Dear Mrs Katseli, which consequences does the new agreement (as far as it is known until now) have for the greek banks?
The agreement signed today is expected to reduce uncertainty by providing a clear roadmap for policy making over the next couple of years including the recapitalisation process. It is based on realistic targets for fiscal policy, reasonable reforms, adequate financial provisions and a commitment to address the debt overhang problem. While some of the measures will be costly for particular income groups ,burden sharing appears to be more equitable . It can therefore provide the basis for a return to sustainable growth and financial stability.
Banking shares suffered the biggest losses in the crash of the athens stock market last week. The National bank of greece lost in between about 63 per cent of its worth. How would you describe the current situation of the National Bank of Greece?
This shortselling was no surprise. After five weeks of a bank holiday, we expected heavy losses. The overall situation will improve when the banking system returns to normalcy and financial stability is guaranteed. I am confident that the losses will be reversible once the AQR (Asset Quality Review) process and the stress tests , now conducted by the ECB on the four systemic Greek banks ,are completed and recapitalization needs are duly assessed and fully covered. The National Bank of Greece is expected to continue to be strong following this process and play a leading role in supporting a Greek recovery.
Can you make an estimation how high the capital needs in greece might be based on the data of your own bank?
Nobody can make accurate estimates as yet. These will be determined through the AQR tests and the assumptions behind the stress tests which will be conducted in September. They will depend on the calibration of three main shocks. The effects on the economy of political uncertainty that prevailed from November 2014 until the imposition of capital controls in June 2015 , the effects of capital controls themselves and the expected medium -term impact on the real economy of measures included in the third Memorandum as well as the expected provision of liquidity and financing by the ECB and EU institutions . As you can understand, this is a very complicated exercise and many parameters remain unknown. The estimates provided by EU institutions that recapitalisation needs for the whole Greek financial system willl range between 10 and 25 billion Euros are therefore extremely tentative .
So will it be manageable?
The success of the recapitalisation process will depend on the degree of trust and confidence that would prevail among market participants regarding the capacity of the Greek government to implement the agreement , the will of EU governments and institutions to honour their financing commitments , the readiness of the ECB to restore normal liquidity to the system and the collective capacity of all stakeholders to address the debt overhang problem in a timely , flexible and realistic manner. In summary ,the success of the recapitalisation process will depend on prevailing expectations in October as to the prospects of a viable economic recovery ; we all need to assume our responsibilities to make sure that trust and confidence in our collective capacity to exit this crisis is restored.
There are fears the capital needs could be even higher than 20 billion Euros.
No, not in my view.
You said, the process of recapitalisation is not chosen yet. Can a bail-in be ruled out though?
No one wants or argues in favour of a bail-in. If people or companies expect a haircut on deposits, even on uninsured ones alone , they don’t leave them in the banking system . Deposit and capital flight is the usual devastating outcome. So a bail-in is both inadvisable and ineffective hurting the prospects of a recovery. There have been pronouncements against it by members of the European Central Bank . I hope we will have a clear statement by the EU-Commission as well regarding the process of burden sharing that will be followed in the process of recapitalisation which will clearly exclude a bail-in.
In the past you have critisised austerity measures quite openly, especially when you were minister of economy. Alexis Tsipras and the greek parliament are now about to accept a compromise which includes even more of these measures. But this time you - as the chair of the National Bank of greece - also want an agreement as soon as possible. How do these two things go together?
These are not incompatible positions . There is an urgent need for Greece to implement regulatory , administrative and structural reforms that would promote a viable technological , economic and social transformation in a highly competitive international environment. For a sustainable economic recovery, Greece needs to abandon its traditional growth model that was based on rising consumption and construction expenditures, financed mainly through transfers and external borrowing, and adopt a model where growth is spurred by investment expenditures and net export demand. Policies therefore need to be compatible with and support this regime switch . Many of the austerity or structural policies of the past six years were inconsistent with this strategy and vision.
So in your eyes Tsipras didnt give in too early?
I am convinced and said so publicly on a number of occasions ,that a „Grexit“ or a disruption of negotiations offered no solution and would have severe costs both for Greece and the Eurozone. A solution had to be found within the Eurozone ; for this to happen, compromises had to be made by both parties in the negotiations.
So did you vote „no“ or „yes“ in the referendum in july?
Allow me not to answer this; voting in democracies is confidential.
Some say the real reason for Tsipras to sign was the critical situation oft he banks. How critical was it at that point?
It was very critical- and it remains critical. Since 2008 , deposit outflows from the banking system have exceeded 111 billion euros . Between November 2014 and June 2015, 40 billion euros worth of deposits have disappeared. The economy plunged into a recession once again and when the second memorandum expired, liquidity was choked off . The imposition of capital controls and a bank holiday was inevitable . The costs of capital controls on the real economy are substantial . The sooner they are lifted, the better it will be for the real economy and the banking system.
Is there any timeframe when the capital controls might be lifted again?
Capital controls will be lifted when confidence and trust in the economy and the banking system will be restored. I hope this will happen before the end of this year after the conclusion of the recapitalization exercise. In the meantime, in close consultation with the ECB ,the Greek government and the banking sector, the Bank of Greece is proceeding to a gradual liberalisation of terms and conditions to support the business community , especially importing and exporting firms, in meeting their financing needs.
What should be added tot he memorandum in your eyes?
All structural reforms and policy measures need to be continuously evaluated as to their effectiveness and impact on growth. There is no purpose for example in raising VAT tax rates if this leads to lower tax returns or more tax evasion. Capacity-building needs to be enhanced to promote priority reforms in public administration, tax collection and the legal system . Investment activity will be spurred if bureaucratic procedures for licensing and business operations are simplified , the cost of doing business is drastically reduced. laws become more transparent and business friendly and the reformed tax system and regulatory framework remain unchanged for a ten-year period . Last but not least , Greece , with its unexplored potential , will become a European growth pole, if its debt overhang is properly resolved.
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