Louka Katseli HARDtalk


Louka Katseli

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2016 will be a year of recovery and regrouping

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and the tough period of crisis for the country was over.

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and the tough period of crisis for the country is over.

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Whether he is right will depend in part on Greece's banks.

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They are sitting on bad debts worth 100 billion euros

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and they still cannot let customers freely withdraw their money

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My guest today, Louka Katseli, is the chair of one of the country's

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largest banks, and its oldest, the national bank of Greece. She also

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used to be a government minister. Louka Katseli, welcome to HARDtalk.

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Thank you very much, it's a great pleasure to be here. Is Alexis press

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right that the worst is over, and to use his words, that in five years

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time Greece will be deserving of its history and its people -- Alexis

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Tsipras. We need to be optimistic and we are all optimistic that

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following the very turbulent years we have had over the past six years

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that there is hope and that we can make it work, that there can be a

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restart for Greece, and that growth camera zoom. As you said correctly,

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a lot will depend on the banks, but not only. A lot will depend on

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political certainty, economic certainty, and investment

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promotion. The challenges are ahead of us, there are many challenges,

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but I want to be and I am optimistic that Greece will have a restart. But

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you are sitting there at the top of one of the, as I say, the country's

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biggest banks with huge, very weak situation. We know capital control

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had to be imposed last summer. How fragile would you say your bank is

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now? Actually all Greek banks, because I'm also the chair of the

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Hellenic Greek Association, all four creek banks, which are under the

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guidance of the ECB, are coming out of the recapitalisation process

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solvent and very strong. Quarter one... Core tier one. That is a

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buffer, our own equity capital relative to the risk weighted assets

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of each bank. This is an indicator of capital solvency for all European

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banks. The Greek banks following the recapitalisation come out of this

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process is very strong and the solvent. That doesn't mean that they

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don't have major challenges to address.

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Already mentioned one, which is kind of addressing the non-performing

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loans that they have. But I would add to this two other major

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challenges, one would be to re-establish trust with our

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depositors so deposits can start flowing back to the Greek system and

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the second major challenge is to channel liquidity to the real

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sector. The problems we have had over the last six years because of

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all the problems Greece has faced is that the real economy, good

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enterprises, exporting companies and so on, haven't been able to have

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access to the banking system at affordable rates. Let's deal with

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one of those, the non-performing loans, the bad debts. Kostas carried

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Yannis, with the private equity firm Apollo Global Management, said

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unless we deal with the non-performing loans there is no

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hope in Greece, such is the scale of the bad debts banks like yours are

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sitting on. Let me put it in perspective. There are two reasons

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why banks could have bad debts, one is that they made the wrong

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decisions in the past and they lent to the wrong people. The second one,

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which is more the case of Greece, is that the whole economy actually

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shrunk so fast and incomes were reduced so much that people were not

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able to pay back debts, debts to the banking sector, tax returns, social

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contributions and so on. The debt situation in Greece and the

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non-performing loans are very much tied to the overall state of the

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economy. Indeed, but there's no sign when you look at it, we have

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forecasts that the economy is going to contract again this year. If

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you're waiting for the tied to rise and lift the boats, you'll be

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waiting a long time. First of all we hope, and all the expectations are

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that growth will start resuming by the end of this year, 2016. We have

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a small shrinkage in 2015, less than we expected, thank God. But in 2016,

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over the second quarter, the second half, we are expecting growth to

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slowly resume. You're absolutely right that you cannot wait for the

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economy to start moving, but we should keep in mind that once the

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economy starts moving then people will be able to start repaying. On

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the other hand, we need to be proactive and deal with it and

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manage the bad debt. I can tell you what we're doing. I want you to tell

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me but in terms of how much bad debt you've got, on your loan book, how

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much would you describe as bad? Most of the banks on average have between

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35% and 45% as bad debt. What about you? 43%. 43% of the loans you are

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sitting on our bad? They are non-performing loans, which means

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there are delays in payments. Some of them are delays below 90 days,

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some of them are above 90 days. OK. Let me say a few things, because

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this is a major challenge for us, what we're doing, it depends very

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much whether it is corporate loans or whether they are mortgages or

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consumer loans. All Greek banks have established special units within

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each bank to deal with their non-performing loans. Effectively a

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bad bank within it. Exactly, within the bank. And now there is new

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legislation which is being promoted, both by the government in

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collaboration, close collaboration with the ECB and the bank of

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Greece. Which is that you can sell some of those bad loans on?

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Exactly. Some of these bad loans, especially the non-performing

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consumer loans, can be sold to third parties or can be transferred to

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third parties to be collected. Others are being dealt with and I

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would say right now the majority of these loans are being dealt with

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within the banks, and with good results. In other words, even the

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national bank of Greece over the last months, we've had good results

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in managing it. How do we manage it? Through new products, through

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restructuring of these loans. Basically you've still got customers

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that can't pay you back. That's right, but it depends what you do

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and how you restructure the loans so they can pay something back. We know

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that they can't pay what their obligation was five years ago or

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three years ago, but we can assure that they start paying back. What

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each bank wants is not to lose the connection with the debtor, so that

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the debtor continues to service this loan depending on his income and

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ability. You paint a picture that almost sounds quite rosy of running

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a bank in Greece the way you're talking, but you have capital

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controls, what happens if capital controls are lifted? I assure you

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the situation isn't rosy. You are sitting there and if you are told

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that you have to allow your customers to take money out if they

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want to, what would happen? I think by now, whoever was to take his or

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her money out has done so. So capital controls could be lifted? My

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sense is the capital controls need to be lifted and as soon as the they

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lifted the better it will be. From your point of view if they were

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lifted tomorrow... This was our position at the Hellenic Bank

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Association right from the beginning, as soon as capital

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controls are lifted the better it will be for the resumption of normal

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transactions. If they hadn't been imposed with the bank still be

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there? The point is, the reason why they were imposed, was at that time,

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in July, the risks were so high that people had withdrawn already and

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were withdrawing money from the banks continuously, the programme

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finished, there was a high level of uncertainty. A lot has changed since

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July, and that's what allows us to be more optimistic. OK, we have this

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situation where there was a slow bank run, 50% of bank deposits in

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Greece withdrawn since 2010 Dobbie you're saying now remove these

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capital regulations. People can't take out more than 50 euros a day at

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the moment. Look, right. Lift them tomorrow, is that the message? I

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would say lift them as soon as Greece moves from the LA, emergency

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liquidity assistance, to normal ECB assistants. That could be sometime?

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Possibly the next couple of months. We have so much in the next couple

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of months, not least a review of the bailout by the troika, by Greece's

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creditors. Absolutely. Over the month they will be loaded months.

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What are the milestones? The first one I think is the evaluation and a

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successful evaluation of the first phase of the end though you, the

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third end of you. And this of course presupposes that the pension reform

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goes through parliament with no problem, that is the first

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milestone. Before you go on from that, that is significant. So that

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people can understand, because it is the first big hurdle, the government

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wants to reform pensions again. It has a majority of three MPs and a

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population who are hacked off with the last pension reforms, what is

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the chance of the next age of reform is getting through? If you ask my

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opinion I think it will be passed, I think it will go through Parliament

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-- reforms. There is a maturity across all Parliament members that

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pension reform needs to be completed. It's not easy. There are

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special groups that are affected. It's the second, as you said,

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pension reform. Let's not forget that pensions have already been

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slashed in Greece 70% since 2010. The adjustment has been enormous. So

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the pension reform as it is now, and the proposal on the table, is one

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which, if there are some revisions, and if it does not presuppose

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further pension cuts, then I think there is a very good chance it will

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go through Parliament. And what the troika, the IMF, the ECB are pension

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reforms that effectively mean a cut of 1% of GDP. Is that too much? The

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point is how do you achieve that and who bears the brunt? And all the

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technicalities of the proposal. As we always know, the resistance or

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the ease with which it passes through Parliament depends very much

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on the precise provisions. Indeed, the pressure from the troika, the

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creditors, is that it is on pensions because they don't want it loaded on

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those earning because it pushes more people outside the legal market. But

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they know very well already, and there is a clear understanding on

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the part of the EU institutions that main pensions have already been cut,

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have been slashed lots. So they will be on their side as well an attempt

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to find a solution which will not hurt again those who have already

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been hurt -- there will be. You think pension reforms... I think

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there is a high probability that pension reform will go through with

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revisions of course, relative to the current proposal, but my sense, and

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my reading of the talk is that at the end there will be a compromise.

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OK, so the President, Professor, the professor of law and economics at

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Athens university says he can't see how the government can survive and

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avoid these reforms. He makes the point the government will face

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insurmountable problems early in the year.

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This government has riven that it could push through reforms no one

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thought they could. -- proven. Old lady, the brunt of them have already

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been... -- Already. Have already been implemented. There are three

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issues that remain on the table that remain difficult, one is the pension

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reform, and the other is the privatisation fund, that there needs

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to be discussion and compromise with the EU Constitution is and political

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compromise. -- and. That is because this government almost basically 50

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billion euros from privatisations and thus far it has in a million

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from leasing airports... -- been. There doesn't seem to be the will to

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go through with the proposals and promises. That is not right. The 50

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billion, it was the initial... That number was part of the first MOU,

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and the second MOU. It was not able to be achieved for many, across the

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years. First, because, difficulties... Rather than going

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back. Gladly tell you about now. What is interesting, and interesting

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to all political analysts. -- Let me. It has moved and is ready to

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move with port privatisation. We are just concluding as the National Bank

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of Greece the deal on... What about the pipeline, what will it raise?

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400 million. We're not talking about the scale of money is going to

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satisfy Greece's creditors, are we? Look, this is part of the programme,

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part of the third MOU. I am sure that over the next... Once the new

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fund has been established, these kinds of privatisation deals will go

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through... Now, whether it would be able, whether the conditions would

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be such to raise the funds... The reason it is critical and I am

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pushing it. In 2006 been... Let me put it this way. -- 2016. There will

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be the first review of this latest bailout. That will come up. It could

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take weeks or months, that is some of the warnings. That will depend on

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what Greece has done. But Greece has completed right now more than 80% of

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the implications under the MOU for the first phase. So we are on very

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good track. The thing that is surprising is how good track there

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has been from July until now. OK. That allows us to be thick that once

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the pension reform goes through Parliament that things will return

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to normal. -- optimistic. It doesn't mean there will not be problems. But

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the question now is a return to normalcy. You won't get it unless

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you have debt relief. That is what Christine Lagarde has said, it is

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unsustainable. Is that the next in? Once the first evaluation is

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completed successfully the negotiations will start on debt

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restructure. That is essential. Not so much, in my view, and allow me to

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put forward my own view, not so much that the numbers are unsustainable.

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Because under very optimistic growth scenarios, et, even the currents

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that could have been sustainable, for something different, that debt

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restructuring would give very positive signals to investors so

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they can start investing again... Christine Lagarde says the debt

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relief has to be well beyond what has been considered so far. I would

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agree with that. That is because, and he who are at the top of this

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bank, you will know, to bring investors back... -- and here you

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are. To bring them back, you talk about the economic certainty that is

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required, at the moment, because banks now can sell some of their

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debt, when you are considering who to sell it to, who is interested?

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Many people. First of all, we were very presently surprised to see that

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with recapitalisation, systemic banks went out to open markets and

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raised in two weeks about 6 billion from private investors, 4.5, and

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then two through swaps. And, actually, there were people and

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there were funds, both individuals and funds, who were having a

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positive outlook on Greece. And they put their money in the Greek banking

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system... OK. Are we talking hedge funds? Not only... Only the hedge

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funds are hoping to take on the risk. That is not true. From the

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National Bank of Greece more than 50% is raised from our own and

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traditional partners. Is that because you have to discount it so

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much? Certainly, we have discounted it. How much? You are effectively

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cutting the value. You are absolutely right. To be able to

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attract this amount of money we actually... The price can to 0.4...

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0.5... -- came. Very low. 40%... That is right. 40% of what it used

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to be. There was a meltdown, if you like, but at the same time, the

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price was the market price, right, but they entered because they could

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see that prospect as beneficial. And let me say another thing.

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Immediately after we completed recapitalisation of the national

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bank, we saw the Finansbank in Turkey... Every week... You are,

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selling everything of. A successful investor has made the point that

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Greece will not recover as long as it is a member of the risen because

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the exchange rate is too high. -- off. -- the eurozone. I will not

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agree. Being in it presents a constraint in that you do not have

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the use of the exchange rate. On the other hand, for a country like

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Greece, it is extremely important in terms of trust and credibility.

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Now... Greece had and continues to have a competitiveness problems.

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Because of the programme that we have had so far, price

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competitiveness has gone down. As the prices have fallen, labour costs

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have fallen... So it is regaining in terms of rice competitiveness. What

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it needs to do, that is the major challenge. -- price. The National

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challenge, if you us, we need to upgrade. -- national.

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You set up a party, the social agreements party MOU -- Social

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Agreement Party. Dennis Razak is that you are imposing tough welfare

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cuts. have sympathy with that? Greece had

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an austerity programme that was probably one of the harshest

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austerity programmes that have been implemented. That is a fact. No

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other country in Europe or elsewhere, following emerging

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economies, has had such a drastic cut in income. Is the price too

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high? The price was extremely high on the people of Greece and

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continues to be extremely high. That is why there has been so much

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political opposition in a quest for aid different package. -- a quest.

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One that... Old on a second. -- Hold. A package that is more

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equitable. The deal struck in July... Because, maybe, it is the

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product of a crisis and an in-house in terms of negotiations, in my view

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it is the most manageable one. -- impasse. Manageable in quotations,

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both politically and economically. Why do I say so? First of all, it is

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more reasonable. Less austerity attached to this particular

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programme. You think programme. You think it can work

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this time? I think it is more manageable. OK. Thank you for coming

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on to HARDtalk. Thank you very much. Thank you.

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