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Myths & Realities of Greece’s Economic Crisis

The American Hellenic Institute (AHI) hosted the policy seminar “The Greek Economic Crisis: Myth & Reality” featuring a panel of experts who examined various aspects of the topic on April 25, 2012 at the Capital Hilton, Washington, DC. Ambassador Vassilis Kaskarelis, ambassador of Greece to the U.S., provided closing remarks and participated in a Q&A with the audience.

“With most of the headlines about Greece focusing on its economy and the impact upon the European Union and financial markets worldwide, we wanted to examine just what the realities of the situation are,” said AHI President Nick Larigakis. “Our expert panelists provided us with their insights and analyses providing us with a better understanding of how and why Greece found itself in the financial position it is in; what exactly is expected of Greece as the recipient of loans from the IMF and the Eurozone; how is Greece’s financial position intertwined with that of other nations; and what—if any—role can the Greek American community play in this complex picture.”

The panel featured: Dr. George P. Tsetsekos, dean, LeBow College of Business, Drexel University; Dr. Miranda Xafa, CEO, E.F. Consulting, former executive board member, International Monetary Fund; Nicolas Véron, senior fellow, Bruegel, Brussels-based think tank, and visiting fellow, Peterson Institute for International Economics; and Nicholas G. Karambelas, Esq., partner, Sfikas & Karambelas and AHI legal counsel. AHI President Nick Larigakis, moderated the panel.

Each of the four panelists brought their unique perspective and expertise to the seminar topic.
Speaking on “The Greek Debt Crisis: Background and Future,” Dr. Tsetsekos presented an overview of how Greece came to find itself in the current economic crisis that included 1) significant debt accumulation, 2) huge public sector deficits, and 3) an ambiguous economic development model. Greece accumulated 300 to 350 billion in debt and debt as a percentage of GDP had risen to 195% in 2012, which he described as “unsustainable.” Dr. Tsetsekos explained the Low Unemployment Economic Model used by Greece that led to low-paying public sector jobs and a dependence on tax collection amid mass tax evasion. Jobs in this economic model are split 70% in the public sector and 30% in the private sector. He also explained that Greek banks and many European banks, including French, German, and British, all hold Greece’s debt; and the fact that so many European banks hold Greek debt is the reason why any notion of default is “alarming.” The balance of Dr. Tsetsekos’s presentation included an overview of the “voluntary” PSI debt restructuring of 220 billion euros of Greece’s old debt, an identification of problems the European Union is facing, including the design of its economic system; and future prospects that include constant uncertainty and austerity in a post-PSI environment.

Dr. Xafa’s topic, “The ‘Memorandum:’ Contents and Meaning,” focused on explaining the IMF Memorandum’s target goals, including 1) to restore competitiveness and growth, 2) to restore fiscal sustainability, and 3) to secure financial stability. She also outlined the “Quarterly Performance Criteria” found in the Memorandum that Greece must meet each quarter to receive its loan. For example, Greece must cut 11 billion euro by June 2012, and Dr. Xafa identified from where the cuts would come: three billion in pensions and defense; two billion in the closure of redundant public sector entities; and six billion from hospitals and local authorities. She also outlined growth-enhancing measures Greece can take that included implementation of a privatization program to attract foreign investment and EU reduction of Greece’s co-financing obligation on projects. Dr. Xafa also touched on the PSI agreement, which is the debt exchange that reduced Greece’s debt burden, and its outcome that resulted in 198 billion euro in securities being traded in the debt exchange. “Public debt remains high after PSI,” she cautioned.

In his remarks on the topic, “Greece and Europe: Linkages and Scenarios,” Véron provided his thoughts on Greece’s economic crisis in the context with Europe’s relationship. He describes Europe and Greece as being dependent on each other. According to Véron, Greece does not want to leave the Eurozone and a Greek exit is not a desired outcome for EU countries such as Germany although he acknowledged that this is a change of position for Germany. He also offered his thoughts on how the next steps can be successful ones for Greece, including the acceptance of the EU/Troika by the Greek population and public opinion and the implementation of domestic policies although the question arises if these steps are compatible with principles of Greece’s democracy and sovereignty. “Strategic patience on the side of the EU is also very important,” Véron added. He concluded by providing a scenario where both sides must be patient with each other in order for a successful outcome to be achieved.

Karambelas concluded the panel with a presentation on “The Role of the Greek Americans: Challenges and Responses.” Karambelas framed the topic with the question, “What is available within United States government programs that assist with growth that Greece can take advantage of with assistance from Greek Americans?” Karambelas believes that there are programs to assist Greece and the formation of a commission of Greek Americans and philhellenes is needed to explore these programs and how they can be adopted to address Greece’s current situation. Karambelas presented suggestions for such a group to examine, including 1) a U.S.-Greece tax treaty that could be amended to benefit commerce between the U.S. and Greece similar to one signed by Canada and Greece, 2) make available to Greek nationals with businesses in Greece Treaty Investor (E-2) visas that would allow them to establish businesses in the U.S. with which they can conduct business with their businesses in Greece. A bilateral investment treaty (BIT) between the U.S. and Greece, which is needed to make the E-2 visas available, does not exist, and 3) facilitate a bi-national research and development agreement that would establish a foundation that provides a matchmaking service and funding for commercial ventures between American and Greek high-tech or energy companies. The foundation would fund upwards of 50 percent of the project development and commercialization costs. Such an agreement exists between the U.S. and Israel, he pointed out. In addition, Karambelas suggested the exploration of special programs in the Export/Import Bank of the U.S. government which funds the cost of exports from the United States for projects in foreign countries. A final suggestion that he viewed as very important would be the establishment of private equity fund by the Greek diaspora to fund Greek-related ventures in or outside of Greece.

In his response, Ambassador Kaskarellis commended the panelists. He described the problem with Greece is not just economic, but political as well because politicians mismanaged the Greek economy. He added American audiences on his travels through the country have had difficulty understanding the European decision-making process, which is slow and built on consensus. He pointed to the fact it took 10 years to introduce the euro and the length of time it took to pass a constitution. The ambassador dismissed any notion of Europe weakening stating, “No one can question Europe’s strength.”

On Greece, Ambassador Kasarellis stated the country is at a “turning point” but remains a “prosperous country” that must implement a system to regain credibility and make correct decisions.
“I believe we are on the right path,” he said. “I believe Europe is strong.”

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