Hedging against risks?
American business magnate Warren Buffett predicts new bankruptcies of American banks. Economists at the International Monetary Fund (IMF) speak of superficial stability with turmoil already manifesting below the surface. The managing director of the IMF, Kristalina Georgieva, says the global economy is entering a five-year period that will see the weakest economic outlook in 30 years, while David Malpass completed his term as president of the World Bank by delivering a report that warns that, ceteris paribus, humanity is set to lose an entire decade of growth. The common theme of all these warnings is that the next few years will be difficult to very difficult.
Does all this tell us something useful? It does – if we really want to attract foreign capital to invest in Greece or even for markets to lend to us at a tolerable interest rate. An essential precondition for the latter is to regain investment grade. It is not enough, however, to leave the last category (“junk”) only to languish at the bottom of the investment-grade category to safely service our debt. We will need to climb several notches in the investment-grade category to do that.
An essential precondition to both service our debt and attract investment is to quickly push through major reforms. Justice needs to start being delivered swiftly, tax evasion must be restricted, many market sectors that are used to working with high profit rates that do not exist in any other European country need to become competitive, the state needs to modernize, the number of salaried workers needs to be supported and widened, while health and public education structures need to be strengthened.
If we do not proceed with reforms, foreign capital will only come to Greece to make easy profits, without getting involved in new, productive investments. They will limit themselves to high-yield placements (as the Bank of Greece noted in its 2022 report), buying bad loans or real estate and land, participating in or acquiring existing Greek companies or, at the most, setting up two or three data centers.
An essential precondition to both service our debt and attract investment is to quickly push through major reforms
An international framework like the one predicted by the discussions in Washington DC will increase our own difficulties. In order to prevent them, we need to proceed in a timely manner with the internal hedging of international risks. In our case, hedging means completing big reforms. So, can we hedge?
The New Democracy government has not proven that it wants reforms and, in any case, it proved unable to do them in the four years of great expectations and abundant social support. How, if ever, will it be able to do them if it is re-elected? It will have a weak parliamentary majority (due to the electoral law), a society with little patience and a trust shaken by corruption scandals, anti-institutional practices and the wiretapping scandal, with intensifying intra-party activity and with the stress of the regional elections in October and the European elections in the spring.
On the other hand, the main opposition seems to be doing everything it can to maintain or widen the lack of trust among important sections of society. SYRIZA’s latest action was the presentation of the so-called “50-Day Program.” This is a different plan from the program voted by the party conference a few months ago, where the editors replaced fiscal responsibility with a pre-election spending multiplier (about 5.6 billion euros per year for four years) and substituted the hard efforts for development with an unspoken, if not dominant claim: that in order to increase the country’s wealth, it is sufficient – allegedly – for wages and consumption to increase.
It might be difficult to hedge after all.
