CNBC’s Silvia Amaro spoke exclusively to Greece’s Finance Minister, Euclid Tsakalotos, on Wednesday. The interview played out on CNBC’s Squawk Box Europe earlier this morning.
CNBC has kindly provided permission for the transcipt of the interview to be reproduced fully by the Athens-Macedonian News Agency (ANA).
In the interview, Mr Tsakalotos said that investors are confident in Greece’s economy; the high surplus target feeds populists; and that reforms will be ready by March 11 and an upcoming report on Greece’s progress – which European creditors are preparing – will be positive.
Below are excerpts from a CNBC interview with Greece’s Finance Minister, Euclid Tsakalotos, and CNBC’s Silvia Amaro.
Q1: Six months today since Greece ended its third bailout programme. What should be the focus of reforming the Greek economy in the coming months?
A1: As you know we’ve done a lot of reforms over the last 4-5 years. We have a growth strategy that develops our priorities. We have 3 major priorities in the economy. One is speeding up the system of justice. The other is continuing with public administration reforms, and the third is improving the business environment. Those are the 3 major priorities and combining that we’re trying to build up a social state, a welfare state in Greece for the first time.
Q2: How are you going to do that? You don’t have too much time left. The election – the latest date we can have the election is the 13thof October.
A2: I thought a week is a long time in politics. We have time, we have a lot of legislation in the pipeline. We have a lot to do with bank reducing their NPLs, we have a lot to do with public administration. I think the people are beginning to see in their pockets the difference as we come out of the programme. They’re beginning to see the effect of our housing policy. All sorts of areas, time is on our side. People are seeing that we left the programme, and they are seeing the strategy that we have.
Q3: Are you hoping that strategy will gain you more votes? SYRIZA is currently polling second in the opinion polls.
A3: You would expect SYRIZA at this time in this electoral cycle to be second after what they[ i.e. the people]suffered. Don’t forget they suffered the biggest crisis in peace time ever in the history of the last 100 years. You would expect even that things are improving the level is still genuine difficulties and they have to decide in the election coming up which government is going to have that combination of policies that provide growth but also protect those who suffer most.
Q4: Can you give me an update on the state of those reforms that Greece needs to implement by the end of the month in exchange for that money from the central banks?
A4: The major issue major issue we are facing most of the there was a long list of things that were mostly leftovers from the programme — the Structural Adjustment Programme we left. So, most issues have been covered like public administration, like energy, like the justice system. The major issue that most people have focused on is the protection of primary residences as you realise in such a crisis people’s life plans are distorted because they thought they would have a certain amount of income. They have much less. So, we’ve been protecting primary residence. Now we’re moving into a new system where people will be given support to be able to pay back their loans. So that’s good for the people that will turn loans that are not being paid into loans that are green loans from red loans to green loans. But it will also help the banks to clear up their non-performing loans. So, we have a law which will be the new framework which we are now discussing both with the Hellenic Banking Association and we’re also discussing it with the institutions and the ECB will give us their comments on it which I think is a win-win. It’s a win for people who have got a loan in which they are struggling to be able to pay. And it’s also a win for the banks that they’ll be able to reduce their NPL bills much faster.
Q5: So what are the chances of that under 27 February the European institutions will be able to publish that report saying that Greece has implemented all the necessary…
A5: I foresee that the most likely result on the 27th is that they’ll have a report that says Greece has done an awful lot of work. There’s still some to be done to just pass legislation that has been agreed by the time of the Eurogroup of the 11th. So the report will be favorable it will say that we’ve done all this stuff. There are one or two things that have to pass through parliament but they are agreed legislation so it’s a formality till the 11th of March Eurogroup.
Q6: Greece issue the first bond — post bailout that is. And it was quite successful. There was a big cash buffer as well after exiting the third bailout program. Is Greece in a position to potentially say no to that central bank profit money?
A6: Well we don’t see it as only as an issue of whether we need the money. We see it as an issue that covers both the creditors and the institutions are confident that Greece is continuing on a reform strategy. So, it’s a signaling thing more than with the money thing. Of course, money is always useful. We don’t need it immediately because as you say we have a cash buffer which means our debt is in a very good situation after the summer deal. And that’s why we were able to go out to the markets three or four weeks ago and why investors are confident in the Greek economy and the spreads and reduced since we’ve come out in the markets and the spreads in even the 10-year bond yield is much reduced. So, I think it’s continuing with the reform strategy. Know what you want to do. We do not surprise investors we provide this growth strategy. I told you before where it had the priorities on the justice system the public administration on the business environment. We also put in there that we would raise the minimum wage so everybody knows what it is about. There’s no surprises there is no that the hidden agenda. Whereas we have New Democracy who promises huge tax cuts which I can’t see where the money’s coming from whether it’s budgeted which is a serious issue for both I think markets and for people thinking of voting for New Democracy>
Q7: I’m glad you’re bringing New Democracy to the discussion right now because yesterday when I asked Kyriakos Mitsotakis to tell me some of his proposals he did mention that he wants to renegotiate the primary budget surplus target. I was wondering do you think this is a good policy — renegotiating –going back to the creditors and ask for a lower primary budget?
A7: I think there should be consensus across the political divide on this issue. I think the three and a half percent and I’ve said it for an awful long time is too high for especially for a country that lost 27 percent of its GDP. I don’t think this should be something that we should disagree about. We should go together and say you know in a Europe that has taken the lesson from the rise of the radical right and populist forces – that such high primary surplus targets only feeds into discontent not only with the political parties but within the, with the political process itself. So, I have no disagreement with the leader of the opposition that we need to do this and it would be nice if he had a less conflictual attitude so that we actually could have consensus on this issue.
Q8: So let’s imagine a scenario where New Democracy actually forms the next government. Would SYRIZA then given what you just said support Kyriakos Mitsotakis in getting that renegotiation from the creditors?
A8: Of course, of course we did we wouldn’t change our position just because new democracy was in power. I don’t think it’s very likely they will be in power but in the unlikely and unfortunate eventuality that they are in power of course. If that was one of their main building blocks of what they wanted to do we would support them but we wouldn’t support them in a large number of other areas especially since we actually don’t know what their programme is. My deputy minister, the alternate minister for economy [George Chouliarakis] in the budget debate estimated that the cost of their announcements so far was 5 billion in the first year and another 4 billion over the next four years. Now we’ve had no serious response from New Democracy on where that money’s coming from. So, you know we spent the 900 million extra — not 900 billion — 900 million extra in 2019 where the extra four billion to get to the 5.8 billion that they will announce come from God only knows. Certainly we don’t.
Q9: Just one final question to finish this subject. One of their proposals is indeed reducing lower is reducing corporate tax I should say. Do you think that a corporate tax of 20 percent in the next two years is feasible and what does that mean to the Greek public finances?
A9: I mean the going to 20 percent would cost one billion. So, I would I would look with interest where that money is coming from. But the issue is we I think we should have a planned approach. So, the Greek government, the present Greek government has announced a reduction of one percent in the corporate tax rate every year. So, one in 2019, 20, 21, 22 to be reduced. That seems to me a balanced approach. It seems a balanced approach because there has to be if we’re going to come out of the crisis without greater political turmoil and without going back into a new crisis we’ve got to take people with us. So, we’ve got to have a balanced approach between cutting taxes and reducing inequality reducing child poverty. So, you need a balanced approach on these issues you’ve got to. And I think that going to be the main issue. The New Democracy’s programme is too one sided. Kyriakos Mitsotakis has been on record saying that he thinks inequality is in our gene — that is not a way to respond to the serious social issues that Greece faces.
Q10: Switching to the economic outlook of the Greek economy. looking at the budget plan for 2019 I saw that the growth rate expected is 2.5 percent. Of course, that’s based on the performance of the global economy. Do you think that you have to revise that forecast downwards because of course there’s a lot of risk in the global economy and even the IMF had to lower its own forecast.
A10: Well in fact even though New Democracy has for years said that we are laggards falling behind the other European countries that we have growth rates below. Now we actually have higher growth rate than the average in the EU. Not only that the Commission just a week ago changed their projections upwards for Greece and downwards for the rest of the EU. So, I think there is a lot of confidence in Greece. Growth is back. Unemployment has gone down. Exports have had an absolute bumper year record year. So, the idea that we are not doing very well is just not sustainable. Of course, there is, as the finance minister. I always worry about downside risks. Of course, there are downside risks coming from trade disputes from the disagreements within Europe about the future of Europe. There are a lot of things we can discuss about there but I think the mean estimate of what we expect is quite encouraging.
Q11: The Commission forecast is 2.2, yours is 2.5 percent. Talking about 0.3 percentage points. But I was just wondering if in the coming months you have to lower your forecast.
A11: I don’t see if the EU is becoming more optimistic than they were six months ago. why should suddenly we become more miserable? I would feel the opposite would be the case.
Q12: And let’s talk about external risks as well because there has been quite a lot of contagion in terms of Greek bonds for instance since last year with the political instability in Italy. And I was just wondering how do you intend to shield Greece from these external events?
A12: Well we intend to shield Greece by the strategy we’ve been doing. The first strategy is to have this buffer so effectively Greek debt is collateralised for the next two years because of the buffer. We’ve created a debt deal which means that we have lower repayment schedules than countries like Portugal and Spain over the next 50 years. That gives us the space in which to be able to have serious discussion with opposition parties with social partners to have a growth strategy that begins to reduce the debt to GDP ratio from the denominator. In other words, from GDP, by having a serious growth strategy that’s what we’re trying to do. We’ve tried to protect Greece and the markets by being very open about our policies on growth. People can look at our growth strategy, it’s a it’s a public document. It’s all budgeted. There are no surprises. And I think that is why markets are looking differently than us. I mean the opposition says of course that we have higher interest rates than Portugal. Of course, we have higher interest rates than Portugal because Portugal left the programme quite a few years ago and we’ve only just left the programme. But the issue is that we’re going in the right direction we’re being upgraded by the rating agencies. So, we have every reason to be confident about the future.
Q13: What’s the message that you as finance minister would like to give to international investors because there’s still some skepticism I should say about Greece really.
A13: Actually to be honest because I meet international investors as you imagine all the time. I think that skepticism has seriously been reduced over the period. I think people have seen the amount of reforms. We weren’t always that good at publicising our achievements. I’ll give you a little secret. Jack Lew who was the secretary of America just before the changeover with the Republicans said to me that one particular country which I won’t mention has done half the reforms you’ve done and everybody knows it throughout the world. You’ve done double their reforms and even your mother doesn’t know it. So, we haven’t been very good at publicising and blowing our own trumpet. I think we’ve got our act together in discussion both with financial community and with the rating agencies. So, I actually think because you know we’ve publicised our growth strategy. We’ve only increased expenditure and reduced taxes to the amount agreed with the four institutions, the ECB the ESM the IMF and the Commission. People are feeling confident about the future the Greek economy. They know we’re doing lots of things to help the banks. The banks themselves are doing taking private initiatives to reduce their NPLs. We’ve now suggested a strategy for an asset protection scheme which I’ve sent to the Directorate of Competition in the European Union. So, I think they’re seeing the light all the little building blocks of how Greece is going to come out of the crisis.
Q14: Let’s look at the banking system then what’s preventing the four largest banks from further decreasing their level of NPL because we’re still talking about 44 percent of NPL.
A14: Yes I mean in 2015 we argued for a big bang approach. What was the big bang approach? Have a bad bank, use some of the money from the ESM to be able to do a one-off solution. Now that wasn’t agreeable to our creditors. For whatever reasons I think wrong reasons but that’s the past. Since then we’ve changed track. In other words, instead of being a hedgehog that knows one answer to the question we become a fox that knows lots of answers. So, we’ve doing lots of little — that comes from Aesop’s tale by the way — the fox and the hedgehog. So, what we’ve been doing is have lots of little things to approach it. So, not only us, the banks themselves. We have committees where we discuss with the four banks, with the Bank of Greece, with the Hellenic Financial Stability Fund and the ministries to find solutions. So, we have done an OCW, which is an out of court work-out. We’ve changed the bankruptcy law. We’re presenting a new law about household insolvency which will also help the banks. So, we’re doing lots of little things which we hope that over the next two or three years we will radically reduce the NPLs.
Q15: How can you as a finance minister help the banks in this task then?
A15: by discussing, having a consensual approach with the banks, with the Bank of Greece with the Hellenic Financial Stability Fund, with the four institutions that we are proactive and if there is a law or initiative we take and that isn’t working. We quickly able to see why isn’t it working. Let’s see if we can reform it. Let’s see whether we need the same approach but with some amendments or we need to do a different strategy.
Q16: I have two final questions. One of them is looking at your time as a finance minister until now. What’s been the most challenging moment?
A16: Well I suppose the most challenging moment was when I first became finance minister where most people offered me commiserations rather than congratulations for taking up the post and we had to discuss very quickly what are we going to do when I am now convinced and I think most people who are telling the tale now there were members of the Eurogroup that wanted Greece out of the eurozone. And I think that was obviously the biggest challenge that I faced and the government faced of course and so I think we overcame that. We found a compromise and more most importantly of all. We took that compromise to the people. I became a finance minister. We renegotiated the compromise and then we went in September 2015 to the elections. So once again we play with transparency. We go to the people with what we’ve managed to do. Some things have been very difficult for the people. Some things have been very good but they know what was on the table and that’s what we tried to implement.
Q17: Your task would have been certainly easier if you had started as a Finance Minister back in January of 2015. If that had been the case what would you have done differently?
A17: I don’t know. I think that’s for historians to decide. I definitely think that Europe at that time was not so willing to discuss the important reforms it needed to have a less austerity approach. So whoever was finance minister I think would have faced very serious challenges. I mean some of the things that SYRIZA said that Europe needs and the financial and economic architecture like a European budget, like an European economic finance minister, like a stabilization fund are issues that are now being discussed Europe now is a very different kettle of fish than it was in 2015. I don’t know whether it’s going to succeed in improving its financia- economic architecture but it is definitely part of the debate. The level of austerity, the kind of policies that the United States has as a federal state where it has a stabilisation mechanism that helps the states that are temporarily in economic problems which we don’t have in Europe. These are now on the agenda and so I am quite proud that SYRIZA actually did bring these things and a lot of economists support this a lot of governments now support it. So, we’re part of a lively debate but I think in 2015 things were very difficult for whoever was finance minister.
Q18: You mentioned in a recent interview that there was this sort of clientelistic politics here in Greece when you first came to office. Has that changed?
A18: Oh yes. I mean and it’s changed so much that I don’t actually get asked for favours. That’s the final test. Yes. Do businessmen or people come up to me and say hello Euclid you know we could help out in the election if you did X Y… That doesn’t happen. Which is because I think they have a signal that this is a very different kind of government. It really has been the sort of the black mark of Greece and I’m not just talking about previous governments over the last 10, 15 years although that led to the crisis for the last hundred years, the clientelistic system. It has been a plague on Greece and it really, is a really important that that’s why it’s important to challenge that. And that’s why in our growth strategy the reform of the public sector is one of the three pillars as I was telling you earlier about. It is dreadful because it was a system where you didn’t make a decision on the proper analysis of the situation. So, let me give you an example. Until this government we didn’t really have a forest registry. So where are the forests? We didn’t have a land use. So where can you put industrial production? Where can you put agriculture? Where for tourism? You just didn’t know but that wasn’t inefficient because you needed the ministers or the general secretary of the ministry to speak to them to get the licenses. Yes. So it was actually efficient for the system of clientelistic politics for anything you needed whether to build a hotel next to a resort or whether to have a chemical factory. You needed the political intervention of the minister to be able to do it. What we’ve done is now people know — where is the forest? Where is the coast? Where is the land-use? Whether you can build a chemical factory because it’s an industrial zone or you can’t. Whether you can build a hotel near the coastline. That is important structural reforms that this government has taken and they shouldn’t have been taken a hundred years ago. So, I’m not even being rude about New Democracy and PASOK I’m being rude about the whole political system for the last hundred years.
Q19: The international community is sometimes it’s a little bit skeptical about the Prime Minister Alexis Tsipras and his position. Is Tsipras the right man to continue to leading Greece?
A19: Well I would have thought that Alexis Tsipras is — his shares have been going up for the last six months if not before. Because it’s Alexis Tsipras and his government but especially I would say in this situation who actually solved our longstanding 30 years relationship with our northern neighbor. This was a brave thing to do. This is something which is very important both politically so that the Balkans is an area of stability. It’s very important economically because northern Greece cannot develop if we only look southwards and cannot look northwards and linking with northern Macedonia to the sort of central Europe and then towards North Europe. Alexis Tsipras took a huge risk to do this. He was opposed by both New Democracy and PASOK who accuse us of populism. But then when they thought this would gain votes opposed the deal, the compromise with our northern neighbour. I’m very proud of that deal. I’m very proud that my prime minister was the person who actually brought this about.