Global Crisis: Greek Resilience in Turbulent Times
Ladies and Gentlemen,
I would like to express my warmest thanks to the Woodrow Wilson Center for giving me the opportunity to share with you some thoughts on the performance of Greek economy amidst international crisis. As we all know, we are faced with a deep global financial crisis that is affecting all economies – some more than others. And that is exactly my point this morning: to show that the Greek economy is indeed resilient to this crisis.
I am not implying, of course, and I wish to be crystal clear on this, that Greece is a detached place in the world or that the consequences of economic turbulence leave us untouched. The truth, of course, is that we do feel these consequences. But, it is equally true that Greece appears to be shielded against the consequences of this crisis for a number of reasons. I feel privileged to have the opportunity to discuss these reasons to you.
Ladies and Gentlemen,
First things first, there is no doubt that we are in the middle of a crisis unmatched since the Great Depression, a once-in-a-century financial crisis. First, because of wide extent of the negative effects and second, because of the way it has descended down and across different economies. The pains of this crisis are not felt just here in the US but across the world. After all, we live in a globalized environment, where both opportunities and challenges are common to us all. Simply put: no economy can be risk-proof in this environment.
The non-financial aspects of the crisis are also alarming indeed:
ü Growth rates are slowing down across the globe while we hear more and more about the much-hated "R" word.
ü Unemployment is on the rise.
ü Big business entities have simply gone … out of business, overnight.
ü During 2008 the prices of the raw materials have increased by over 50%.
Here, I would like to explain the reasons why, during this economic turmoil, the Greek economy has proved to be resilient, thanks to the strategic choices and policy initiatives of the Greek government over the past four years and the measures it has taken to mitigate risk. I'll take a few minutes of your time to discuss some of these policies that have resulted in exceptionally brisk growth rates and to elaborate a little further on the measures taken in order to confront the international crisis.
First of all, a successful strategic plan for the economy has been in place. To name just a few of its accomplishments: fiscal consolidation, upgraded and modernized infrastructure, new foreign direct investment, rationalization of bureaucratic processes, consolidation of social security funds and finally, history-making energy deals that establish Greece as the new energy hub for all of Southeastern Europe.
Specifically,
ü We have enjoyed one of the highest growth rates in the Euro-zone: 3.2% for 2008 (2.9% according to EC estimates), while the Euro-zone average is 0.9%. Throughout the last 4 years, Greece has retained a growth rate in GDP that has been double than the Euro-zone average growth rate.
ü Budget deficit plummeted from 7.4% in 2004 to 2.5% until October 2008, while now – note: in the middle of the crisis – European Commission (EC) estimates it to be 3.4%.
ü Public debt was cut from a high 98.6% in 2004 to 93.1% in 2008.
ü Unemployment was reduced from 10.1% in 2004 to 7.5% in 2008.
ü Average foreign direct investments have multiplied in recent years.
You may agree with me, along with anyone that has taken Economics-101 in College that the coexistence of the above figures, namely, high growth rates in association with reduced deficit and unemployment, is, by any measure, a pretty unique phenomenon.
Coming now to the financial aspect of the crisis: people are asking: will Greece with its medium size economy of some 325 billion dollars (250 billion Euros) withstand the shock of the current crisis, the worst perhaps, in, 100 years?
Of course, the growth of all the recent years along with the other fundamentals of our economy that I have just discussed, offer a clear answer to the Cassandras of gloom and doom. But the fundamentals of our economy, is not all.
Before going into the particular policies that Greece adopted to shield itself further from the negative effects of the global crisis, let me address the reasons why the Greek banking sector today, is fundamentally sound:
1. Greek banks do not have a high dependency on external funding; their loan-to-deposit ratio is 108%, compared to 127% for large European banks, while
2. Their leverage ratio (assets to accounting equity) in Greece is 12, almost half of that of large European banks with ratio of 23.
3. Greek banks focus on traditional commercial banking activities with limited exposure to market risk and insignificant exposure to "toxic" financial products.
4. Their energy and financial resources throughout these years, have essentially been channeled to the expansion of their networks in the countries of South-Eastern Europe.
Now: turning to the particular policies pursued by Greece: it was the first country in the European Union to adopt legislation for the protection of bank deposits by increasing the guaranteed limit to 135,000 Dollars, (€100.000) from the previous $25.000 (€20.000) limit. The Government also provided the banking sector with a financial package of $36,8 billion (€28 billion), so that it supports confidence among banks and so that in turn banks can provide loans to the private sector and prop up the real economy. Of this $36,8 billion (€28 billion) package, $6,5 billion (€5 billion) are used to strengthen the capital base of the banks. In addition Greek banks have announced that they, as a sector, will continue to show significant profits in 2008 (a forecast supported by the first three quarter results) and the greater proportion of these profits will be used to increase their own capital.
European policy makers have publicly stated their appreciation for Greek results and full support for her efforts. The President of the European Central Bank, Jean Claude Trichet, dismissed the negative speculation about Greece – and for the Euro in general – as baseless while the European Commissioner for Economic and Monetary Affairs, Joaquin Almunia, has stated that the Greek authorities have the knowledge and the experience to face the conjuncture responsibly.
But I believe that the most crystal clear answer to these "Cassandras" came from the market itself. The first treasury bill auction of 2009 of the Greek state, providing for an inflow of $3,36 billion, attracted offers totaling six times the amount of the required sum. And this, in a period where even the biggest economies of the world have difficulties in seeking liquidity in the markets.
Greece's resistance to the negative effects of the global crisis is clear when we take a quick comparative look at the European Commission predictions for the European Union countries for 2009.
Ladies and Gentlemen,
Our ability to shield the country against the effects of the crisis and secure – as much as possible, of course – its brisk performance is neither accidental nor temporary. It is thanks to the very reforms that have been and still are being diligently implemented.
Allow me to mention some examples, choosing among the ones that took place after we last met here in the Woodrow Wilson Center, a couple of years ago:
On the front of privatizations, the total income from this initiative between 2004 and 2007 was $8.5 billion, three quarters of which was foreign capital. I should emphasize the privatization of the container terminal – that's only one port activity – of the largest port in the country, that of Piraeus. It will yield profits for the Port Authority amounting to $164 million per year, when the corresponding profits today do not exceed $9.6 million per year. That's 17 times more! In fact, in the tender, the bidding offer was seven times higher than the stock exchange value of the Piraeus Port Authority. Of course, this does not only benefit the respective local communities but also the national economy, the private shareholders of the Port Authority as well as every person or business who deals with the Port Authority. In addition, the geostrategic position of Greece will be further upgraded as well as the country's role as a distribution hub and a gateway to Europe.
The Public and Private Partnerships (PPPs) also contribute significantly to the development of the Greek infrastructure and high-quality public services, offering the opportunity for increased financing of projects and public services. In general, the PPPs improve the investment and economic climate, through a close and constructive partnership between the state and the private sector. In the past couple of years, 52 PPP projects of have been approved. Thirteen of these projects have already been auctioned, generating a total amount of $7.8 billion and creating, in the years to come, 327 new infrastructure works in the country. The PPPs, a strategy successfully tested by countries like the UK, will bring a new generation of investment to our country.
Moving on, the hot and thorny issue of the social security funds, an issue on the agenda of all countries on both sides of the Atlantic, has also been successfully tackled. Coping with it isn't easy, nor is it for all countries. Every society tackles this issue with different timing, because its settlement produces comprehensive results which affect all citizens. It is therefore an issue that should be treated with the maximum consensus. The new system approved by Greece and established by law, is a simple one, adopted to modern needs, Specifically, 133 bodies have been consolidated to 13, making the social security system viable, more efficient and creating economies of scale. In fact, more than $2 billion will be saved in the first year, thanks to overall integration of resources and information systems.
ü Primarily, this new system is a viable one.
ü It also creates economies of scale. In the first year of implementation of the insurance regulation, there is a saving of more than $2 billion.
ü It secures an efficient and transparent utilization of movable and immovable property and
ü It creates new, unified and modern information systems.
On the front of infrastructure, important steps have also been taken, the Athens metro now reaching out to most of Attica and the construction of the metro in Salonika, the northern capital of Greece, is well underway.
Other landmark projects which are underway include: the new National Opera House, the New National Library and the construction of the Metropolitan Park at Ellinikon, on the site of the former Athens airport. Greece will have the largest metropolitan park in Europe, covering a total area of 650 hectares, of which 590 hectares will be green space. To put this in perspective, the Central Park in New York covers 340 hectares, while London's Hyde Park covers 145 hectares.
Ladies and Gentlemen,
Allow me just a few comments on the issue of security which has drawn much international media attention after the incidents of violence that occurred in Athens last December, and on some unconnected demonstrations that took place during those days. Demonstrations which, otherwise, are so usual and so imbedded with our democratic beliefs and practices. That is why I call those incidents of violence, the ‘Hijacking of Democracy.' (Actually, I have read about the particular interest Woodrow Wilson showed about it organizing an interesting discussion of the occurrence).
People asked "what lied behind this unrest? Will it last? Have the Greek Police been ineffective? Can the Greek Government guarantee law, order and safety for its citizens and visitors alike?" Let me answer some of these questions. The events were prompted by the killing of a 15 year old student by a police officer on December 6. The entire country, the government, the opposition and the Greek people expressed their condemnation, deep sorrow and outrage at this tragic incident. Due process was followed. The two police officers responsible for this horrible act have been brought to justice charged with premeditated manslaughter.
As the Greek youth were expressing in a peaceful manner their frustration over the killing of their fellow student, a small, marginal group of a few hundred extremists, self-styled anarchists, hijacked this outpouring of grief and used violence to pursue their agenda which aims at nothing, other than undermining the rule of law and democracy in Greece, as they have been doing, unsuccessfully, for the past thirty years.
The Greek police was faced with a difficult task: on one hand to safeguard the democratic right of free expression and demonstration while – on the other – to protect life and property. The decision not to risk further loss of life by adopting defensive tactics was compelled by the fact that a very large number of the demonstrators were teenagers. The authorities felt that we should not risk a repetition of the 1992 Los Angeles events [I am referring to the Rodney King incidents] which resulted in 53 deaths and approximately 2500 injuries. I should note that these police tactics are being re-evaluated as we speak.
What is certain is that the Greek Government is determined to protect law and order and will not allow these criminal elements to go unpunished. At least 350 of them have been arrested. The Government also decided to compensate all those whose property was damaged and provide immediate financial relief and support for businesses and their employees who were affected by the destruction of their property. Contrary to the exaggerated claims by some international media that predicted a social revolution in Greece spreading to the rest of Europe and the collapse of the government, Greece is stable and safe. The government guarantees safety, just as it guaranteed security for the Athens 2004 Olympic Games. I will not deny the seriousness of the situation we faced last December, but as the violence has subsided and normalcy has returned, we should bear in mind that when all is said and done, we are talking about a few hundred anarchists bent on destruction, that the disturbances affected a small area of Athens, and that the rule of law prevails in the country. The dismantling of the November 17 terrorist organization in the summer of 2002 has essentially eliminated the terrorist threat in Greece. The reappearance of violent incidents, like the attack on a policeman last month or against the US Embassy in Athens two years ago, is treated with due seriousness, of course, but there is no evidence that it constitutes the return of a lethal terrorist organization like November 17.
Let me also touch briefly on another related issue, that of illegal immigration. Even in these times of economic stress, the countries of the European Union are seen as havens of hope and even survival by the impoverished and forgotten populations of many Asian, African and Middle Eastern countries. Violent conflicts, economic hardship and a demographic explosion in what we call the ‘third world' have swollen the westward bound tide of desperate families and individuals, seeking a new and better life.
The resulting problem of illegal immigration has become an increasing concern for the chosen havens in the European Union, and probably most of all for Greece which – as a border region of Europe – has experienced during the past two decades a surge of immigration, from both land and sea. Now, almost 1 million people – out of a 11 million population in Greece – are immigrants. With some 150,000 illegal immigrants arriving in Greece last year, using my country as an entry point to reach other EU destinations, the economic, social and humanitarian burdens of this massive influx are obvious. Greece is suffering a big drain of its resources in confronting a problem that concerns the whole of Europe, and this is why we call for coordinated, joint, European action.
Ladies and Gentlemen,
I have spoken of the global financial crisis and of the essential resilience that Greece has shown to its repercussions. Nevertheless, I feel compelled to stress that, amidst this crisis, we should not lose our perspective: No economic crisis, no matter how deep it may be, can affect the foundations of the Greek economy or undermine its comparative advantages. These advantages, upon which Greece was based, is based and will continue to be based, should not be altered by the uncertain situation caused by the current financial crisis. Emergency planning is required, to deal with this economic conjuncture, but no conjuncture could ever affect the structural characteristics of the Greek economy and its far-reaching achievements.
No crisis will ever affect the love and the respect with which people from all around the world surround Greece thanks to its cultural heritage, its unique beauty, its well-known hospitality and what it brings to the Greek tourist industry.
[And I should not miss the opportunity here to mention the impact that the soon to be opened New Acropolis Museum will have, on the promotion of our cultural heritage to every corner of the world.]
No crisis will alter the fact that the Greek shipping sector will remain a leading force, providing the lion's share of the transport sector worldwide.
No current hardship can change the fact that Greece has become one of the most important energy hubs in the world, thanks to 4 oil and natural gas pipeline projects underway.
And nothing will ever change the geopolitical and geostrategic position of the country. A country that unites three continents, with more than 4.000 companies operating in South-Eastern Europe and with a banking sector, which holds an almost 20% share of the region's banking turnover. In other words, nothing can diminish the force of the message that Greece sends to the world: the message that it is no longer a market of 11 million people, but a gateway to a rapidly growing market of 160 million people.
Ladies and gentlemen,
Some of you may remember that the last time we met a couple of years ago, I used the time you kindly offered me to present the progress and the achievements of post-Olympics Greece, especially in the economic sector. Today, amidst a serious and unprecedented global financial crisis, I thought it would be useful to explain some of the reasons why Greece is better than ever prepared to face these grave challenges. I believe that the key success factor is, working hard and capitalizing on opportunities, when the times are good, in order to minimize adverse effect when the times are tough. The recipe for success requires, not only to work hard and seize opportunities during prosperous times, but also to be prepare prudently, so as to overcome the adversities and the predicaments of the lean times.
For those that follow Formula 1 car racing, you will agree with me that what wins a race is not driving fast on a straight road but making the turns skillfully.
I firmly believe that the end of the current global crisis will find Greece stronger and more competitive. And when we next meet, our discussion will probably focus once again on the progress, the successes and the achievements of Greece, on her way to a bright future.
Thank you
