Italian finance expert gives Greece pro bono assistance

The euro is so important to Tommaso Padoa-Schioppa, one of the common currency’s founding fathers, that he’s willing to work for free to safeguard its future. Greek Prime Minister George Papandreou this month asked Padoa-Schioppa – whose previous roles include Italian finance minister, central banker, economist and international banking supervisor – to advise the country on its debt management. «As former finance minister of a country with continuous budget problems, Padoa-Schioppa can convey important experiences,» Otmar Issing, a former Bundesbank chief economist and a fellow founding member of the European Central Bank’s executive board, said by e-mail. The Italian national helped Italy, regarded for years as the weakest euro member by investors, to curb its deficit. Those skills will aid Greece, which only avoided default after the European Union and the International Monetary Fund (IMF) forged a bailout worth 110 billion euros ($141 billion). The nation still pays four times more than Germany does to borrow for 10 years. «Tommaso is there to ensure the program does not derail,» said Renato Filosa, a former member of the IMF’s executive board. «His determination will be key to implementing the agreements Greece reached with EU and IMF.» Padoa-Schioppa, 70, says he’ll gauge his success by whether Greece’s economy grows and its crisis eases. «I’m a user of economics more than an economist,» he said in an interview in Milan. «I am used to searching the middle ground between economic abstract reasoning and its application to concrete cases.» Padoa-Schioppa’s pro bono assignment adds Greece to a curriculum spanning 37 years of public service, beginning at the Bank of Italy in Rome in 1968 and including stints running the bank’s money-market and economic research divisions before becoming deputy director general for 13 years from 1984. «I am independent, I don’t have conflicts of interest and I won’t get paid for what I do,» he said about his new position. The son of an insurance chief, he recalls the economic crises of the 1970s and 1980s that meant Italy couldn’t sell long-dated bonds and faced weekly concerns about whether investors would buy T-bills needed to refinance borrowings. Papandreou has said he wants Greece, currently reliant on bailout funds, to resume selling bonds next year. «Papandreou has made a very good choice,» said Pascal Lamy, director general of the World Trade Organization and a former EU Trade Commissioner. «Greece can draw on Tommaso’s wealth of experience and wisdom in the finance and banking field.» Investors demand a yield of about 10.6 percent to buy Greek 10-year government debt, 8.25 percentage points more than they charge Germany, Europe’s most creditworthy nation. Greece’s borrowing costs have more than doubled in the past year after the nation admitted its deficit had never met the 3 percent of gross domestic product target demanded of euro members. «Greece is on the road to orderly default,» said Simon Johnson, a former chief economist for the IMF and now professor at Massachusetts Institute of Technology’s Sloan School of Management. «Padoa-Schioppa will help.» The bailout package from the EU and IMF has bought Greece time, though some economists say it won’t solve the problem. Four-year Greek bonds yield about 11.9 percent, up from as low as 3.2 percent less than a year ago. The yield peaked at almost 18 percent in May as investors fretted the nation wouldn’t be able to pay its debts. «By the time they are done fixing Greece in 2013, its debt burden will have risen to 340 billion euros,» Carl Weinberg, the chief economist of High Frequency Economics in Valhalla, New York, wrote in a note to clients this week. «No one should believe that Greece will be any better able to service and repay 340 billion euros worth of fixed-income debt than it was able to manage 270 billion euros.» Padoa-Schioppa was present at the euro’s birth as an adviser to France’s Jacques Delors, who crafted the EU’s plans for a single market and common currency while commission president, as joint secretary to the Delors committee from 1988 to 1989. (Bloomberg)