Ivanka Petkova, Chairwoman of the Board of Trustees of the Economic Policy Institute: Greece accounts for 3% of Eurozone’s GDP but has caused a 25% decline in the exchange rate of stocks on global markets

- Associate Professor Petkova, what is the significance of the outcome from the Greek crisis for Bulgaria?
- Bulgaria is connected with the Greek economy in several ways. In the first place, Greece has repeatedly ranked among the top three foreign investors in Bulgaria. Secondly, our country is to a large extent dependent on the Greek banking system since about a quarter of Bulgarian banks’ assets are Greek-owned. Therefore, what happens to parent banks cannot but affect their subsidiaries. We have a common border and this fact is taken into consideration when making rating assessments of the state of Bulgaria’s financial system and economy. This risky factor cannot escape the attention of rating agencies and that is why I am surprised at the statements of some of my colleagues who argue that our country can avoid external shocks if we have good economic indicators. We live in a globalised world where the relationships between individual economies are assessed in depth.

- Following the news that the Central Intelligence Agency (CIA) has warned of a possible military coup in our southern neighbour country, Greek depositors withdrew €1.5 bn from banks in a single day. Hasn’t this decapitalised the parent banks of subsidiaries in Bulgaria?
- Participants in financial markets are unfortunately highly sensitive to negative news. Therefore, this news will inevitably affect subsidiaries as well. Greek banks are in a complicated situation by and large. In the first place, this is due to the fact that the Greek Government is excluded as a potential issuer of debt, i.e. financial markets are not willing to extend credits to it. There are no investors ready to buy new issues of government securities and this has a negative impact on commercial banks which cannot issue bonds either. On the other hand, Greek banks’ Bulgarian subsidiaries are subject to supervision by the Bulgarian National Bank (BNB). Moreover, BNB’s capital adequacy ratio requirements are much higher, compared to the norms under the Basel agreements and this is good news for Bulgarian depositors. However, the difficulties of parent banks cannot but exert pressure on their subsidiaries outside Greece, aimed at achieving liquidity. Here, we will wait to see BNB’s dexterity in preventing the outflow of cash from our country. Unfortunately, BNB does not have the instruments of a classic bank but diplomatic skills may help for interests to meet and make a bargain.

In 2009, for example, Romania’s banking sector faced difficulties, the national currency was in a crisis and capital left the country. There were concerns that West European banks operating in the region might quit. Then, Austria and the European Bank for Reconstruction and Development (EBRD) launched the so-called Vienna initiative through which foreign banks with subsidiaries in the region were asked to remain in the region and not sell their subsidiaries. In exchange, the European Central Bank (ECB), the European Commission (EC) and the International Monetary Fund (IMF) undertook to help these countries in order to prevent their falling deeper into crisis. In fact, Romania benefited quite a lot from this initiative. Thus, mechanisms for matching the interests of Greek parent banks and these of Bulgaria’s banking system can be found.

- Is a second bailout package for Greece possible?
- Here, we come across serious pressure on the part of the electorate in Germany and the Netherlands who are even ready to “sweep” their politicians if they dare assist Greece with a new bailout package. This will not be €110 bn but much more. The three countries in financial crisis have so far been allocated €256 bn. The contributions under assistance programmes will be a burden for our grandchildren as well and we should not close our eyes to this. Ultimately, this will be a political decision. Unfortunately, political decisions within the EU are quite slow, forgetting that markets are one of the “participants” in the negotiations for a way out of the debt crisis. The long process of decision-making increases the cost of its subsequent implementation and forces us to search for alternatives outside the EU. We remember that, in 2010, the Greek Prime Minister asked for assistance from the U.S., but why wasn’t a decision found earlier and within the Eurozone? The Euro is a serious political project with unpredictable economic consequences. It showed that small countries can cause big trouble. Greece accounts for merely 3% of the EU monetary union’s GDP but in mid-May caused some 25% decline in the exchange rate of stocks on global markets. Therefore, the impact of the crisis in Greece is not regional or confined to the Eurozone and the EU. It is global.

- Considering Athens’ reluctance to impose austerity, doesn’t it sound paradoxical that our small country, the poorest in the EU, will have to pay for foreign debts after Bulgaria’s eventual accession to the Eurozone?
- If it is not too late, we should seek the most serious arguments in order to negotiate contributions in compliance with our capabilities. In complex situations like this, only countries which manage to achieve integrity, cohesion and understanding on an important national issue as quickly as possible succeed to find a good solution. But has anyone heard about a public discussion on the issue of our national contributions or what should our arguments for not paying high instalments be? Why do we always wait to be told from “above” what the price is? We cannot blame politicians all the time. Why should we not be proactive?

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