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Achieving Sustainable Economic Reforms in Greece in 2011 and Beyond




Bob Traa, Senior Resident Representative in Athens, International Monetary Fund
Ladies and gentlemen, thank you for inviting me to speak with you today, with a special word of gratitude to the organizers. I am pleased to share some thoughts on economic developments in Greece and prospects for the banking system.
More precisely, I will touch upon three items: (i) where is economy policy today? (ii) the need to reinvigorate policy momentum, and (iii) what is the task for banks?

A. Where is economic policy today?
Greece has come to a critical point. The country faces an important choice between continuing with the bold reform program to build a modern and competitive economy that provides growth and jobs; or, in the face of the difficult head winds, to allow the pace of reform to slow. We believe that would be a mistake, because it would prolong the difficult times, rather than help resolve them.
Please recall that just over a year ago the economy was in dire straits, sinking into a deep recession and facing acute fiscal and external pressures. It was against this background that the economic reform program was begun and I will argue that this bold effort has had a positive impact, contrary to the perception in some quarters that advancements under the program have been insignificant.

Let me highlight some examples:

  • The fiscal deficit. The deficit was cut by 5 percent of GDP despite a recession of 4½ percent of GDP—this is a major achievement;
  • Inflation remains too high in the headline but it is declining. Indeed, net of temporary tax effects, it has been running well below the euro-average since July 2010;
  • Competitiveness is improving, with unit labor costs falling significantly;
  • Dynamic adjustment. The structure of the economy is changing with net exports now leading growth, thereby beginning to offset the moderation in domestic demand;
  • The banking system. Very germane to today’s topic, banks have been resilient and maintained adequate capitalization (with several large banks going to the market);

In addition, the country has also started an ambitious agenda of broader structural reforms:

  • A major pension reform—one of the boldest in Europe—has materially strengthened solvency;
  • Labor market reforms have made a step forward toward greater flexibility by cutting hiring and firing costs, and allowing firm-level employment contracts;
  • Service sector reforms have begun to free up transport and restricted professions, while business environment reforms are simplifying start-up and licensing procedures, and approval processes for large investments.

In short, the country has had significant accomplishments in 2010 for which, also in comparison with other crisis countries that I have been involved with, it deserves credit.
Regrettably, however, the task of continuing these achievements has been made more difficult by stiff headwinds from a worsening domestic and external political environment:
• First, after a period of improving confidence in the third quarter of 2010, market turmoil elsewhere in the Euro area put renewed pressure on Greek spreads,
• Second, wavering political support for the program and domestic infighting, combined with mixed messages from Euro area partners, has increased uncertainty.
• Third, recurrent discussions of private sector involvement have raised market fears that undermined the credibility of Greece’s commitment not to restructure the debt.
• And fourth, the ratings of the sovereign, the banks, and their structured financing products have been downgraded, complicating liquidity management.
In this context, since the end of 2010 the implementation of the reform process has lost momentum, now placing the government’s program at a crossroads:
The structural fiscal reforms have been slow to show yields, and as a result the reduction of the fiscal deficit has had to include significant temporary fixes (such as cash expenditure compression (with arrears) and one-off measures). Without deepening these structural fiscal reforms, however, the deficit could get stuck at 10 percent of GDP going forward.
In addition, implementation of the broader real economy structural reforms has also slowed down in 2011. This means that adjustment is increasingly coming from pressure of the recession on unemployment, rather than through productivity gains and a well-lubricated reallocation of resources in the economy. Our concern is that without implementing further reforms, the economy will rebalance through lower incomes and living standards (i.e. lower demand), rather than through higher productivity and output (i.e. higher supply).

B. The need to reinvigorate policy momentum
For these reasons, it is of paramount importance to reinvigorate reform efforts and unlock economic growth potential. Making progress will require implementing reforms in four key areas:

  • First, the authorities’ medium-term fiscal strategy and the legislation necessary to implement its measures need to be approved by parliament. This strategy aims to reduce the deficit to below 3 percent of GDP by 2014, thereby putting the debt ratio on a downward path, while ensuring a fair sharing of the adjustment burden. The focus is on consolidating state entities, tax policy, public administration reform, and better targeting of social spending.
  • Second, the privatization plan also needs to be approved by parliament, and the process of asset sales should begin without delay. No-one can accuse Greece of being half-hearted if the country achieves its privatization targets through 2015
  • Third, in the area of fiscal institutional reforms, the anti-tax evasion plans need to yield results, and spending controls and fiscal reporting needs to be fully implemented.
  • Fourth, implementation of the broader real economy structural reforms to improve the business environment and employment needs to be pursued with renewed vigor. Examples include: (1) collective bargaining reforms and subminimum wage possibilities need a further push; (2) the “fast track” investment procedure finally needs to live up to its name and be broadened to additional investment projects, not just selected big ones; (3) slow phasing-in of liberalization of regulated professions or truckers reforms, needs to be avoided in future—reforms need to become effective immediately. There is a host of other reforms that have been started but where their potential has not been exhausted by any means—these also need a new dose of energy and effectiveness.

Pursuing these reforms will open up opportunities for investment and underpin greater confidence. We believe that the Greek adjustment program can be successful, and this success will also hinge on three other vital factors:

  • The Greek authorities must speak with one voice, leaving no doubt about their resolve to achieve fiscal consolidation and improve growth potential.
  • At the same time, Greece’s partners in the euro area also need to speak with one voice and commit firmly to the program, leaving no doubt about their continued financial and political support for the country’s efforts.
  • Finally, the Greek banking system will also play a crucial role in leading the way to economic recovery, by financing investment and trade, and supporting the macroeconomic and fiscal programs. So let me now turn to the prospects for the banking system.

C. The tasks for banks
The crisis has put Greek banks under strain.

  • Banks weren’t overly leveraged at the beginning of the down turn, but many of them increased their sovereign exposures in the run-up to crisis, also by leveraging available low-cost ECB refinancing.
  • With funding subsequently reduced, the system now faces a liquidity challenge. Banks have been shut off from the wholesale funding markets (except for some sporadic and costly access), and the deposit base has been shrinking due to the impact of the recession and the steady current account deficit. ECB exceptional support has helped, but will have to be unwound over time.
  • The system also faces a challenge to preserve adequate levels of capital. Non-performing loans are on the rise, dragging profits down. And the exposures to the sovereign have reduced banks’ valuations, making it important further to raise capital.

The program envisages several policy channels by which to support financial stability:
The government and central bank have the tools to provide liquidity support, within the ECB’s exceptional support mechanisms. Government guarantees for bank bonds have been effective in providing support to banks, and a new tranche is being prepared. The Bank of Greece has other instruments at its disposal as well.
For capital support, the Financial Stability Fund has been made available as a backstop for viable banks that cannot raise capital in the private market. FSF needs are regularly reviewed to make sure that the fund has adequate amounts available.

Let me stress, however, that the FSF safety net is not meant to substitute for banks’ own actions. The onus must be on banks to take care of their own problems to the maximum extent possible. Not least due to the need to achieve greater separation between banks and the sovereign. Banks will need to plan carefully to operate in this environment:
Medium-term funding plans are welcomed. The program recognizes that deleveraging cannot proceed at too fast a pace, lest it undermine asset prices and the recovery itself—a credit crunch must be avoided. At the same time, banks need to extricate themselves from the exceptional support measures provided through the euro system. The funding plans are calibrated to reconcile these tensions, so that the deleveraging can take place at a pace that is consistent with the fiscal and macroeconomic program.
Banks should further increase capital cushions. The uncertainty of how the recession and fiscal adjustment will affect the loan book calls for a capital buffer. As long as doubts exist about the assets held by banks, wholesale market access will likely remain hampered. In this regard, larger capital cushions will help to reduce these doubts.
Now, as the system adjusts to lower leverage, higher capital, and the impact of fiscal adjustment, what should we expect?
• Banks need to work closely with their clients to avoid widespread loan defaults, which could further deepen economic woes. On one side, the legal framework for private loan restructuring can be further improved to optimize this process both for banks and their clients. From the other side, the fate of the Greek sovereign and the banking system also remain closely intertwined: the government depends on banks’ continued commitment to maintain exposure. In turn, Greek banks are affected by the sovereign’s fiscal predicament, but they also depend on government guarantees for collateral and would be severely hit in any sovereign restructuring scenario.

  • Regarding deleveraging of the system, it may take some time for deposits to revive, and banks will undoubtedly make an effort to deleverage via disposal of non-core assets, the reduction of foreign exposures, and other steps as necessary.
  • The public sector needs to exit the banking system. The government’s privatization strategy envisions the sale of the government’s various stakes. This will remove allocative distortions and favor better-yielding investments through private banks.
  • Banking sector consolidation is necessary. The entry of additional first-tier international banks as strong partners would bolster the Greek banking system—both for liquidity and capital–and thereby support confidence and the economic recovery.

So, in conclusion, allow me to return to the points we made at the outset:

  • Greece stands at a critical juncture with no time to lose.
  • The past twelve months have been difficult, but the severe imbalances that have been built up over decades, bringing the economy to the brink of collapse a year ago, have been managed with more success than is sometimes recognized, even though the recession was unavoidable.
  • But good reforms have started and are gaining traction, laying the base for renewed growth. Now is not the time to slow down. Quite the contrary, this is the time to push ahead vigorously to shorten the time period to a new growth cycle.
  • Financial sector stability plays a crucial role in the recovery. The basis is there to support financial stability, and banks must do their own part. In particular, banks should seek further capital and improve markets’ perceptions of their valuation.

Finally, Greece’s growth potential and also its resilience are substantial. A fundamentally sound banking system, a reorientation toward a private-sector led investment and export performance, facilitated by far-reaching economic reforms and public sector retrenchment make for a promising mix. Full implementation of the program is essential. I am convinced that Greece will make the right choice, and as progress is made with a great effort by Greece, the IMF and other partners will gladly offer continued support.

Thank you.


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Energy leaders grapple with climate targets at virtual CERAWeek



Energy leaders grapple with climate targets at virtual CERAWeek 1

By Jessica Resnick-Ault and Marianna Parraga

NEW YORK (Reuters) – Global energy leaders and other luminaries like Microsoft co-founder Bill Gates bored in on the tough road to transforming world economies to a lower-carbon future at the kickoff of the all-virtual CERAWeek conference on Monday.

Within that, there was a notable bit of tension as some oil and gas executives asserted their primacy, noting the need for fossil fuels to drive economic activity. CERAWeek, the world’s largest oil-and-gas conference, returned this week after a hiatus in 2020 due to the coronavirus pandemic, and at a time when oil demand is still struggling to recover from the demand destruction wrought.

Panelists were quick to talk up ambitious plans for lowering carbon emissions, boosting investment in new technologies related to hydrogen, carbon capture and renewables.

However, the primary message was that achieving “net zero” – where polluting emissions are offset by technologies that absorb carbon dioxide for the atmosphere – is going to be difficult.

“There just isn’t yet enough renewable energy to fuel all of the energy that people need. That’s in developed countries,” said Andy Jassy, head of Inc’s cloud division who will succeed Jeff Bezos as CEO this summer.

He said the company had announced its goal for net zero emissions at a time when it had not entirely figured out how to get there.

In a keynote discussion, Gates focused on what he called the “green premium,” the cost of products or investments that are more environmentally friendly compared with those that emit more pollution. As technologies improve, those costs will decline.

Coronavirus stopped billions of people from traveling and wiped out one-fifth of worldwide demand for fuel. The U.S. fossil fuel industry is still reeling after tens of thousands of jobs were lost. The pandemic has also accelerated the energy transition, interrupting a steady rise in fuel consumption that may have otherwise continued for several more years unabated.

Since the 2019 conference, many of the world’s major oil companies have set ambitious goals to shift new investments to technologies that will reduce carbon emissions to slow global warming. U.K.-based BP Plc has largely jettisoned its oil exploration team; U.S. auto giant General Motors Co announced plans to stop making gasoline and diesel-powered vehicles in 15 years.

“The tone is different: There’s one theme that permeates the entire conference and that is energy transition,” said CERAWeek Founder Dan Yergin, vice chair of IHSMarkit.

Several of those oil companies also wanted to make clear that they had a role to play as well, even as governments worldwide seek to boost renewable investment.

“We have to put all our effort in to decarbonise our society, but oil and gas are going to be a part of this combination,” said Repsol CEO Josu Jon Imaz.

Other speakers expected to appear include several representatives from national oil companies along with CEOs of Exxon Mobil, Total, Chevron and Occidental Petroleum.

But they will also participate in panels focusing on the energy transition. Occidental CEO Vicki Hollub and Ahmed Al Jaber, United Arab Emirates minister of state, are slated to tackle cutting carbon emissions. Mohammed Barkindo, secretary general of the Organization of the Petroleum Exporting Countries, was scheduled to appear, but backed out, citing a conflict.

Oil companies have come under increasing pressure from shareholders, governments and activists to show how they are changing their businesses from fossil fuels toward renewables, and to accelerate that transition.

However, numerous speakers warned that the viability of certain technologies, such as hydrogen, remains far in the future.

Some CEOs warned that more oil-and-gas investment was necessary.

“We don’t think peak oil is around the corner – we see oil demand growing for the next 10 years,” said John Hess, CEO of Hess Corp. “We’re not investing enough to grow oil and gas in the future,” he said, explaining that prices would need to rise to support that investment.

(Reporting By Jessica Resnick-Ault and Marianna Parraga; additional reporting by Stephanie Kelly, Jeffrey Dastin and Gary McWilliams; writing by David Gaffen; Editing by Marguerita Choy)


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AstraZeneca sells stake in vaccine maker Moderna for nearly $1 billion



AstraZeneca sells stake in vaccine maker Moderna for nearly $1 billion 2

(Reuters) – AstraZeneca sold its stake in rival COVID-19 vaccine maker Moderna for roughly $1 billion over the course of last year as the Anglo-Swedish drugmaker cashed in on the meteoric rise in the U.S. company’s shares.

London-listed AstraZeneca recorded $1.38 billion in equity portfolio sales last year, with “a large proportion” of it coming from the Moderna sale, according its latest annual report.

Shares in Moderna, which went public in 2018 at $23 per share, surged more than five times last year after it began working on a COVID-19 vaccine based on a new mRNA technology that won U.S. approval in December.

Its shot relies on synthetic genes to send a message to the body’s immune system to build immunity and can be produced at a scale more rapidly than conventional vaccines like AstraZeneca’s.

Last week, Moderna said it was expecting $18.4 billion in sales from the vaccine this year, putting it on track for its first profit since its founding in 2010.

AstraZeneca began investing in Moderna in 2013, paying $240 million upfront and by the end of 2019 had built up its stake to 7.65%.

That would be worth about $3.2 billion based on Moderna’s 2020 closing stock price of $104.47, Reuters calculation showed.

AstraZeneca’s vaccine being developed with Oxford University has not been authorized in the United States and uses a weakened version of a chimpanzee common cold virus to deliver immunity-building proteins to the body.

In December, U.S. drugmaker Merck & Co said it had sold its equity investment in Moderna, but did not disclose the details of the sale proceeds.

Asset manager Baillie Gifford on Monday disclosed in a separate filing it now held 11% passive stake in Moderna as of Feb. 26.

Moderna shares were down 5% at $146.62 in afternoon trading.

(Reporting by Ankur Banerjee, Pushkala Aripaka, Kanishka Singh and Maria Ponnezhath in Bengaluru; Editing by Jason Neely, David Evans and Arun Koyyur)


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Vulnerable children stay shut indoors in UK with no vaccine in sight



Vulnerable children stay shut indoors in UK with no vaccine in sight 3

By Emma Batha

LONDON (Thomson Reuters Foundation) – When Britain’s children return to school next week as the country eases its third lockdown, six-year-old Daniel Meredith will not be joining his friends but will remain shut indoors with no end date in sight.

Daniel has complex medical conditions which could make a COVID-19 infection fatal but there is no vaccine available for children yet, leaving thousands of families with little option but to continue shielding.

“We really do feel like the forgotten people,” Daniel’s mother Sara Meredith, told the Thomson Reuters Foundation.

“Our lives are based around fear.”

Britain, which has launched one of the world’s fastest vaccine roll-outs, has prioritised inoculations for clinically vulnerable adults.

But with paediatric trials only just getting under way, vulnerable children could have a long wait.

Disabilities charity Contact said 61,800 children in Britain were at high risk of complications from COVID-19.

Some have been confined to their homes since before the first lockdown began in March last year.

The pandemic has claimed more than 123,000 lives in Britain, one of the world’s worst hit countries.

But with over 20 million people now inoculated, restrictions on socialising could begin to ease later this month.

Family reunions are not on the cards for Daniel, however.

Meredith, 40, said her son missed his grown-up sisters and carers, who have been unable to visit them in Walsall, central England, for a year.

“This has had a massive impact on him. He doesn’t understand about COVID. He sees it as nobody wants him,” she said.

“Daniel loved school and was thriving. But I cannot see him going back this year.”

The lockdown has been particularly grueling for parents of children requiring round-the-clock care like Daniel, whose fluid levels need to be managed day and night.

Close to tears with exhaustion, Meredith said the family used to get help from outside carers so she and her husband could catch up on sleep during the day, but it was too risky to have them in the house now.


The University of Oxford said it was beginning trials of the Oxford/AstraZeneca vaccine on children aged over six in a study that will run until September 2022, but results could be available this year.

Pfizer and BioNTech are already evaluating results from trials of their vaccine on 12- to 15-year-olds. Studies in over-fives are set for the coming months, and under-fives later in the year.

The British government says most children are unlikely to get ill from COVID-19, but in very exceptional circumstances doctors may give a vaccine “off-licence” to high risk teenagers.

But parents who have tried to get their children immunised said they had been sent around in circles.

London company director Yvonne Woodford has battled for weeks to get a vaccine for her 13-year-old daughter Katherine, who has Down’s Syndrome and a respiratory condition requiring her to use a ventilator at night.

She said Katherine’s paediatrician had said she should have the jab and their local doctor could provide it. But their doctor, who initially also assumed he could give the vaccine, later informed her he was not authorised to do so.

In a desperate bid to cut through the red tape, Woodford took Katherine to her own vaccination appointment, armed with the paediatrician’s letter.

The centre told her they would be shut down if they vaccinated Katherine.

Woodford is now pushing to get the issue raised in parliament.

“All the doctors and consultants who know Katherine think she should have it, but at the moment there’s no way of it being given to her,” said the mother-of three.

The health department could not immediately say who, if anyone, was authorised to give the vaccine “off-licence”. Britain’s national health service and paediatric body also could not shed light on this.


Lockdown has not only impacted Katherine’s schooling, but also her health because she cannot go outdoors to exercise.

“We’ve shut down as much as we possibly can. We don’t see anyone,” said Woodford, who has to keep an all-night vigil by her daughter’s bed several times a week after cutting back on outside carers.

The situation has also impacted her two sons who have remained largely cooped up indoors even when restrictions have been eased.

“It’s very worrying and absolutely exhausting,” Woodford said. “How long can you expect families to go on like this?”

Her frustrations are shared by Julie Nixon, a mother-of-six who also fosters three boys with severe learning disabilities and complex medical conditions at her home on the south coast. Doctors say the oldest, James, would not survive COVID-19.

“Until he has his vaccine our life can’t resume. We’re absolutely desperate for it,” said Nixon, 53, who has been honoured by the Queen for her work in caring for children with disabilities.

She worries about the longterm impact on the physical health of her foster sons, who have missed important medical appointments and physiotherapy normally provided by their school.

James has outgrown his spinal jacket, but Nixon cannot risk taking him to hospital to get a new one fitted.

She has also kept her own school-age children off school for fear they could bring the virus home.

“They have seen no friends, they have not been out and about, and I worry about their mental health,” Nixon said.

“Everyone in Britain is hanging on for the light at the end of the tunnel now, but there’s no light for us yet.”

(Reporting by Emma Batha @emmabatha; Editing by Belinda Goldsmith; Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, which covers the lives of people around the world who struggle to live freely or fairly. Visit


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