New fi­nance min­is­ter lines up for a marathon (and sev­eral short sprints)

Financial Mirror (Cyprus) - - FRONT PAGE -

The nam­ing of econ­o­mist Gikas Har­dou­velis as Greece’s new fi­nance min­is­ter on Mon­day took most ob­servers by sur­prise but the big chal­lenges await­ing him are no se­cret.

Har­dou­velis’s ap­point­ment caught many off guard be­cause his name was not among more than half a dozen that had been linked with the post over the past few days.

“His back­ground, though, matches that of the out­go­ing Yan­nis Stournaras and it is not so sur­pris­ing that Prime Min­is­ter An­to­nis Sa­ma­ras should want to stick with a non­par­ti­san fig­ure that would also be wel­comed by the troika,” ac­cord­ing to the news and pol­icy web­site MacroPo­

It was also no­tice­able that Sa­ma­ras de­cided not to change the two deputy min­is­ters at the Fi­nance Min­istry – Chris­tos Staik­ouras and Gior­gos Mavra­ga­nis – to en­sure the max­i­mum pos­si­ble sta­bil­ity at this key govern­ment depart­ment. This means that the only out­stand­ing is­sue is who will be the next gen­eral sec­re­tary for rev­enues af­ter the res­ig­na­tion of Haris Theo­haris last week. The govern­ment has al­ready called for can­di­dates want­ing to be­come Greece’s next tax chief to ap­ply for the job.

Har­dou­velis comes with con­sid­er­able ex­pe­ri­ence in an ad­vi­sory, al­though not de­ci­sion-mak­ing, ca­pac­ity. He was in charge of ex-Prime Min­is­ter Kostas Simi­tis’s eco­nomic of­fice be­tween 2000 and 2004. He held the same po­si­tion dur­ing the in­terim govern­ment led by Lu­cas Pa­pade­mos in 201112, when he played a part in draw­ing up Greece’s sec­ond Me­moran­dum of Un­der­stand­ing with the troika and ex­e­cut­ing the hair­cut on pri­vate sec­tor hold­ers of Greek bonds (PSI). He leaves his po­si­tion as an eco­nom­ics pro­fes­sor at Pi­raeus Univer­sity and as Eurobank’s chief econ­o­mist to take up the job at the Fi­nance Min­istry.

The new fi­nance min­is­ter can­not say he is un­aware of the size of the task he is tak­ing on. Eurobank’s eco­nomic re­search di­vi­sion, which he headed, high­lighted in a note at the end of May that there was “con­sid­er­able mar­gin for crit­i­cism” re­gard­ing the govern­ment’s lack of progress on some struc­tural re­forms. It also ar­gued that Greece would not be able to deliver the planned pri­mary sur­plus of 1.6% of GDP this year if rev­enues con­tin­ued to miss their tar­gets. Eurobank said rev­enues would only be in line with the budget if there is a widen­ing of the tax base, if tax eva­sion is com­bated more ef­fec­tively and if Greece re­turns to growth.

“Greece is suf­fer­ing. Ev­ery house­hold has at least one per­son who is un­em­ployed or some­one who is work­ing and not be­ing paid on time,” Har­dou­velis told Ant-1 TV in his first in­ter­view af­ter be­ing named fi­nance min­is­ter. “A lot of things need to be done. We have a marathon ahead of us,”

Har­dou­velis cer­tainly has a busy agenda ahead of him. His first Eurogroup meet­ing will be on June 19, with Greece un­likely to be in a po­si­tion to claim its next bailout tranche of 1 bln eu­ros as it has not yet com­pleted its “prior ac­tions.”

Here are some of the other is­sues he will need to tackle over the months to come, when Har­dou­velis will have to run some short sprints as well as a marathon:


Apart from the June tranche, which will be de­layed, Greece also has to meet cer­tain re­form tar­gets to se­cure the re­lease of an­other 1-bln-euro in­stal­ment, which is due in July.

As Har­dou­velis’s Eurobank eco­nomic re­search team high­lighted, rev­enue collection is vi­tal for the achieve­ment of the pri­mary sur­plus tar­get of 1.5% of GDP (2.75 bln eu­ros) this year. The budget ex­e­cu­tion so far shows a pri­mary sur­plus of 1.05 bln eu­ros to April but with the rev­enue short­fall widen­ing to 622 mln.

The Medium-Term Fis­cal Strat­egy en­vis­ages a pri­mary sur­plus of 4.19 bln eu­ros (2.3% of GDP) in 2014, 0.8%age points higher than Eco­nomic Ad­just­ment Pro­gramme (EAP) tar­get.

The next troika


is sched­uled in July and one of the thorny is­sues that could be dis­cussed is the fur­ther re­form of the pen­sion sys­tem. The merg­ing of all sup­ple­men­tary pen­sion funds of the pub­lic sec­tor into the pri­vate sec­tor main pen­sion fund is a prior ac­tion for the July dis­burse­ment.




Hav­ing been part of the team that over­saw the PSI in 2012, Har­dou­velis might know what to ex­pect when he sits down with his eu­ro­zone coun­ter­parts af­ter the sum­mer to dis­cuss a sec­ond debt re­lief pack­age for Greece.

Apart from be­ing a key fac­tor in de­cid­ing the sus­tain­abil­ity of Greek debt, the out­come of ne­go­ti­a­tions will also af­fect fis­cal tar­gets for years to come. Fur­ther­more, on a po­lit­i­cal level, the govern­ment will be look­ing for a boost later this year, when it has to im­ple­ment more con­tro­ver­sial mea­sures, such as pen­sion re­form.

The govern­ment has re­port­edly as­sessed a plan in­cor­po­rat­ing a con­ver­sion of the Greek Loan Fa­cil­ity (GLF) vari­able rate (cur­rently at Euri­bor plus 50 ba­sis points) to 1% con­stant for the next 50 years. This could re­sult in to­tal sav­ings of 25 bln (14% of GDP) over the 50year pe­riod. The govern­ment’s plan also in­cor­po­rates the de­fer­ral of in­ter­est pay­ments on GLF loans for 10 or 20 years, sim­i­larly to those pre­vi­ously ap­plied to EFSF loans.


GDP con­tracted by 0.9% in the first quar­ter (Q1) of 2014, the slow­est rate of de­cline since Q1 2010. Greece has seen its GDP con­tract by 25.6% since Q3 of 2008. Most of­fi­cial fore­casts see the econ­omy grow­ing by 0.6% this year, partly on the back of even stronger tourism fig­ures in Q2 and Q3. At the same time, the lack of liq­uid­ity re­mains a prob­lem, es­pe­cially with non­per­form­ing loans ris­ing above 30%.

It will also be im­por­tant for the govern­ment and Har­dou­velis that the re­turn of eco­nomic growth goes hand in hand with job cre­ation. Un­em­ploy­ment edged down for the sixth straight month in March but is still in­cred­i­bly high at 26.8%. The num­ber of un­em­ployed is at 1.27 mln, which is 177% higher than March 2009. Youth un­em­ploy­ment re­mains per­sis­tently above the 55% park.

Prime Min­is­ter An­to­nis Sa­ma­ras re­cently an­nounced a very am­bi­tious plan for cre­at­ing a to­tal of 770,000 jobs by 2020. Three quar­ters of those jobs are pro­jected to be cre­ated in the fol­low­ing sec­tors: tourism, agri­cul­ture and fish­ery, and pack­ag­ing. How­ever, the of­fi­cial sec­tor projects un­em­ploy­ment will ease by at least 1 pp this year and a fur­ther 2 pp in 2015. In con­trast, the OECD projects a slower re­duc­tion of 0.7 pp cu­mu­la­tively in 2014-15.

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