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Lagarde sees return to markets before 2016, no new measures if reforms are implemented

International Monetary Fund Managing Director Christine Lagarde believes Greece will achieve growth next year and will be in a position to return to the international markets before 2016.

In an interview with Kathinerini’s editor-in-chief Alexis Papachelas on Skai TV’s New Files program, Lagarde also admitted that mistakes had been made in Greece’s bailout program but said that no new measures would be required this year if structural reforms are implemented.

Let me ask you first of all whether the Greek exit from the eurozone is off the table for good or for now?

My sense is that the Greek exit is off for good and that decision actually is in the hands of the Greek people and the Greek authorities. The way the situation has changed actually allows Greece to demonstrate that it is a member of the eurozone, that it can fulfill its commitment, that it can produce results. And, clearly what the European partners have indicated in return is that if you do that we will stand by your side, which is why I think that it’s off the table as long as Greece wants it to be off the table.

In the last Eurogroup you were in favor of a very dramatic debt reduction for Greece. Were you disappointed by the end results? Did you want something more dramatic and do you think that’s going to happen sometime in the future?


Well, one doesn’t always get what one wants and what I find very encouraging in the present situation is: number one, the determination of the European partners and the determination of Greece to be part of the Eurogroup, to be together and to stand shoulder to shoulder. And second, the clear indication on the part of the euro partners that if Greece delivers on its commitments, if Greece performs as it has agreed to perform, then the Europeans will not only continue to support it but will really help with alleviating the debt in the long-term.

At the beginning of the program you were part of the Eurogroup, you were a very important member of the Eurogroup and there was a lot of debate in Europe and with the IMF back then, about whether there should have been a debt reduction head on. Do you think it was a mistake not to do that?

You know what, I think it is too early to try to judge history. I think the time will come when the programs are over, when Greece is back on its feet, and when it has recovered, to actually look back and decide what was done right, what was done wrong. I think for the moment we should all dedicate as much of our energy and focus on what remains to be done, because it would be a pity to have done so much, for the Greek people to have taken on so many sacrifices, not to go to the end of the road.

There have been some post-mortems within the IMF criticizing the program that the troika has followed, saying that perhaps too much austerity led to a downward spiral of recession, unemployment and so on. Do you believe mistakes were made during the last couple, or three years?

Who doesn’t make mistakes? What I can tell from having seen the work done prior to my management is that every effort was made to restore the situation. What certainly went underestimated is definitely the magnitude of the deficit, is the accuracy of numbers and is the general environment within which that program would take place. Clearly, if you will, the European sovereign debt crisis that started hitting the environment was not expected at the time when the first program was designed and that has had a clear effect on what Greece could deliver and what kind of growth Greece could enjoy, because when you have depressed demand surrounding you, when you have a liquidity crisis hitting most of your partners, it clearly has an effect on your own situation; and that’s what happened.

What are the biggest implementation risks on the road ahead in your opinion, in terms of the reforms that need to be made?

What from our perspective needs to be done and it’s mission critical, I would say are three things: one is improving and reforming the tax system in such a way that it collects revenue efficiently, that it tackles tax evasion and that it brings money into the coffers of the state. That’s priority number one in my view. The second priority is to deliver on the privatization program, which has been significantly scaled down. You know, in the initial program, three years ago, the privatization target was 50 billion euros, it is now down to 10 billion euros and that really needs to be delivered against. The third priority, which is critical as well, is the structural reforms that need to take place to unleash the competitiveness that Greece can deliver.

I don’t want to be too technical but what has happened is that the Greek population has taken a hit on its salary. The Greek pensioners have taken a hit on their pension. And that should have been transmitted into prices, because the costs of producing goods, the cost of delivering services has been lowered. We haven’t seen that price reduction that would improve the competitiveness of Greece and Greece products and services. Why is that? It is because there are still a lot of professions that are closed, that are protected, still too many licenses, still too many bureaucratic burdens on the expansion of businesses, on the coming in of new competitors, that clearly have an effect on reducing prices. That is why the third priority of the structural reforms to improve the competitiveness of the country is key.

The feeling we have here is that because the reforms are not being implemented, because the political system cannot implement them for various reasons, in the past at least, the country is adjusting through poverty basically. Is that going to change? Because that has really created a feeling of desperation, if you want, in the country, a feeling that there is no light at the end of the tunnel.

You are absolutely correct and yet there must be light at the end of the tunnel. Because if the reform of the labor markets and the reduction of labor costs is matched with structural reforms, which the current Greek government seems determined to implement, then that will lead to an improved competitiveness of Greece, which will improve its economic situation, which will restore growth, and which will then improve the overall situation of the Greek population. So, from this sort of vicious circle, the economy has to kick into a virtuous circle where the people who have made the sacrifices are reaping the benefits of the reforms that must take place. What we have seen is too many vested interests getting into the way and forming obstacles to the structural reforms that have to take place. Now the current Greek government has indicated its determination to tackle those vested interests’ resistance and we will be helping, we will be pushing for that to happen so that the sacrifices that have been done are not in vain and will actually lead to benefits that will go to those people that have made those sacrifices.

Every time that there is a review of the program and the delegation of the troika comes to Greece, the average Greek for good reason predicts that their salary or their pension is going to be cut. And I can tell you that both society and the political system cannot take another round of cuts the way that things stand. Can you exclude that possibility within the next year or do you think we might have to go yet through another round of those?

Our analysis is that if the structural reforms are conducted and therefore if there is a proper transmission of the salary cost reduction into prices, no additional cost reduction or pension reduction will be needed. If, however, the structural reforms were not to take place, if the closed professions were to maintain their privilege, if the multiple licenses, bureaucratic hurdles and impediments to growth were to stay, then we would face another situation where the fiscal deficit needs to be tackled and therefore more cuts would be needed. It's not what we want, because we believe enough has been done in that particular area -- because Greece has now returned to pretty much the European average when it comes to those pensions and labor costs, and the benefits should come from the structural reforms and the elimination of privileges, turf, protected territories and so on and so forth.

When do you expect Greece to return to growth and then also to return to the markets?

First of all we expect that Greece will be in primary balance. So, excluding the repayment of debt, the balance between expenses and revenue should be reached this year, 2013, which means that next year we would expect a primary balance for Greece and growth to return in 2014. Returning to the markets for financing is another story and will take longer. But for the moment the financing of the country is being taken care of because of the program, because of the European support, but we certainly hope that before 2016 the country would be able to return gradually to market.

Can you tell me any success stories that you’ve seen in the Greek program so far?


Well there has been some massive achievement in the area of fiscal consolidation because if you look at the situation back in 2010 when the first program was put in place and the situation today, the fiscal consolidation is in the range of about 9 percent. That’s a major major achievement which has been obtained by spending cuts, by salary and pension cuts with a safeguard and a safety net for the lowest salaries and the smallest pensions. But that’s a significant achievement for which the Greek people should be praised and congratulated. On the other hand, where there has been significant downside, if you will, I would put tax collection and the tax administration reform at the top of my list and I would put privatization second.

Now, you talked about tax collection. As you know. Greece is entangled in a controversy over a list that bears your name -- it’s called the Lagarde list here in Greece.  I was wondering whether you recall the circumstances under which you actually provided that list to your Greek counterpart back then and whether you have any thoughts or comments on this whole episode.

Well I hope I will not be remembered forever in association with taxation but be that as it may, as finance minister of France I did what I had to do when I was asked by the minister of finance for Greece to help him in his tax revenue collections and fight against tax evasion. You know, for the rest I don't really feel that I should comment on it because it has clearly become a domestic political issue. And, you know as far as the IMF is concerned we believe that what is critical now is to make sure that the tax administration works well, that it is solid, safe and determined, that it has full political backing from the government to do what it has to do, which is to tackle tax evasion to collect revenue and to make sure that you know that the Greek revenue is at the level where it is targeted. When we look at the numbers at the end of November 2012, the target has not been reached and there is a lot more work to do in order to make sure that revenues come in.

Let me just ask you one more question: Did you had set any conditions when you gave list about any secrecy surrounding this list or that it would not be made public or anything like that?

I have no specific recollection and if I did I am not sure I would want to comment on that. This was, you know, my previous life as minister of finance. Now I am speaking as managing director of the IMF.

Well we all know you are a good lawyer, so that’s a good answer I suppose. Let me also ask you, sometime ago you stirred some controversy when you were quoted by The Guardian as saying that you feel more about the children of sub-Saharan Africa than the people of Greece. Was that a misquote or was this a mistake on your part? Do you actually see what the social problems of social cohesion and poverty are now in Greece? Do you have a clear picture?

Indeed I do have a clear picture and I know that the Greek population in the main has consented to huge sacrifices and there is huge hardship on some of the Greek people; I know that. But, you know, when asked what do I think when I get up in the morning, I think of the most in need, the sort of people who have nothing. I am a mother, I think of children and I think of those who hardly have anything to put in their tummy. So I was back from Niger at that point, not long before I was interviewed by The Guardian, and I am very concerned about some of the children of Africa. I was just recently in Malawi, in Mauritania, those are countries where people have so little, half of the population having not even a dollar per day to live on. So, I still today think of them first and foremost, which doesn’t mean to say that I don’t feel bad and very sorry and I sympathize enormously with those in the Greek population who are struggling and who have made the sacrifices. Equally, I was also commenting on those who make sure that they don’t pay tax by evading it and I think that is an issue where clearly the tax authorities have to be very rigorous and very efficient.

Let me conclude the interview by asking what would you say to Greek citizens who have lost their job, cannot pay their taxes and have lost their homes? You know, that number is increasing and it’s not an exaggeration to say that it has become a real social problem. So, if you look them in the eye what do you say, because they clearly cannot see any light at the end of the tunnel after three years of this program and on the contrary they expect more austerity, more pain, more more of the same?

I would say first of all that they have the support of the European partners, that we have now recommitted to them, that they are in a democracy where the government has indicated clear resolution and determination to restore the competitiveness of the country, to make sure that growth can return, that exports could pick up and that therefore jobs be created. I’d say it’s a very tough moment to go through but that if that is implemented as promised by the Greek government, by the Greek authorities under the watch of the Greek people, then there is a light at the end of the tunnel.

ekathimerini.com , Friday Jan 18, 2013 (11:58)  
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