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Alpha Bank Lecture SEESOX St. Antonys College Oxford Monday 9 May, 2011 Greece 2020: Unlocking The Potential Of The Greek Economy Michael Masourakis Chief.

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Presentation on theme: "Alpha Bank Lecture SEESOX St. Antonys College Oxford Monday 9 May, 2011 Greece 2020: Unlocking The Potential Of The Greek Economy Michael Masourakis Chief."— Presentation transcript:

1 Alpha Bank Lecture SEESOX St. Antonys College Oxford Monday 9 May, 2011 Greece 2020: Unlocking The Potential Of The Greek Economy Michael Masourakis Chief Economist Alpha Bank

2 1 Ageing And Unsustainability: Crime And Punishment! FDI & Exports (2007) Retirement and Health Expenditure (as % of GDP) ΕU-12 Greece Health Retirement Reduction of expenditure due to the overhaul of the social security system Without measures 24.1% 11.7% 5.0% 6.4% 14.2% 20072060 Ageing Population 7.5 21.1 24.3 > 80 6.8 7.5 21.1 24.3 > 80 Old age dependency ratio (65+ / (15-64)) Time Deposits 63% Deficit, Debt 2009201020122011 20142013 A pre-crisis long-run fiscal scenario 2010-2060 Source: IMF, August 2009 Source: European Commission, Feb.2011 Source: European Commission, The 2009 Ageing Report 2009 as % of GDP

3 2 Budgetary Derailment: Spending Other Peoples Money! Source: Revenue Statistics, OECD FDI & Exports (2007) Wages and Benefits / Taxes and Soc. Sec. Contributions Investment Driven Growth (% YoY) FDI & Exports (2007) Investment Driven Growth (% YoY) FDI & Exports (2007) Social Security Contributions Tax Revenue (2008) % of GDP Goods And Services Property Corporate Income Personal Income 4.7 Investment Driven Growth (% YoY) FDI & Exports (2007) Primary Deficit (General Government) 200920102011B 2008 State Budget Revenues in bn Other Source: Budget 2011, Ministry of Finance Source: Government Finance Statistics, Eurostat, European Commission, Feb.2011 State Budget Primary Current Spending State Budget Investment Spending Public Sector Employees by Economic Sector (2010) Out of the total number of employees of each sector 16.9 th. 8.3 th. 5.2 th. 4.7 th. 31.9 th. 6.1 th. 14.6 th. 130.4 th. 5.1 th. 16.5 th. 15.3 th. 13.5 th. 243.4 th. 23.1 th. 19.4 th. 7.2 th. 8.4 th. 374.4 th. Source: Hellenic Statistical Authority 85.3% 22 out of 100 employees in the public sector

4 3 Fiscal Consolidation: Seven Lean Years! The Fiscal Consolidation Effort, 2011-2015 Expenditures 20082009 2010 Primary Deficit Primary Deficit (General Gov.) 0 5 2011B -24 in bn Source: Budget 2011, Ministry of Finance Source: Hellenic Republic, Ministry of Finance, The Medium-Term Fiscal Strategy, 2012-15, 15 April 2011, http://www.minfin.gr/portal/en/resource/contentObject/id/44f0e4b9-5589-4778-bac0-296bf8ad4856 http://www.minfin.gr/portal/en/resource/contentObject/id/44f0e4b9-5589-4778-bac0-296bf8ad4856 49.2% 53.2% 50.2% 50.3% Social Transfers Compensation Of Employees Intermediate Consumption Interest Other 2008200920102011 as % of GDP Investment Driven Growth (% YoY) FDI & Exports (2007) Investment Driven Growth (% YoY) FDI & Exports (2007) Revenue Social Security Contribution Indirect Taxes Direct Taxes Other 39.7% 37.8% 40.6% 42.7% 20082009 20102011 as % of GDP Source: The economic Adjustment Programme for Greece, Third Review, Government Finance Statistics

5 4 Debt Dynamics: Skating On Thin Ice! FDI & Exports (2007) Μακροχρόνιες Προοπτικές 2010-2060 Χωρίς Μεταρρυθμίσεις ΔΝΤ: Έλλειμμα, Χρέος και Ονομαστικό ΑΕΠ Εισροές Ξένων Άμεσων Επενδύσεων Investment Driven Growth (% YoY) FDI & Exports (2007) Investment Driven Growth (% YoY) FDI & Exports (2007) General Government Financing Requirements and Sources (without 110 bn maturity extension) bn Other 2009 Interest Amortization Primary Deficit Other Market Access Troika 20102011 2012 20142013 2009 2011 2013 2010 2012 2014 Refinancing Needs 7.5 21.1 24.3 With 110 bn 3 ½ years maturity With 110 bn 7 ½ years maturity Source: The economic Adjustment Programme for Greece, Third Review Public Debt Sustainability Scenarios 11,8 δις Baseline Scenario 1 p.p lower primary deficit 1 p.p. higher growth as % of GDP Source: The economic Adjustment Programme for Greece, IMF Public Debt Sustainability Analysis Privatization Strengthens Debt Sustainability Source: IMF, March 2011 Privatizations 50 bn in 2011-2015 No privatizations * Nominal growth rate: 3,5% * Primary surplus: 5,5% as % of GDP

6 5 ECB Funding Banking: Good Banks, Wrong Place, Wrong Time! Private sector loans and deposits Capital adequacy Core Tier 1 capital ratio Source: Bank of Greece Source: National Central Banks, ECB, IIF calculations Source: Thomson Datastream, Credit Suisse, Capital Economics, Alpha Bank Research Source: Financial reports and presentations of banks FDI & Exports (2007) Public and Private Debt as % of GDP Loans / Deposits - 125% Loans / GDP - 112%

7 6 Doing Business Rankings Corruption Competitiveness Index Scores Structural Rigidities: Atlas Overwhelmed! Governance Source: Doing Business 2011, World Bank, International Finance Corporation Source: The Global Competitiveness Report 2010-2011, World Economic Forum Source: The Global Competitiveness Report 2010-2011, World Economic Forum. Source: Governanance Indicators, World Bank 1.94 1.91 1.71 1.87 0.39 0.64 1.04 0.05 0.12 -0.41 -0.52 -0.35 -0.93 -2.53 -0.05 -0.77 72. Greece 2009-2010 Best score: 7

8 7 Structural Reform: Greece In The Reformatory! State Owned Enterprises – Local Authorities Future Supply of New Homes Slows Labour market Future Supply of New Homes Slows Liberalization of professions Investment Driven Growth (% YoY) FDI & Exports (2007) Investment Driven Growth (% YoY) FDI & Exports (2007) Pension reform Minimum wage down by 16% Extension of probation period for new jobs to 1 yr. Arbitration system: symmetric access & independence Firm-level agreements over sectoral/occupational Elimination of the possibility of the MoL to extend sectoral __& occupational collective agreements Reduction in over-time payment for part-time jobs Increase in temporal limits in use of temporary working __agencies Tackle undeclared work Containment of the long-run increase in pension costs __from 12.5 to under 2.5 pps of GDP Retirement age for males and females at 65 yrs by 2015 – __increasing in line with life expectancy after 2020 Pensions freeze for 2010-2013 Pension funds will be merged in three by 2018 Updated long term projections for pension expenditure by __March 2011 Reform of the functioning of supplementary pension funds Impacts 160 services sectors General prohibition of unjustified restrictions Special legislative action for the liberalisation of the __profession of notaries, lawyers, architects, mechanics and __actuaries Legislative action by the MoH for the liberalisation of the __profession of pharmacists Expected positive effects amounting to gains in GDP of __over 10% in the long run and a downward effect on prices __of around 7.2%. SOEs will be audited on a quarterly basis The MoFs special secretariat for SOEs is charged with the __overview of the restructuring The MoF will revise Law 3429/05 on SOEs to ensure sound __corporate governance Horizontal wage cut by 10% (+ wage ceiling) Ceiling for extra payments at 10% of wage expenditure Number of municipalities reduced to 325 from 1,034; __54 prefectures dissolved (their powers transferred to the __existing 13 peripheries) Source: Economic Reviews, European Commission

9 8 Development of real estate assets Telecommunications – Broadband Airports – Ports – Roads Key Privatization Initiatives: Ambitious Greece! Energy – Gaming Reduction of states equity holding in Public Power Corporation __(DEH) and in Public Gas Company (DEPA) to 34% in 2011-2012). Development of undersea gas storage facilities through foreign __investment in 2011-2012. Sale of nickel mining company (LARCO) in 2011. Regulation of the gaming market (including e-gaming) in 2011. Extension of the concession agreement for gaming/football __prognostics and issue of new licenses for e-gaming to OPAP. Full privatization of OPAP (2012), Parnitha Casino (2011), State __lotteries (2011), Horse Racing (2012). Source: Greek medium term fiscal strategy (2012-201), Ministry of Finance Extension of the duration of the concession agreement for Athens __International Airport ( AIA) and gradual sale of government stake. Corporatization of all (29) regional airports to attract private capital / __know-how to upgrade operations (similar structure to AIA_concession). Public Private Partnership structures to develop the Attica Port __System (Peiraieus-Rafinia-Lavrio) and 12 other regional ports to __upgrade facilities. Private investment structures to equip marinas with modern tourist __infrastructure. Operation, maintenance and toll rights for existing motorways to be __assigned to private investors on a concession basis (Egnatia Odos __Motorway by end-2011). A special Purpose Vehicle with the rights to future toll revenues from __motorways will be set up and sold to private investors. Registration and evaluation in a Single Land Registry. Surface rights and long-term leaseholds legally established. Conditions for holiday and tourist accommodation and property __development defined. Zoning and building conditions for large properties expedited __(fast track procedures). Individual specialized portfolios of large properties to be established in __a National Sovereign Fund of Public Land. Portfolios to be structured as Special Purpose Vehicles for sale in __global markets. Four portfolios to be delivered (one every six months from June 2011) Creation of a modern and wide fiber optic cable network Development of a modern telecoms broadband and digital __infrastructure utilizing the frequency spectrum and digital dividend __(starting in 2012). Extension of mobile telecommunications licenses (in 2011). Selection of a strategic investor in Hellenic Post to take operational __control of nationwide services (starting in 2012). Reduction of states participation in the Hellenic __Telecommunication Organization.

10 9 Trade Sales to Strategic Investors Other Initiatives Sale of Concessions SPV Privatisation: The Triumph of Hope Over Experience? Estimated Revenue: 12-17 bn in 2011-2013 Potential up to 2015 - 10 - 15 bn from enterprises and infrastructure - 25 - 35 bn from strategic management of rights and real estate asset development Timing - 2011 2 - 4 bn - 2012 5.5 - 7.5 bn - 2013 4.5 - 5.5 bn Source: Greek medium term fiscal strategy (2012-201), Ministry of Finance

11 10 Infrastructure Investment: Pork Barrel with An EU Twist! Private Public Partnership Projects Source: Ministry of Finance Five Major National Highways - 8.7 bn 750 kms of new road – 530 kms upgrading of existing road 2.3 bn from state budget + EU funds 2.3 from tolls 3.3 bn from bank loans 0.8 bn from own funds Toll distribution: 65% to the State reaching 95% after 30 years State revenues: 20 bn over 20 years Social infrastructure projects 600 mn in schools, court houses, police stations 465 mn in waste management and disposal projects 140 mn in urban transport (automation, e-tickets) Future Supply of New Homes Slows Public Investment Budget (2011) From EU 3.8 bn 7.5 21.1 24.3 FDI & Exports (2007) Big Projects 2.3 bn 59% 41% Source: State Budget 2011 National Strategic Reference Framework, 2007-2013

12 11 Foreign Direct Investment: The SSR of Greece in Transition! Fast-track Implementation of Strategic Investments Investments must meet at least one of the following criteria: Value of project must exceed 200 mn or 75 mn and it must create 200 new jobs Project must generate at least 3 mn of investment outlays every 3 yrs in areas a) of advanced technology and innovation, or b) of environmental protection, or c) of education or R&D promotion Project must create over 250 viable & sustainable new jobs. Source: Bank of Greece Source: EurostatSource: www.investingreece.gr Future Supply of New Homes Slows Net FDI Inflows 1.11.1 0.50.5 1.7 4.3 1.51.5 3.1 1.8 in bn 1.7 Future Supply of New Homes Slows FDI Inflows in 2004-2009 4.4 32.8 17.5 18.9 22.3 as % of 2004 GDP 32.5 Investment Driven Growth (% YoY) FDI & Exports (2007) Investment Driven Growth (% YoY) FDI & Exports (2007) Net FDI inflows (% composition) Source: Bank of Greece

13 12 Goods: Top 10 Exports (2010) Goods: Top 10 destinations Exports: Globalization And Its Discontents! In mn Ελλάδα: Δαπάνες και Έσοδα Γενικής Κυβέρνησης Tourism and Shipping (YoY %) Ελλάδα: Δαπάνες και Έσοδα Γενικής Κυβέρνησης Exports of Goods Source: Hellenic Board of Exporters, The Greek Economy in Figures (2003), Viohalco Source: Bank of Greece Source: Hellenic Board of Exporters, The Greek Economy in Figures (2003), Viohalco 10 bn UK Fuels Pharmaceuticals Fruits Aluminum Fish Vegetables Military Equipment Cotton Copper Steel Total Exports: 16.2 bn In bn Tourism Shipping Top Ten: 6.6 bn

14 13 * Ships greater than 1,000 gt Shipping: Greeks At Their Best! Shipping World Trade Volume Greek-owned ships Ranking by capacity FDI & Exports (2007) Investment Driven Growth (% YoY) Παραγωγή Ηλεκτρισμού (σε ΜW) Investment Driven Growth (% YoY) Greek-owned fleet by ship type In bn Source: IMF, Bank of GreeceSource: Review of maritime transport reports, UNCTAD Source: Lloyds Register – Fairplay, January 2010 capacity No. of ships (end-2009) In dwt (end-2009)

15 14 Source: Association of Greek Tourism Enterprises (SETE) Tourism: So Much Potential, So Little To Show For! Arrivals and Receipts Tourist arrivals in Greece: Top 10 markets Tourist Arrivals In mn in bn Source: Bank of Greece, Civil Aviation Authority Source: Greek Tourism 2020, Association of Greek Tourism Enterprises (SETE) Source: Association of Greek Tourism Enterprises (SETE) FDI & Exports (2007) Investment Driven Growth (% YoY) Παραγωγή Ηλεκτρισμού (σε ΜW) Investment Driven Growth (% YoY) Seasonality (distribution of arrivals by month) (2009) Competition (2009)

16 15 Residential Investment (2000 market prices) Construction: The King Is Dead! Long Live The King! Supply of New Homes Residential Investment % of GDP Long-Run Average 0 50,000 100,000 200,000 150,000 Future Supply of New Homes Slows Net FDI Inflows 1.13 0.500.50 1.69 4.27 1.54 3.07 1.75 in bn 1.65 Future Supply of New Homes Slows Investment (2000 market prices) 29.5 33.8 30.9 37.8 37.9 35.5 39.3 in bn 41.5 38.3 34.0 28.4 7.5 21.1 24.3 FDI & Exports (2007) House Price and Mortgage Growth Source: Hellenic Statistical Authority Source: Bank of Greece House Price Growth Mortgage Growth Disposable Income Growth

17 16 Photovoltaic Green Development Program, 2010-2030 Wind Energy Green Business: If Only Money Was Not Scarce! FDI & Exports (2007) Investment Driven Growth (% YoY) Παραγωγή Ηλεκτρισμού (σε ΜW) Investment Driven Growth (% YoY) Electricity Production (installed power in MW) Hydroelectric Lignite Petrol Natural Gas Renewable Energy Sources Hydrocarbons Photovoltaic Wind Biomass 1.327 700 3,362 4,826 5060 7,610 3,456 6,250 1,268 2,146 184 4,486 3,237 2010202020102020 Green Initiatives Under Implementation Subsidized program for improving energy efficiency of old __residential buildings. New standards of energy efficiency for all building structures. Green infrastructure – Green Business investment incentives __schemes Subsidized electricity tariffs for renewables Source: 2009 IEA Wind Annual Report Source: Ministry of environment, energy and climate change % of national electricity demand from wind

18 17 Exports - Imports Common Agricultural Policy: a disaster Aquaculture production Agrobusiness: Back To The Future! Lambda at 130 / lt at Harrods 2000 2008 2000 2008 Exports Imports +39% +46% Since 2003 there has been a moving away from subsidies based _on production to income support. This support is based on acres owned, cultivated or not, _multiplied by a per-acre subsidy received over a reference past _period (with special regimes applying for specific products _cultivated). Most kinds of direct income support will be abolished from 2013 _onwards. The result: most farmers are unable or unwilling to extricate _themselves from traditional surplus cultivations. Source: http://tastelaboratory.wordpress.com (April 2011) Source: Hellenic Statistical Service., Hellenic Exporters Board Source: Eurostat In mn

19 18 Source: Human Development Report, United Nations, 2009 Greeces Got Talent: We Shall Overcome… FDI & Exports (2007) Per capita GDP FDI & Exports (2007) Investment and Fiscal Consolidation 2010 Greece/Spain: 89.3 2000 Greece/Portugal: 103.9 Spain Greece Portugal 2010 Greece/Portugal: 118.4 2000 Greece/Spain: 86.3 Investment Driven Growth (% YoY) FDI & Exports (2007) Investment Driven Growth (% YoY) FDI & Exports (2007) Human Development Index Investment Driven Growth (% YoY) FDI & Exports (2007) Investment Driven Growth (% YoY) FDI & Exports (2007) Index of health and social problems 0.780.800.820.840.860.880.900.920.94 Poland 41 Portugal 40 Cyprus 35 UK 26 Austria 25 Italy 23 Greece 22 Spain 20 Denmark19 Belgium18 Finland 16 France14 Switzerland13 Japan 11 Germany 10 Sweden 9 Canada 8 Netherlands 7 Ireland 5 USA 4 N. Zealand 3 Australia 2 Norway 1 Per capita GDP (2009) Greece $ 28,630 Spain $ 31,870 Italy $ 35,080 Germany $ 42,560 Source: Statistical Annex of European Economy, European Commission, Autumn 2010,European Source: Wlkinson and Pickett (2010), The Spirit Level: Why Equality is Better for Everyone. Source: European Commission, Hellenic Statistical Authority Japan Sweden Netherlands Switzerland Spain Canada Italy Australia New Zealand USA Worse Better Low High Income Inequality Index of Health and social problems Norway Finland Denmark Belgium Austria Germany France Iceland Greece UK Portugal as % of GDP


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