© David Kohl
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How would you evaluate the current situation in Greece?
I would call it as an adjustment recession, given the past excesses in terms of wage growth and price increases. Currently the economy needs to adjust to a lower growth environment. This adjustment process is actually quite advanced compared to the other Eurozone economies, as we have had already quite sizeable contractions in GDP and import demand. We might see further contraction in Greece's economy next year. This is not so much dependent on the economy itself, but more on the government policies - how quick the government policy is able to increase confidence in the economy and the status quo of what are taxes, what is working environment. It is very crucial for business investment and this could prolong the slowdown, which we see in Greece.
What do you expect from the Troika's report on Greece? Will "troika" conclude that the country is on its way of restoring the economy or it is still unable to deal with the debt problems?
The Troika would conclude that there has been quite a lot of progress in terms of cutting expenditure, particularly on the public side and, by the way, we can already see it in the numbers from the Eurostat. Thus, in terms of the wage bills for public workers, for example, Greece has reduced them quite massively, in my opinion. I also think the Troika would conclude that some progress is missing particularly in areas of privatization of supply-side reforms, namely open up some closed professions, including taxi drivers; privatization of the railway and so on. These are all projects that tend to be politically more sensitive, which have been postponed after the election. The officials might conclude that there have been some deviation in the adherence to the austerity programme and particularly on the front of supply side reforms. These are my expectations.
Do you expect that German Chancellor Angela Merkel will give Greece two additional years to repay the loan, considering that she will face German Federal Elections next year?
First of all, it is of course not Merkel's decision alone, which might turn a path for her political career. She can actually agree to give Greece more time and hide behind a common decision of the Eurozone officials. I think that Merkel will not display such a strong opposition in terms of veto on any decision, which is then also pushed forward by the French president Francois Hollande or the Italian Prime Minister Mario Monti or other heads of governments. I think she is very sensitive to what does it mean for German politics and the re-election probabilities. I assume in the end Merkel will decide in a pragmatic way and try to minimize the negative political fallout in Germany by blaming the majority of the heads of governments and probably getting more commitment from the Greek Prime Minister. In any case the main opposition party in Germany, the Social Democrats, tends to be more in favour of giving Greece a little bit more time. Therefore, in terms of looking at the elections next year I think Merkel would sacrifice the minority coalition party, the Liberal Democrats, and say that they will take this decision, but they can win the elections next year and form a grand coalition with the Social Democrats. The two parties are not so far apart, in terms of being a bit flexible on this issue of Greece.