Having secured an extension of loan repayment period and easing of terms, Greece should proceed with measures to reduce debt and deficit, according to Yannis Stournaras.
He considers a critical point that the Greek government should boldly implement its privatization program, without taking into account the political costs of liberalization of markets and professions.
The goals that Greek government has already imposed are more than enough and there is no need for further measures, if it proceeds with structural reforms, IOBE’s head added.
He also stated that any possible restructuring of Greek debt should be done through the European Stability Mechanism with the increasing of its resources and the ability to exchange sovereign bonds with ESM or EFSF bonds.
Since November 2010, debt restructuring has become a Euro-zone decision considered from 2013. Any member state, which resorts to the ESM after 2013, will be subject to a debt sustainability report, after accepting measures agreed by the European Commission and the International Monetary Fund. If the debt is not sustainable, the process of debt restructuring with private participation will be activated, including banks and insurance entities.
Yannis Stournaras estimates that a moderate debt restructuring would require the increase of ESM’s resources to €1.5trillion from €700bn and its ability to freely intervene into both primary and secondary bond market.
He also stated that the reaction of Euro-zone leaders is not enough to calm markets and therefore forecasts no narrowing of the bond spreads.
Mr. Stournaras believes that even the reaction of leaders of the eurozone is not enough to reassure the markets and therefore sees no decline in spreads.
The problem is in Ireland and the Southern countries, not in the Euro-zone as a whole. Especially in Greece it is a rather matter of liquidity, not credibility, taking into account the assets of public sector and the growth potential from the liberalization of markets and professions, Yannis Stournaras concluded.
