Stournaras Calls For Debt Relief

ATHENS – Bank of Greece Governor Yannis Stournaras, who was Finance Minister, said Greece should compromise with its international lenders but that debt relief is needed too.

“It is in the interests of both the Greek side and the troika for there to be an immediate compromise based on current reality and common sense,” Stournaras said in an interview with the Sunday Kathimerini.

That comes as Prime Minister and New Democracy Conservative leader Antonis Samaras is waiting to see if the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) will back off its demands for more reforms to be completed before allowing him to seek an early exit from bailout deals.

The Troika insists there will be a budget gap of two to three billion euros in 2015 but the government said that was incorrect and doesn’t want to impose more of the austerity measures that have cut deeply into support for New Democracy and its coalition partner the PASOK Socialists.

He said the Troika has been wrong before in its estimates but that the government should focus on strengthening tax collection, speeding up privatizations and promoting more liberalization measures, all of which it has failed to do, including when he was the finance chief.

He also disagreed with some European Union officials who have recently insisted that Greece will not need more debt relief to help its economy. He said that the Eurozone should stick by its pledge at the Eurogroup on November 27, 2012 to lighten Greece’s debt load once it has achieved a primary surplus.

“I believe the further debt relief foreseen at that Eurogroup has to be implemented, along with the necessary fiscal adjustment, privatizations and reforms that help the growth prospects of the Greek economy,” he said.

“Firstly, because the sustainability of the current levels of public debt depend on a very high primary surplus (4.5 percent of gross domestic product) from 2016 onward. Secondly, because the lightening of the Greek debt load, according to the discussions at that Eurogroup, was also seen as a reward for Greece after a long and persistent fiscal adjustment.”

Stournaras played down fears that Greek banks would lose access to European Central Bank liquidity if Greece and the Troika fail to agree on a new program or conditions for a precautionary credit line by January 1 but said this would not be a welcome option.

“In such a case liquidity will not be stopped but will be provided through Emergency Liquidity Assistance (ELA),” he said, adding that this would be a more expensive form of borrowing that would have an impact on the real economy. “Today Greek banks refinance their loans from the Eurosystem at a cost of about 0.05 percent. In the unwelcome case that they need to turn to ELA the cost will be around 1.55 percent.”