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Ageing And Unsustainability: Crime And Punishment!

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Presentation on theme: "Ageing And Unsustainability: Crime And Punishment!"— Presentation transcript:

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

1 Ageing And Unsustainability: Crime And Punishment!
A pre-crisis long-run fiscal scenario FDI & Exports (2007) FDI & Exports (2007) FDI & Exports (2007) Retirement and Health Expenditure (as % of GDP) as % of GDP as % of GDP Greece 24.1% Reduction of expenditure due to the overhaul of the social security system 11.7% Without measures 14.2% 6.4% 5.0% 2007 ΕU-12 2060 Retirement Health Source: IMF, August 2009 Source: European Commission, The 2009 Ageing Report Ageing Population 7.5 21.1 24.3 > 80 6.8 Old age dependency ratio (65+ / (15-64)) Deficit, Debt as % of GDP Time Deposits 63% 2009 2009 2010 2011 2012 2013 2014 Source: European Commission, The 2009 Ageing Report Source: European Commission, Feb.2011

2 Out of the total number of employees of each sector
Budgetary Derailment: Spending Other Peoples’ Money! FDI & Exports (2007) Primary Deficit (General Government) Wages and Benefits / Taxes and Soc. Sec. Contributions FDI & Exports (2007) in € bn State Budget Revenues 85.3% State Budget Primary Current Spending State Budget Investment Spending Other 2008 2009 2010 2011B Source: Budget 2011, Ministry of Finance Source: Government Finance Statistics, Eurostat, European Commission, Feb.2011 Public Sector Employees by Economic Sector (2010) FDI & Exports (2007) Investment Driven Growth (%∆ YoY) FDI & Exports (2007) Tax Revenue (2008) Investment Driven Growth (%∆ YoY) Investment Driven Growth (%∆ YoY) % of GDP 374.4 th. 8.4 th. Personal Income 7.2 th. 19.4 th. Corporate Income 4.7 23.1 th. 243.4 th. Property 13.5 th. 15.3 th. Goods And Services 16.5 th. 5.1 th. 130.4 th. 14.6 th. 6.1 th. 22 out of 100 employees in the public sector Social Security Contributions 31.9 th. 4.7 th. 5.2 th. 8.3 th. 16.9 th. Out of the total number of employees of each sector Source: Revenue Statistics, OECD Source: Hellenic Statistical Authority

3 Primary Deficit (General Gov.)
Fiscal Consolidation: Seven Lean Years! Primary Deficit The Fiscal Consolidation Effort, 5 in € bn Primary Deficit (General Gov.) -24 2008 2009 2010 2011B Source: Hellenic Republic, Ministry of Finance, The Medium-Term Fiscal Strategy, , 15 April 2011, Source: Budget 2011, Ministry of Finance Expenditures Investment Driven Growth (%∆ YoY) FDI & Exports (2007) Revenue Other as % of GDP 53.2% 49.2% 50.2% 50.3% as % of GDP Interest Other Intermediate Consumption 42.7% 39.7% 40.6% Direct Taxes 37.8% Compensation Of Employees Indirect Taxes Social Transfers Social Security Contribution 2008 2009 2010 2011 2008 2009 2010 2011 Source: The economic Adjustment Programme for Greece, Third Review, Government Finance Statistics Source: The economic Adjustment Programme for Greece, Third Review, Government Finance Statistics

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

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

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

7 Structural Reform: Greece In The Reformatory!
Investment Driven Growth (%∆ YoY) Future Supply of New Homes Slows Labour market FDI & Exports (2007) Investment Driven Growth (%∆ YoY) Pension reform FDI & Exports (2007) Investment Driven Growth (%∆ YoY) 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 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 Source: Economic Reviews, European Commission Source: Economic Reviews, European Commission Future Supply of New Homes Slows Liberalization of professions State Owned Enterprises – Local Authorities SOEs will be audited on a quarterly basis The MoF’s 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) 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%. Source: Economic Reviews, European Commission Source: Economic Reviews, European Commission

8 Key Privatization Initiatives: Ambitious Greece!
Development of real estate assets Airports – Ports – Roads 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) 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. Source: Greek medium term fiscal strategy ( ), Ministry of Finance Source: Greek medium term fiscal strategy ( ), Ministry of Finance Telecommunications – Broadband Energy – Gaming Reduction of state’s equity holding in Public Power Corporation __(DEH) and in Public Gas Company (DEPA) to 34% in ). Development of undersea gas storage facilities through foreign __investment in 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). 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 state’s participation in the Hellenic __Telecommunication Organization. Source: Greek medium term fiscal strategy ( ), Ministry of Finance Source: Greek medium term fiscal strategy ( ), Ministry of Finance

9 Privatisation: The Triumph of Hope Over Experience?
Trade Sales to Strategic Investors Sale of Concessions SPV Source: Greek medium term fiscal strategy ( ), Ministry of Finance Source: Greek medium term fiscal strategy ( ), Ministry of Finance Other Initiatives Estimated Revenue: € bn in Potential up to 2015 € bn from enterprises and infrastructure € bn from strategic management of rights and real estate asset development Timing 2011 € bn 2012 € bn 2013 € bn Source: Greek medium term fiscal strategy ( ), Ministry of Finance Source: Greek medium term fiscal strategy ( ), Ministry of Finance

10 Infrastructure Investment: Pork Barrel with An EU Twist!
Future Supply of New Homes Slows Public Investment Budget (2011) FDI & Exports (2007) National Strategic Reference Framework, € 2.3 bn 41% From EU € 3.8 bn 24.3 21.1 59% 7.5 Source: State Budget 2011 Source: Ministry of Finance Big Projects Private Public Partnership Projects 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)

11 Foreign Direct Investment: The SSR of Greece in Transition!
Investment Driven Growth (%∆ YoY) Future Supply of New Homes Slows Net FDI Inflows FDI & Exports (2007) Investment Driven Growth (%∆ YoY) Net FDI inflows (% composition) FDI & Exports (2007) Investment Driven Growth (%∆ YoY) in € bn 4.3 3.1 1.7 1.5 1.8 1.7 1.1 0.5 Source: Bank of Greece Source: Bank of Greece Source: Bank of Greece Future Supply of New Homes Slows FDI Inflows in Fast-track Implementation of Strategic Investments as % of 2004 GDP 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. 32.8 32.5 22.3 18.9 17.5 4.4 Source: Eurostat Source:

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

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

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

15 Residential Investment
Construction: The King Is Dead! Long Live The King! Future Supply of New Homes Slows Investment (2000 market prices) FDI & Exports (2007) House Price and Mortgage Growth in € bn Mortgage Growth 41.5 37.8 37.9 39.3 38.3 35.5 33.8 34.0 29.5 30.9 28.4 24.3 Disposable Income Growth 21.1 House Price Growth 7.5 Source: Hellenic Statistical Authority Source: Bank of Greece Residential Investment (2000 market prices) Future Supply of New Homes Slows Net FDI Inflows in € bn 200,000 Residential Investment % of GDP 4.27 Supply of New Homes 150,000 3.07 Long-Run Average 100,000 1.69 1.54 1.75 1.65 50,000 1.13 0.50 Source: Hellenic Statistical Authority Source: Bank of Greece

16 Green Business: If Only Money Was Not Scarce!
Electricity Production (installed power in MW) Παραγωγή Ηλεκτρισμού (σε ΜW) Investment Driven Growth (%∆ YoY) FDI & Exports (2007) Investment Driven Growth (%∆ YoY) Photovoltaic Wind Energy Hydrocarbons Renewable Energy Sources 1,268 Petrol 2,146 Hydroelectric 4,486 Natural Gas 7,610 3,456 700 Photovoltaic Wind 3,237 6,250 Lignite 4,826 3,362 184 1.327 Biomass 60 50 2010 2020 2010 2020 % of national electricity demand from wind Source: Ministry of environment, energy and climate change Source: 2009 IEA Wind Annual Report Green Development Program, 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

17 Agrobusiness: Back To The Future!
Exports - Imports In € mn Aquaculture production In € mn +46% +39% 2000 2008 2000 2008 Exports Imports Source: Hellenic Statistical Service., Hellenic Exporters Board Source: Eurostat Common Agricultural Policy: a disaster Lambda at ₤ 130 / lt at Harrods 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 _onwards. The result: most farmers are unable or unwilling to extricate _themselves from traditional surplus cultivations. Source: (April 2011)

18 Greece’s Got Talent: We Shall Overcome…
Per capita GDP FDI & Exports (2007) FDI & Exports (2007) Investment and Fiscal Consolidation as % of GDP 2010 Greece/Spain: 89.3 2000 Greece/Spain: 86.3 Spain Greece Portugal 2000 Greece/Portugal: 103.9 2010 Greece/Portugal: 118.4 FDI & Exports (2007) Source: “Statistical Annex of European Economy, European Commission, Autumn 2010,European Source: European Commission, Hellenic Statistical Authority Investment Driven Growth (%∆ YoY) Human Development Index Investment Driven Growth (%∆ YoY) FDI & Exports (2007) Investment Driven Growth (%∆ YoY) Index of health and social problems FDI & Exports (2007) Investment Driven Growth (%∆ YoY) FDI & Exports (2007) Norway 1 Australia 2 Worse USA N. Zealand 3 USA 4 Ireland 5 Netherlands 7 Portugal Canada 8 Sweden 9 UK Germany 10 Japan 11 Greece Iceland New Zealand Switzerland13 Index of Health and social problems Austria France14 France Australia Finland 16 Denmark Germany Canada Italy Belgium18 Per capita GDP (2009) Finland Belgium Spain Denmark19 Switzerland Spain 20 Greece $ 28,630 Norway Netherlands Sweden Greece 22 Spain $ 31,870 Italy 23 Japan Austria 25 Italy $ 35,080 UK 26 Cyprus 35 Germany $ 42,560 Portugal 40 Better Poland 41 Low High 0.78 0.80 0.82 0.84 0.86 0.88 0.90 0.92 0.94 Income Inequality Source: “Human Development Report”, United Nations, 2009 Source: Wlkinson and Pickett (2010), The Spirit Level: Why Equality is Better for Everyone.


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