Greece at the Tipping Point

JAN-FEB 2016|BY RAYMOND MATERA
As Greece enters its 7th year of recession and crisis mode, Nicholas Papapolitis, Managing Partner at Papapolitis & Papapolitis, discusses measures to confront continued paralysis and replace the perpetual edge of the abyss with steps leading upward—toward investment, growth, and employment.

In a nutshell, how do you view Greece’s current position?

Greece is once again at a tipping point. We are so close—and yet so far—from ending the recession and returning to growth. Some of the most difficult reforms, of the pension system and farmers taxation, need to pass through parliament.

Greece needs to demonstrate its commitment to deep reform and determined resilience to create a framework under which its economy can become productive.

Provided parliament passes such legislation, and there is stability, Greece can benefit tremendously in 2016 from two things: the ECB buying Greek Government Bonds (GGBs) and Greece entering the European program of Quantitative Easing (QE).

There is a party going on in Europe and we are still at home deciding what shoes to wear. Such is the significance of QE and it is a major missed opportunity that Greece is not already part of it.

What are some initial steps that can be taken to change the economic landscape?

We need, as a country, to change our brand. To do that we must restore confidence in our economy and gain the trust of foreign investors. In other words, we must change the way we do “business” and the way we operate.

The reforms, and the subsequent reviews by the institutions, must be completed, to alleviate the uncertainty created by the potential inability of Greece to pass and implement such reforms.

In practical terms, we need to very actively promote Greece to financial investors, especially those who invest in Greek Government bonds.

Having GGBs at an 8% and 9% yield is an anomaly and sends the message to the world that our economy is in bad shape.

One of the reasons that both Ireland and Portugal were successful in exiting the crisis and turning around their economies is that they very actively promoted themselves to all foreign investors.

So the first step I would suggest to change the economic landscape is to create a platform that would actively inform investors about all the reforms that have taken place in Greece, and about the economic outlook for 2016. This promotion should be both online and in physical meetings in their home countries. And the way to go about this is by following the Irish and Portuguese model.

What is the one key factor that will allow growth?

Job creation. And for that we need a number of things to take place. We need a banking system that would provide liquidity in the market. We need a stable corporate environment that is investor friendly with efficient labor laws, a stable tax framework and a fast judicial system to resolve disputes.

Unfortunately, in most of these areas, Greece is suffering. The Greek public sector, and its entrenched bureaucracy, has proved to be too difficult for any government to crack.

Greek taxes are an ever-changing formula that do not allow for stable forward projections and do not provide certainty to investors. Finally, the Greek court system is the slowest in Europe.

Although we are still battling, as a country, with bureaucracy, taxes and our court system, some structural reforms that have been implemented in recent years are a step forward in mitigating these issues, the results of which, however, are yet to be felt in the real economy.

Are investors interested in Greece?

Yes. In a world where there is an abundance of capital and high returns are difficult to find, Greece has attracted the attention of investors internationally.

Yet, so far the majority of investors who have deployed capital in the country have been more contrarian and opportunistic investors, with short-term capital.

What we now need as a country is for institutional long-term investors, like pension funds, private equity and large multinationals to start investing in Greece for the economy to grow.

With all four systemic banks recapitalized, and the potential of the ECB buying GGBs and Greece entering QE, Greece is one of the few economies that has such an attractive upside, as it is an EU country considered to be more distressed than most emerging markets countries.

What can the government do that will truly convince investors that Greece’s multiple opportunities are worth their attention?

The government needs to actively engage with the investor community. It needs to inform investors about the progress it has made and about its forward financial projections.

We need to create a relationship of trust with the investment community that allows it to feel confident they would be able to invest in a market that welcomes foreign investors, with a pro-investment government by their side that assists them.

At the moment any international investor will tell you that the Greek notion of “fast track” and “one-stop shop” is not fast and not one stop.

The most convincing single act the government could do to attract investors is to create a framework where a law would pass for each specific investment/project. This scheme was put in place for the 2004 Athens Olympics and it was the only way to override bureaucracy and for projects to be completed on time.

What are the benefits that Greece can expect once these measures are put into place?

In a word, our economy would turn around. The cost of capital would decrease significantly for the State, the private sector, and citizens. Investors would see a bond market that is rational. Bank reserves would increase and banks would deploy more money into the real economy. Large firms as well as SMEs would be able to implement investment plans. Young people could begin startups with confidence. The brain drain would reverse. Liquidity would return. Jobs would be created. Real estate and asset prices would stabilize—and rise. The tax base would increase as would State revenues.

The tipping point would then be in our favor, in our direction. Greece would exit its recession and begin its road to a healthy economy. Trust and stability would become the new normal. And that should sound very good to every foreign investor—and to every Greek.

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