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Post date: Mar 09, 2017 7:3:29 PM
By Fandi Achmad
Today the economic policy groups began our final day of meetings with Nicholas Magginas, the Head of Greece Macroeconomic Analysis for the National Bank of Greece. We discussed the market situation and policies surrounding the Greek debt crisis.
Mr. Magginas explained that from his perspective, the main cause of the Greek debt crisis was Greece’s history of weak and inefficient political institutions, which led to high public spending and low tax collection. Also, the Eurozone currency union gave markets a false sense of security regarding investment in Greece, so interest rates remained low even as the country accumulated sovereign debt. Consequently, there were no “early warning signs” for investors that the economy might be in trouble. Further exacerbating this problem, few pre-established financial stability measures existed to counter the crisis, either at the EU or national level. Thus, investors lost confidence. Failure to pay the debt ultimately caused the debt-to-GDP ratio in Greece to reach as high as 170%.
Despite Greece’s challenges, Mr. Magginas also conveyed optimism about the economic reforms currently taking place. He explained that the country now has an adequate surveillance and monitoring system to help avoid future financial crises; this system consists of adopting a plan for emergency liquidity assistance (ELA), rehabilitating weak banks, resolving others that were failing, and mandating that all Greek banks increase their capital base to an adequate level (Note: we need to learn more about what “resolving” a bank entails, but we understand it is a type of controlled bankruptcy. See this definition from the Financial Times regarding how this process works in the US). The aim is that the above measures will increase investor confidence in Greece.
We were very happy to close our week of economic policy meetings with Mr. Magginas, given his expertise and the excellent information he shared about the Greek economy.
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