Greek Finance Minister

‘No One in Europe Would Accept Another Haircut’

Still relaxed, four months on the job. Source: Niklos Pilos for Handelsblatt
Still relaxed, three months on the job.
  • Why it matters

    Why it matters

    After several crushing years of austerity, Greece is hoping to turn the corner in 2014.

  • Facts


    • Since May 2010, foreign creditors have kept the Greek economy alive through emergency loans, mostly supplied by Germany.
    • Mr. Hardouvelis says Greece won’t need a third rescue package.
    • The U.S.-educated finance and economics professor favors euro bonds under strict preconditions.
  • Audio


  • Pdf

The Greek fiscal situation is crucial to Germany, as foreign creditors have kept the economy of the southern European country alive through emergency loans – mostly supplied by the government in Berlin.

In total, Germany has pumped roughly €60 billion to Greece via various mechanisms and loans. Its share in what is now the European Stability Mechanism, the permanent crisis resolution fund set up for the European Union, is €40 billion. Through its KfW bank, Europe’s biggest economy loaned out approximately €15 billion and via the International Monetary Fund Germany contributed around €5 billion.

In April, the Eurogroup decided to release a third tranche of 8.3 billion euros in rescue loans to Greece, but the country still faces a financing gap of up to €2 billion over the next two years, according to the IMF. To make matters not deteriorate further, it is crucial for Greece to regain the trust of the capital markets. The Greek Finance Minister, Gikas Hardouvelis, announced in an exclusive interview with Handelsblatt that he will try a third bond emission as early as this year. He rejected the need for a third bailout package for Greece and said “I don’t think that anyone in Europe would accept another haircut” of Greek debt.

Gikas Hardouvelis only became Greece’s Finance Minister three months ago, but the opposition is already demanding his resignation for an unpopular law on real estate taxes he inherited from his predecessor.  Mr. Hourdouvelis spent 20 years in the United States, earning a masters in mathematics from Harvard and a Ph.D in economics from UC Berkeley. Not a member of any Greek political party, the academic is considered a strong proponent of structural reforms.


Handelsblatt: Mr. Hardouvelis, you have been Greece’s finance minister since June. Do you already regret taking the post?

Gikas Hardouvelis: No. I have a challenging task and have not yet had time for regret. Every week, every day I am met with new issues. I offer solutions, and that makes me content. Aside from that I am working on a strategy for Greece after the end of the fiscal consolidation plan.

One of the issues you are working on is the controversial real estate tax, which apparently is currently full of inconsistencies and inequities.

In most countries property ownership is taxed. In Greece we have not had that yet. Therefore this tax was unexpected. What makes it especially hard is that it is being levied during a recession. Those who want to sell their property won’t have an easy time finding a buyer.

Keyword recession: Where does Greece stand? Is the worst behind you?

I cannot say that the crisis is fully behind us. But we are well on our way. We expect that in the third quarter the economy will grow in comparison with the previous year for the first time since 2008. 2014 is the year of stabilization.

In light of the weak economy in Europe, could it become more difficult for Greece the get out of recession?

Yes. But don’t overlook the fact that Greece is more competitive now, thanks to the structural reforms. That is evident in our exports and in tourism.

Should Germany do more to boost growth in Europe?

I think Germany understands its leading position in Europe very well. It plays a very constructive role.

… says Finance Minister Hardouvelis. But what does the economist in you say?

(Laughs) Very well, as the largest exporter in Europe, it is actually in Germany’s interest that the economies in the other countries are doing well. Because things then go well for Germany. We must come to a consensus in Europe. That includes having to operate within the framework of the Stability and Growth Pact.

The interpretation of that is the focus of intense debate. Do we need a more flexible pact?

I think only in the details. For example, regarding the question of how investments will be weighed with the deficit calculation. Europe should follow a sensible policy, head off deflation and secure stabile growth rates, without giving up fiscal discipline.

What does that mean in practice? Should France, for example, get more time to meet the three-percent deficit limit?

It would be wrong for France to ignore the 3-percent rule. We should not repeat the mistakes of 2003 and 2004, when Germany and France disregarded the deficit rules — after which many others did the same. France should be treated like all other countries. That is only fair.

So, if necessary, should the planned penalties be imposed?

It depends on what kind of spending is involved. If they were investments, then I would be less strict.

The cheap money from the European Central Bank (ECB) is not coming to Greece, because the banks are giving out hardly any new loans. How would you like to solve this liquidity problem?

Mr. Draghi’s initiated a new policy with his purchasing of asset-backed securities. By the way, I pleaded for this course two years ago in an academic journal. Because by doing so the ECB can better channel liquidity. By doing so we could solve a fundamental problem of the euro zone. A monetary policy for everyone — that doesn’t work. We must make liquidity available where it is needed.

What is your stance on budget consolidation? Many observers doubt that you can reach the primary surplus estimated for this year.

Exactly the opposite is true. Budgetary figures from the first seven months show that the surplus will even be higher than expected. It will probably surpass the target of 1.5 percent of gross domestic product.

Think about the future of the euro zone: We have a joint monetary policy, we have rules for budgetary policies, but we have no transfer mechanisms.

Do you see a fiscal gap for the coming two years and how would you like to close it?

The gap will be tiny.

The International Monetary Fund estimates it at €2 billion. 

That is their estimation. We are assuming €900 million, which would be 0.5 percent of GDP. That is not an appreciable size. I am optimistic that we can close this gap.

Will Greece need a third rescue package?

I don’t think so. We can in the meantime refinance in the markets on acceptable terms, at lower interest rates, by the way, than we were charged by the IMF. Over time the yields will further decline. We can follow the example of Portugal…

… which in June waived further IMF loans and refinanced its debts on the markets.

That we will see in the days to come.

Greece has already gone to the capital markets twice in 2014. Do you plan a third issuance this year?

Yes. We want to issue 18-month paper and 7-year bonds. The idea behind it is to offer investors a broad spectrum of maturities. After the issuance of the three and five-year bonds in the spring, we now want to refill the yield curve, to make the market more liquid.

Greece’s national debts are currently about 175 percent of the annual economic output. Is that sustainable?

I think so. We will drive the debt ratio back to 110 percent by 2022. The majority of our debts are held by our European partners. And they give us good terms. The interest rates are low and the maturities are long.

Good terms, but you want still better terms: Greece wants to negotiate for more debt relief this fall. What do you have in mind?

First, I don’t think that anyone in Europe would accept another haircut, a debt waiver. That must be approved by parliaments, which is unrealistic. A feasible path would be to extend the lifespan of the loans and to make lower interest rates permanent. That is politically feasible and economically reasonable.

Are you in favor of euro bonds?

Yes, I am, under preconditions. Think about the future of the euro zone: We have a joint monetary policy, we have rules for budgetary policies, but we have no transfer mechanisms. We need them for when a country has a negative shock.

Euro bonds, transfers — your colleague German Finance Minister Wolfgang Schäuble would not like to hear that.

I am not talking about today. But when you look 20 years into the future, and if the euro zone has stabilized by then, if everyone upholds all of the rules of the Stability Pact, works together on eye level, then it makes sense to think about such mechanisms.

How do you get along with Wolfgang Schäuble?

He is a very reasonable man, who knows the special problems of the individual countries and attempts to find constructive solutions.

Minister Hardouvelis, thank you for your time.

The interview was conducted by Handelsblatt’s Southeast Europe correspondent. To contact him:

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