Waiting for Greece's proposals

Questions as to what Slovaks might pay for Greece’s troubles as well as the memory of painful reforms that followed the communist era make the issue more than a casual matter.

Right now leaders of the eurozone are waiting for new proposals of measures to be tabled by Greek Prime Minister Alexis Tsipras. With his country under a tight deadline and running out of money it requested a three-year loan on July 8 from the eurozone’s rescue fund. It is expected that the summit of EU leaders on July 12 would decide about the fate of Greece.

“We would welcome Greece to remain in the eurozone but not at any price,” Prime Minister Robert Fico said on July 8 as cited by the TASR newswire. “It seems that the referendum has significantly complicated the possible agreement between Greece and remaining members of the eurozone member countries.”

After the July 5 referendum in which Greeks overwhelmingly voted against conditions for a rescue package, Slovak Finance Minister Peter Kažimír said that he does not believe that refusal of reforms will mean easier access to money.

“With the result of the referendum there arrives a possible crisis scenario of a gradual departure of Greece from the eurozone,” said Kažimír as cited by TASR, adding that he respects the decision of people in Greece. “Rejection of reforms by Greece cannot mean that they will get the money easier.”

Ján Figeľ, chairman of the Christian Democratic Movement (KDH) recalled Slovakia’s approval of the treaty establishing the European Stability Mechanism (ESM), the permanent rescue fund proposed by eurozone countries replacing the European Financial Stability Facility (EFSF) while he does not see the approval as a mistake even in the light as the situation in Greece has developed. A parliamentary vote in October 2011 on the EFSF, a plan that European leaders had signed on to in July 2011 to calm increasingly jittery global financial markets, led to the downfall of the government of Iveta Radičová.

“It was necessary that Slovakia managed its part of the responsibility,” said Figeľ. “But nobody helped Robert Fico to power as much as Richard Sulík.”

He recalled that it was Sulík and his Freedom and Solidarity party (SaS) that refused to support changes to the EFSF even after Radičová turned that vote into a vote of confidence in her government, of which SaS was a part.

“His stance on the bailout fund was a demonstration of immaturity also with respect to the following developments,” said Figeľ, adding that he is convinced that if the eurozone had not acted so briskly and robustly, a potential fallout would not be a question only in the case of Greece, but also Italy, Spain or Portugal.

Sulík perceives the current situation in Greece as confirmation of his opinion from five years ago. He believes that measures taken by the European Central Bank, the European Commission and the International Monetary Fund have significantly harmed the Greek economy.

“The unemployment doubled, the industrial production is at the level of the 1970s, GDP decreased by one quarter and the debt increased,” Sulík told the Dennik N daily. “These are catastrophic indicators. They show that the path which rescuers decided to take is incorrect.”

Slovak President Andrej Kiska believes that if Greece wants to be a flourishing, stable country, it needs reforms.

“The longer they will postpone them, the heavier they will be,” said Kiska as cited by the SITA newswire. “The Greek government says that Greece wants to remain in the eurozone. But the eurozone has its rules and it is necessary to respect them because without them the common currency cannot function... I respect the decision of Greek voters but also they must respect the interest of citizens of the remaining 18 eurozone member countries in order their currency is reliable and respected. The result of the referendum does not change this at all.”

In terms of unwillingness of Greeks to undergo tough reforms economist Vladimír Baláž from the Institute for Forecasting of the Slovak Academy of Sciences pointed out that several other countries including Slovakia had undergone something similar.

“When the economic transformation started in 1990, the gross domestic product [of Slovakia] decreased by 24 percent during three years.” Baláž told the TA3 news channel, adding that this is a similar figure that is now in Greece.

According to Baláž, Greece’s measures should be focused on cuts of generous items in the pension scheme, reduction of state employees, privatisation and improvement of tax collection. Attention should be paid also to Greece’s economy as it is very uncompetitive and is unable to create tax revenues, that are needed for settlement of Greece’s debt in the long term.

“This means that Greece should adopt as quickly as possible some reforms that would revive the Greek business environment,” said Baláž.

Impact on Slovakia

One of Greece’s proposals, wiping out a portion of the country’s debt, was met with opposition from Slovakia as well as other countries. Fico, after the summit of eurozone leaders on July 7 said that Slovakia would never agree to waive any part of the current Greek debt.

The International Monetary Fund has estimated the loan requested by Athens from the bailout fund at €70 billion. Based on the distribution key used in the past, Slovakia’s share would be €560 million, the Hospodárske Noviny economic daily wrote.

For now Slovakia has not loaned any money to Greece, but it guarantees bonds of €1.6 billion issued by the bailout fund. In practice this means that if Greece did not pay back its loan from the bailout fund and simultaneously reserves of the bailout fund will be not high enough to settle the bonds, funds will be claimed from guarantors like Slovakia, Mária Valachyová, economist with Slovenská Sporiteľňa told the Sme daily. Slovakia has already included these guarantees into the state debt, but in case Slovakia would have to cover the guarantees, this may increase the fiscal deficit. The bonds will mature only in 2022.

Slovak banks assure Slovaks that their deposits in local banks are safe.

“Slovak banks do not have any direct relations to Greek banks and have not made any significant investments into Greek bonds or other financial assets,” Zdenko Štefanides, chief economist with the VÚB bank, wrote in the bank’s memo. “Thus the situation in Greece almost does not touch them directly. In terms of the real economy, Slovak companies trade with Greek ones minimally. For comparison, we export to Russia roughly a 10 times greater volume of goods than to Greece.”

The foreign trade between Slovakia and Greece is thin, while imports from Greece make up about 0.2 percent of the aggregate of Slovakia’s imports and the same share regarding Slovakia’s exports to Greece.