The Greek economy, the possibility of a new debt crisis and the way international investors now view Greece dominated comments made to “Ta Nea” by Charles Dallara, the former long-time managing director of the Institute of International Finance and primary representative of investors during the PSI in 2012.
The current advisory partner of Partners Group USA and chairman of Partners Group’s board of directors also assesses that risks from a lengthy war in Ukraine appear high, meaning repercussions on energy costs may greatly expand until 2023
Have the Greek economy’s tribulations ended after the memorandum bailout era and the pandemic? What can reignite a new debt crisis in Greece or the Eurozone?
The Greek economy has definitely moved into a new positive phase following years of contraction and pain that emerged from the Greek and European economic crisis. The recent combination of sound, investor-friendly economic polices and renewed consumer and business confidence have given fresh momentum to the Greek economy. The current Greek government has done well to build and enhance on earlier reforms through a variety of measures, including reductions in key taxes and the initiation of an ambitious structural reform program.
Despite the relatively high levels of debt that persist, I am not overly concerned about a new debt crisis. Greece is finally benefitting from the historically large reduction and restructuring of privately held sovereign debt in 2012 as well as the fact that much of the remaining debt is long-term with low interest rates. –
Is another “haircut” of Greece’s debt necessary, given that external debt remains at very high levels?
Another “haircut” of Greek debt is neither necessary nor desirable. What Greece needs is a number of years of strong growth through a rebuilding of the capital stock and an enhancement of the competitiveness of the economy through fresh investment and appropriate structural reforms. This is the key to maintaining Greece’s debt sustainability in the years ahead. – The Greek government has cited high expectations for investments towards the country.
Do you assess that Greece is a friendly destination for foreign direct investments?
Greece should indeed have high expectations for investments and should continue to actively pursue policies which encourage both domestic and foreign investment.
My own company, Partners Group, has invested in Pharmathen, a leading European pharmaceutical company headquartered in Athens valued at over EUR 1.6B, and we are making further investments in the company at this time. We are open as well to new investments in other attractive segments of the Greek economy. It will be important that the government continues to eliminate barriers and disincentives to private investments for both large companies and small businesses. This should include further initiatives to improve the efficiency of the public sector, which is often part of the problem and not the solution in promoting investment and job creation in Greece. – What do you believe will be the repercussions from the war in Ukraine on the Greek economy?
How do you gauge the measures enacted by Europe, and especially Greece, to deal with the energy crisis?
The government has been skillful in managing the adverse repercussions of both the global pandemic and the war in Ukraine. It will be crucial to build on the progress already achieved to diversify Greece’s energy supplies, including incentivizing even more investment in renewables. At the same time, targeted measures to cushion vulnerable households from high energy prices will also be needed. –
How long do you believe high energy costs will plague Europe?
The risks of a lengthy war in Ukraine look quite high and therefore the effect on energy costs could be extended well into 2023. However, the ongoing diversification program of the government and more restrained Central Bank policies should begin to rein in energy costs by 2024. Furthermore, as Prime Minister Mitsotakis has stressed, the EU policies for pricing electricity must be reformed. – Do you foresee social unrest as a result of the ongoing wave of inflation and higher cost-of-living expenses? Answer 6: While one could anticipate some discontent in Greece and Europe in general from higher inflation, the Greek people have already shown tremendous resilience and understand that more investment and less social unrest is the key to a healthy Greek economy in the future.
Is a revision of the Stability Pact necessary? How likely is an agreement between Europe’s north and south over lower targets for debt?
I do believe that some basic revisions are needed in the European policies and guidelines regarding economic policies and stability. The Greek experience a decade ago demonstrated that an arbitrary application of rigid rules regarding deficit and debt could be very damaging to economic growth and the debt sustainability. The IMF and the European Commission have both acknowledged mistakes in the design of the adjustment program for Greece, including excessive reliance on higher taxes and very large primary budget surpluses. These contributed to a further weakening of the Greek economy and set back its recovery.
Each of the economies in the Eurozone has a different structure and a more flexible application of the Eurozone policies and rules, suitable for each economy, would be an important improvement in the structure of the currency zone as a whole. In addition, the recent proposal by President Macron and Prime Minister Draghi to adjust debt ceilings for structural spending merits serious consideration.
