ΜΙΧΑΛΗ, ΤΟ ΕΧΕΙΣ ΔΙΑΒΑΣΕΙ ΤΟ ΤΗΛΕΓΡΑΦΗΜΑ ΤΟΥ ΠΡΕΣΒΗ;

by on 30 Ιουνίου 2014

Πω πω πω τι λέει ο πρέσβης. ΠΑΣΟΚΟΣ ο κ. Νίκος; Κολλητός του Παπακωνσταντίνου και Χρυσοχοΐδη; Πω πω πω και τι δεν λέει ο κ. πρέσβης. Πω πω πω, πόσα τηλεγραφήματα για τους Έλληνες τραπεζίτες, πάνε και έρχονται. Πω πω πω, βουή που μας βρήκε, που λένε και στο χωριό. Πάνε και στο U.S. TREASURY; Και που αλλού; Και καλά για τον κ. ΠΑΣΟΚΟ, το τηλεγράφημα είναι UNCLASSIFIED//FOR OFFICIAL USE ONLY. Εντάξει με SENSITIVE πληροφορίες δεν λέω. Υπάρχουν τηλεγραφήματα με διαβάθμιση CONFIDENTIAL, SECRET και TOP SECRET για Έλληνες τραπεζίτες; Ε lobbystαραδες μου, λέτε να υπάρχουν; Μιχάλη μου, εσύ τι λες;  

VZCZCXYZ0000

RR RUEHWEB

DE RUEHTH #1583/01 3001515

ZNR UUUUU ZZH

R 271515Z OCT 09

FM AMEMBASSY ATHENS

TO RUEHC/SECSTATE WASHDC 0906

INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS ATHENS 001583

SENSITIVE

SIPDIS

DESK PASS TO U.S. TREASURY – LUKAS KOHLER

DESK PASS TO STATE/EUR/ERA – MATTHEW BEH/JONATHAN KESSLER

DESK PASS TO STATE/EEB/OMA – JOHN C. KELLEY

E.O. 12958: N/A

TAGS: ECON ECIN PREL GR EFIN

SUBJECT: SENIOR GREEK BANKER COMMENTS ON GREEK ECONOMY, NEW

GOVERNMENT, BANK HEALTH

REF: A. ATHENS 1581; B. ATHENS 1451; C. ATHENS 371; D. ATHENS 339

¶E. ATHENS 216; F. ATHENS 176; G. 08 ATHENS 1655; H. 08 ATHENS 1515

—————-

SUMMARY

—————-

¶1. (SBU) In a recent conversation with DepEconCouns, Nikolaos B.

Karamouzis, the Deputy Chief Executive Officer of Eurobank EFG,

Greece’s second largest private bank in terms of both deposits and

assets, discussed his views on Greece’s economic and budget

situation, the new PASOK government and its reform capacity, and

the strength of Greeks banks.  Karamouzis, a self-proclaimed PASOK

supporter and an American-educated economist who also has served as

a Deputy CEO at the National Bank of Greece and a staff economist

at the Bank of Greece (Greece’s central bank), indicated the new

government has inherited an economy on the brink of collapse and

has very few options open to it to rein-in public finances and very

little time to act before capital markets and the EU respond

  1. While major expenditure cuts are needed, Karamouzis is

not optimistic that the new government has the capacity and

willingness to undertake such measures.  In his mind, the new

government has 100 days to prove to Greek citizens and

international markets that it has the capacity and willingness to

implement painful reforms.  But he believes that PASOK already lost

a key opportunity when it failed to act quickly and decisively to

end the 16-day strike by dockworkers opposed to the privatization

of the Piraeus port (see reftel A).  Karamouzis applauded

Papandreou’s decision to carve the Ministry of Finance from the

Ministry of Economy, but he believes that the lines of authority

have not been clearly delineated, which he believes will lead to

conflict and confusion in the management of economic policy –

something Greece can ill afford.  Finally, on the health of Greek

banks, Karamouzis asserted that with the «life-saving»

interventions by the IMF in countries like Bulgaria and Romania,

concerns about Greek bank subsidiaries in the Balkans were

  1. Concerns about bank operations in Greece, however, were

still high, since the impact of the crisis was only now beginning

to be felt in the real economy.  End Summary.

——————————————— ———————-

——————————————— ——-

THE GREEK ECONOMY: TWIN CHALLENGES OF DEFICIT AND DEBT; GROWTH

PROSPECTS

——————————————— ———————-

——————————————— ——-

¶2. (SBU) Karamouzis indicated in a recent conversation with

DepEconCouns that dealing with Greece’s twin deficits (e.g., the

budget deficit and the public debt) is the most urgent and acute

challenge facing the new government.  He projects that public debt

will reach almost 300 billion euros, or 115 percent of GDP, by the

end of 2009 (according to new GoG data, the debt in 2008 was 99.2

percent of GDP; for 2009 through end-June, the level of debt had

increased to 111.5 percent of GDP).  The size of the interest

component alone (12 billion euros for 2009) is challenging the

government’s ability to service it without resorting to further

  1. [Note: A key factor in assessing whether a country’s

debt burden is sustainable is whether it can service the annual

interest coming due without borrowing more and thereby adding to

the debt load.  End Note.]  Rising interest rates, which are almost

certainly around the corner in Karamouzis’s view, will aggravate

Greece’s ability to continue to service this debt without continued

borrowing.

¶3. (SBU) Karamouzis regards narrowing the budget deficit as crucial

if Greece is to continue to be able to service this debt and,

ultimately, get on the path towards reducing it.  Karamouzis

explained that to comply with the 3 percent deficit cap under the

EU’s Growth and Stability Pact (SGP), Greece will need to find

budgetary savings on the order of 18-20 billion euros over the next

three years.  Karamouzis underscored that because the government’s

new 2009 deficit projection (12.5 percent of GDP, or approximately

30 billion euros) was over half of the expected 2009 revenue base

of 50-60 billion euros, finding these savings could not come from

additional taxes alone.  The government will need to implement

major spending cuts in addition to improving tax collection and

tackling tax evasion.

¶4. (SBU) Karamouzis believes that the economy will shrink this year

by approximately 1.5 percent (GoG projects the same), despite

factors that have supported demand and growth (e.g., a large budget

deficit exacerbated by government spending and 2 percent growth in

nominal wages).   Notwithstanding a potentially strong recovery in

the EU next year, he forecasts that the Greek economy will shrink

again in 2010 by 0.5 to 1 percent as a result of flat real wages, a

continued deceleration in credit, and the measures that the GoG

must take to shrink the deficit.

——————————————— ——————

IS THE NEW GOVERNMENT UP TO THE TASK?

——————————————— ——————

¶5. (SBU) Karamouzis, who is a self-proclaimed PASOK supporter and

claims he has close ties with many in the new government (including

the Minister of Finance Giorgos Papakonstantinou and Minister of

Citizens’ Protection Michalis Chrysochoidis), is hoping for the

best, but he sees a very difficult road ahead and increasingly

limited options for the government.  He regards this as the most

difficult economic environment that Greece has faced in over 50

years, and it will require years of persistent, focused, and

unpopular policies.  PASOK, Karamouzis believes, has a very limited

window of opportunity in which to act to convince Greek citizens

and the markets that it is committed to undertaking serious public

finance and structural reforms.  In his opinion, the context in

which the GoG acts will become increasingly constrained for several

reasons: (1) a high level of frustration and low level of patience

among people as a result of the lack of action taken by the

previous government; (2) intensifying calls from the EU for

immediate reforms; (3) weakening bargaining power with labor

unions, as the Communist Party of Greece (KKE) and SYRIZA seek to

foment and take advantage of labor union discontent; and (4)

increasing social discontent as people feel more personal impact

from the crisis.  If PASOK does not act decisively in the first 100

days, Karamouzis fears the government will lose popularity, the

economic environment will continue to deteriorate, and it will be

all the more difficult to sell reforms to an angry and disheartened

public.

¶6. (SBU) While the new PASOK government has stated that it intends

to narrow the budget deficit to a single digit in 2010 through a

combination of measures, including aggressively fighting tax

evasion, cutting spending and increasing taxes on only the wealthy,

Karamouzis is not optimistic that PASOK will have the political

room or willingness to implement these measures.  He believes that

spending cuts will be fought hard by PASOK traditionalists’ desire

to play to the party’s established constituencies like labor and,

in particular, the civil service.  On tax evasion, he is not

certain the GoG has the resolve and the technical capacity to solve

the prolific problems that contribute to it.  Finally, Karamouzis

believes that there will be strong pressure to resort to additional

taxes if it becomes increasingly clear that the other measures are

simply too difficult to effect.

——————————————— ———————-

———————

 HANDLING OF THE PORT STRIKE: PORTENT OF THINGS TO COME?

——————————————— ———————-

———————

¶7. (SBU) Karamouzis stated that he was disappointed by the GoG’s

handling of the recent strike by Port of Piraeus dockworkers

protesting the privatization of the port’s management to

Beijing-based China Ocean Shipping Company (COSCO) Pacific (see

reftel A).  While he understands that Prime Minister Papandreou

promised during the election campaign to reexamine various

privatization deals negotiated by the previous government in order

to gain the support of labor unions, he believes this rhetoric

backfired on PASOK.  In his opinion, it created an air of

expectation and galvanized dockworkers to go back on strike

(following months of relative quiet) with the aim of forcing the

new government to abrogate the COSCO deal.  Now that PASOK is in

office, campaign rhetoric aside, Karamouzis would have liked to see

PM Papandreou prioritize the needs of the Greek economy and all

Greek citizens above the selfish demands of one small group.  By

acting quickly and decisively to quash the strike (Karamouzis did

not suggest how the GoG might have done so), Papandreou could have

shown investors that contract rights and foreign direct investment

(FDI) were respected and supported.  Karamouzis expressed concern

that companies looking to invest their dwindling resources will

interpret the GoG’s actions as not business-friendly and decide

against investing in Greece at a time when Greece desperately needs

FDI to help it recover from the global financial crisis.

¶8. (SBU) Karamouzis also fears the «tentative» way the GoG dealt

with a strike that had paralyzed Greece’s busiest seaport and cost

the Greek economy millions of euros a day plays right into the

hands of other labor groups looking to exploit the GoG’s pro-labor

  1. Karamouzis gave as an example a series of upcoming

strikes by bank labor unions, which are seeking to force the

government to enter into a collective bargaining agreement for

automatic wage hikes.  [Note: Collective wage agreements, which

unite different unions seeking various benefits like wage increases

against the GoG, are common in Greece.  They often weaken the GoG’s

bargaining position by forcing it to deal with an entire sector’s

employees as a block versus dealing with each union on an

individual basis.  The IMF and others point to these collective

agreements as a key constraint to improving competitiveness, as

they lead to wage hikes above the rates of inflation and

  1. End Note.]  Unless PASOK gets tough on labor unions

and their demands immediately, Karamouzis expressed fear that the

KKE and SYRIZA will use labor discontent to challenge and goad

PASOK to live up to its socialist ideals, making it more and more

difficult for PASOK to achieve its stated reforms.  This could

reach a head by December, as Greece approaches the one-year

anniversary of the shooting death by police of a teenager and the

riots that followed.

——————————————— —

THE NEW ECONOMIC MINISTRIES

——————————————— —

¶9. (SBU) Karamouzis applauded PM Papandreou’s move to separate the

Ministry of Finance from the Ministry of National Economy and to

create a new Ministry of Economy, Competitiveness and Merchant

  1. He is concerned, however, that the lines of authority have

not been clearly delineated.  According to Karamouzis’s discussions

with senior members of the government, Minister of Finance Giorgos

Papakonstantinou will be responsible for revenues and spending,

taxation policy, dealings with international institutions like the

IMF and the European Commission, the finances of Greek state

organizations, debt management, the stock exchange and banks, and

overall economic policy.  His GoG interlocutors have told him that

the new Ministry of Economy is supposed to function like the U.S.

Department of Commerce, with its new head, Louka Katseli,

responsible for trade and commerce, competition policy, antitrust

issues, and shipping issues.   This division will only work,

according to Karamouzis, if the two new ministers have good

  1. Karamouzis shared frankly with DepEconCouns that the

two Ministers in question are known to collide on a personality and

policy basis.  According to Karamouzis, it is well known within

PASOK that Katseli expected to become the «economy czar,» with a

range of power and responsibilities similar to that of her husband,

Gerasimos Arsenis, who was the Minister of Economy and Finance and

head of Greece’s central bank in the early 1980s under PM Andreas

  1. Karamouzis thinks that PM Papandreou made the right

choice in making Papakonstantinou responsible for the most

important part of economic policy.  He is viewed, according to

Karamouzis, as more free-market minded, friendlier to investors,

and more favorably by capital markets and ratings agencies.

Katseli, on the other hand, Karamouzis indicated, is viewed as

supporting more pro-labor and populist economic policies.

Karamouzis stated that Katseli is supposed to have an undefined

role in advising PM Papandreou on economic policy – a situation

which he believes will create conflict and confusion in the

management of economic policy – both of which Greece can ill afford

at this crucial time.

——————————————— ———————-

——

BANKS: PASOK POLICIES TOWARDS; GENERAL HEALTH

——————————————— ———————-

——

¶10. (SBU)  Despite PASOK’s rhetoric while in the opposition and

during the election to nationalize banks and their profits,

Karamouzis does not believe PASOK will attempt to intervene in the

market operation of Greece’s banks.  He thinks that, at most, PASOK

will undertake the following vis-C -vis the banks: (1) impose an

extra tax on banks’ 2009 profits; (2) pass a consumer protection

law that most banks favor as long as it does not encourage people

to default on their debts; (3) support bank unions in their demands

for wage hikes; and (4) merge two state-owned banks (Agricultural

Bank of Greece, or ATEBank, and Postal Savings Bank) to create a

state-development bank along the lines of Germany’s KfW

(Reconstruction Credit Institute, formed after World War II as part

of the Marshall Plan).  Karamouzis believes without a doubt that

the GoG also will appoint a new head of Greece’s largest private

bank, the National Bank of Greece (NBG).  Karamouzis said that this

is a tradition given that state pension funds control 17 percent of

the NBG’s stock, and it is not one PASOK is likely to forego.

[Note: DepEconCouns has heard from two trusted sources at NBG that

Karamouzis’s name is being bandied about as the potential new head

of NBG.  End Note.]

¶11. (SBU) On the health of Greek banks in the aftermath of the

global financial crisis, Karamouzis stated that the sector as a

whole is doing well.  Most large Greek banks are returning to

profit, but these are the result more of trading activities in the

capital markets and less traditional banking (mortgages, consumer

lending, etc.).  Credit expansion continues to decelerate for

Greece as a whole, having fallen to 6 percent in August from 6.6

percent in July.  Concerns over Greek bank subsidiaries in the

Balkans have abated, according to Karamouzis, largely due to the

various IMF interventions in the region, particularly in Romania

and Bulgaria.  Karamouzis indicated that Greek banks today are more

concerned with the situation in Greece itself than that in the

  1. This is due to the fact that the real economy in Greece

has only begun to be hit by the effects of the global crisis.

Eurobank and other Greek banks are watching non-performing loans

(NPLs) carefully in Greece, fearing that as the economy continues

to shrink and unemployment rises, more and more businesses and

people will not be able to service their loans.  Karamouzis

outlined that Eurobank’s NPL ratio for loans 90 days or more past

due for the Balkans was deteriorating at a slower pace (6.5 percent

at the end of the 3Q 2009), while its NPL ratio for Greece was

beginning to deteriorate at a faster pace (5.5 percent at the end

of 3Q2009).  [Note:  Eurobank EFG is the second largest bank in

Greece in terms of both assets and deposits.  It has a banking

presence in Bulgaria, Serbia, Romania, Turkey, Poland, Ukraine,

United Kingdom, Luxembourg, and Cyprus.  Its loan-to-deposits ratio

for the group as a whole at end 2Q2009 was 117 percent, while it

was 143 percent in New Europe (Balkans, Turkey, Poland, Ukraine).

The capital position of the group at the end of 2Q2009 is as

follows: Total Tier 1: 10.2 percent;  Total Capital Adequacy Ratio:

12.1 percent.  End Note.]

——————-

COMMENT

——————

¶12. (SBU) As a self-avowed supporter of PASOK, Karamouzis’s views

are a sign that the new government has its work cut out for it if

it is to convince the Greek electorate and markets that it is able

and willing to take on reforms.  PASOK rhetoric has set the bar

high regarding public expectations, potentially complicating the

government’s efforts to balance competing priorities.

Speckhard

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