the aggregates of the Greek economy are strong.

Foresees that

competitiveness will improve
will have a better public administration
and therefore there shall be a better business climate

He is convince that the EU partners want Greece to succeed.

Finally, he adds that Greece will naturally continue to implement reforms.

Comments:

Something crucial was said in his speech, namely that the Greek people have made a huge 'sacrifice' to salvage not only the Greek economy, but the Greek state as well. The reverse of that problem is captured in a simple expression, for the state had to deal suddenly after the deficit was revealed after 2009 with an 'unsustainable debt'. It is thought that only primitive societies would require sacrifice as part of their ritualized way of moving forward, or through their times. A civilized society, so it could be assumed, does not require the making of sacrifices, in order to advance together. But in modern economic theory, the original purchasing power of the currency used, in this case the EURO, was only restored by creating unemployment without regard what this does to the population once wages, pensions, even recognition through work in society are wiped out. The unemployment means so many more people compete for the left over jobs, thereby labour and wage costs are reduced in a most dramatic fashion, all while everything is done to save the banks.

What is missing in such a statement is the fact that these sacrifices are not justifiable especially since they were made by a majority of wage dependent employees of the state, and not by those who were privileged in many ways by the system i.e. how privileges were distributed until the crisis came. The capital flight out of Greece should not be forgotten nor the reduction in purchasing power of those who suffered 40% wage cut and at least a 20% increase in taxation, as this adds up to a loss of 60% in purchasing power of the disposable income.

When a technocrat speaks, There is something curious about 'economic theory' being replaced by econometrics. Andreas Papandreou was likewise a famous econometricians at Berkeley University before returning to Greece, and then assuming governmental responsibility after his election victory in 1981. In retrospect, it is said he understood little of economics or how the market works.

What is so worrying about this trend can be stated as an over dependence upon a highly speculative field of abstract knowledge. The reliance upon this type of know-how for monetary but also financial policy reflects the fact what it has become crucial for governments when seeking to handle financial markets, banks, even virtual currencies, off-shore companies, capital flows etc. and all of this no longer within a clearly defineable national economy. The European institutional factors and the global market setting have to be taken likewise into account. Philosophically speaking, this type of knowledge extends in a much more sophisticated way than what Hegel could formulate in his 'speculative sentence' into the realms of economic predictions about future earnings and more concretely 'profits. It is done mainly in relation to stock indices. Thus decisions affecting current values can easily be over shadowed by what is expected to be the future trend. It depends all upon the time horizon since things can look very differently once no longer appraised in a short but instead in a long term time frame.

In the final end, he does not spell out how competitiveness shall improve, what he means by public administration becoming 'better', especially if training is inadequate, and no thought through public administration reform having been proposed. Rather Ministries lack money and more often competent people went into retirement or left so that there are more directors than staff to carry out the work. Also nothing is really said about the parallel administration which has been created to serve the purpose of the Structural Fund i.e. implementation of the operational programmes. Moreover, if the administration is filled with technocratic people all speaking the same 'wooden language', it is doubtful that the politicians will get a better sense of what happens to the laws they have passed. There is no real feed back given and more over reports are rarely authentic enough to tell the real story. Instead, everything is done to cover up. Equally a recent report by International Transparency International states in 2014 that the public administration in Greece is one of the most corrupt in the European Union. (see Ioanna Zikakou (2014) „Two Out of Three Greeks Commits Tax Evasion“ greek reporter.com 2014/10/12 http://greece.greekreporter.com/2014/10/12/two-out-of-three-greeks-commits-tax-evasion)

CV of Gikas Hardouvelis

Prof. of Finance and Economics at the Department of Banking and Financial Management of the University of Pireaus, Greece.

Worked at EURO Bank group (2005 -2014)

Researcher at Centre for Money, Banking and Institutions of Surrey Business School

Member of the Cyprus International Institute of Management

On Board of Directors of the Hellenic Harvard Foundation

During the semester of November 2011 – May 2012 of the coalition government of National Unity, he served as the Director of the Economic Office of the Greek Prime Minister Lucas Papademos

Ph.D. In Economics from University of California, Berkeley (1983), and other degrees from Harvard e.g. Applied Mathematics 1978

Expert on „Applied Econometrics Rankings: 1989 – 1995“. It is said that „his work on margin requirements had a crucial impact on shaping the reform of the legal framework governing the markets of futures on stock indices in the US.“

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Keynote Address Gikas Hardouvelis, Minister of Finance of the Hellenic Republic