High growth rate bears economy up but improving competitiveness is a must

With the duration of the Iraq war becoming more uncertain by the day, estimates of its impact on the economy are becoming increasingly riskier. Kathimerini asked four senior bank officials for their views. Yiannis Stournaras, chairman of Emporiki (formerly Commercial) Bank, Nikos Karamouzis, deputy managing director of Eurobank, Apostolos Tamvakakis, deputy governor of the National Bank of Greece and Christos Sorotos, general manager of Citibank in Greece all incline to one conclusion: The impact of the war on an already stringent economic climate favors policies of restructuring and poses the challenge of boosting competitiveness. Stournaras «It would not be quite right to say that the Greek economy, projected to grow at a rate of 3.5 percent, or perhaps less – when the rest of the EU is considerably lower – is an economy in recession. Even though certain sectors, such as tourism, are evidently being affected, on the whole it would be more proper to speak of stagnation rather than recession. «Greek tourism is, indeed, being hit, but it would have probably still faced problems without a war. The main question is how Greek tourism enterprises are dealing with falling competitiveness. The answer is that rather than take steps to improve it, on the whole they prefer to boost their profit margins, citing rising inflation. «I would not wish to understate the seriousness of problems such as inflation. But to be fair, we ought to compare our weak and strong points with those of our EU partners. Also, a difficult time like this presents an opportunity to solve our own structural problems. Resistance to change and restructuring weakens during crisis periods.» Karamouzis «Developments will largely depend on the duration of the war. The factors on which the Greek economy depends are the price of oil, tourism and the Olympic Games next year. In the worst-case scenario, if the war drags on and – even worse – develops into a quasi-permanent conflict, things will be very difficult and tourism will be very seriously affected. «The Greek economy, despite mounting a good defense of a high growth rate, is not competitive. This is evident from a widening current account deficit, which, combined with the lack of a structural policy, aggravates problems. Serious structural policies are liked by markets but are socially unpalatable. The question is how to formulate and apply policies that create a competitive advantage; what strategies you adopt that will promote the country’s regional and political strength. The regional strength of an economy is not measured just in terms of economic investment; it is also investment in education, how many Balkan students you attract, for instance, how far you influence the institutions, culture and philosophy of your neighbors. These are not problems of the moment, but a crisis brings them closer to the surface and makes them more visible. «Government policy would need a different approach in improving market climate. Today, everyone is bent on how to minimize the reverberations of the crisis and boost domestic demand.» Tamvakakis «The picture of the global economy at the moment is a knot of problems. Stock markets are faltering, uncertainty and insecurity are growing. Confidence, the sine qua non of markets, has been seriously dented. Greece has a lesser problem due to its high growth rate. In the rest of Europe, where the average 0.7 percent growth rate may fall to zero, things are more serious. Our own 3.7 percent may slide down to 3 percent. If we consider prospects in the banking sector, in Greece retail banking represents 22 percent of GDP – it therefore has a much greater growth potential, given the 70 percent in the rest of Europe. Of course, great caution needs to be exercised due to the high risk involved in corporate loans. «Perhaps one of the reasons that is saving us is that we live in a state of… nirvana. Nevertheless, the crisis brings out the weaknesses of the system and the lack of proper management in Greek enterprises.» Tamvakakis thinks that listed firms would not do well to exit the stock market, as many may have been tempted to do in the last year-and-a-half of a bear market. «Such a decision would be 100 percent mistaken. This would mean a heavy financial cost burdening the basic shareholder, who would need to buy out all the free float. With capitalizations in free fall, this could be done with a significant discount but it would create negative sentiment among small investors. Moreover, the company would lose out in growth prospects, for the purpose of the bourse is to finance growth, not to make the owner wealthier,» Tamvakakis says. Sorotos «The greatest concern in America is that the potential for growth is exhausted. This is a pessimistic view, but it is gaining ground as long as uncertainty lasts. A new situation is emerging that we have not experienced before, introducing a new perspective. We must redefine the ways we function. The heyday of the markets is over and the realization of this is causing a great shock. In Greece, this shock can only be overcome through broad restructuring. The world is changing and so must we. As a rule, changes are painful but the more conditions in an economy deteriorate, the more easily changes are accepted. Characteristically, many businesses today are proceeding to draft new business plans, even if without any evident reasons for this. «The downturn in stock markets may give rise to a new fashion of firms delisting themselves. Even healthy businesses are now expressing doubts as to whether the trading of their shares continues to serve a useful purpose when their capitalizations have receded to a level much lower than their real value.»