Transcript The Main Rationale

The (Greek) Debt Question
A Concept Linking the Resolution
of the Debt Problem to investments
Gabriel Colletis
Jean-Philippe Robé
Robert Salais
Study Days in Athens
01-04 June 2015
Outline
 Some introductory remarks
 The purpose of the proposal
 The constraints
 The main rationale
 One (rough) example
 The point of the proposal
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Some introductory remarks
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 Two main interlinked problems for Greece:
• The lack of a productive basis:
- The production is far lower than the consumption
(P<C)
- The imports are far higher than the exports (M>X)
• An extreme dependence on external funding
 The Debt is not the cause of Greece’s
problems: it is a result, a consequence of
these problems
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Some introductory remarks
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 The resolution of the debt problem can not
take place via a mere financial approach
• because the debt is primarily an economic
problem
 The main challenge for Greece:
• To engage the development of its productive
activities without further delay
- what is impossible without a viable solution to the
burden of the debt
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Some introductory remarks
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 The proposed concept excludes
• neither a questioning of the legitimacy of the
•
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debt
nor an agreement for reimbursement by
Germany of its war debt towards Greece
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The Purpose
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The Purpose
 The purpose of this presentation is to address the issues
presented by the restructuring of the Greek debt – and
beyond
 The solution we propose goes beyond the indexation of
debt repayments on economic growth
 The concept we propose uses the debt issue to develop
a plan to industrialize Greece through a substantial
increase in productive investments
 Many operational details need to be worked out
 But before going into these, we thought it worthwhile to
run the concept itself
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The Constraints
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The Constraints
 Our concept takes into account 3 major
constraints (of different nature)
1: The need for a duplicable solution (i.e.
workable not just for Greece)
2: The need to adjust outflows to the primary
budget surplus
3: The need to take into account the prevailing
mantra against increased public spending
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The Constraints:
(1) The Need for a Broader Solution
 It is necessary to have a broader perspective
than merely concentrating on the Greek crisis:
• The key creditor decision makers need to agree on
•
•
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something workable beyond the Greek case
Other States may/will need similar plans and it
would be hard to refuse them something accepted
for Greece
In this regard, a mere reduction of the debt would
be hard to implement for all the debtors in need
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The Constraints:
(2) The Need to Adjust Outflows to the
Level of Greece’s Primary Budget Surplus
 The efforts made by Greece and the Greek
population are already severe
 In the medium/ long term, a primary budget
showing a surplus gives a room to propose a
constructive solution
• Part of the surplus can be used to service/reimburse
part of the debt [rescheduling part of the debt]
• Part of it can be used to invest in Greece productive
capacities by converting part of the debt
 Contributions to the investment Funds (to be created)
shall be tailored based on an expected reasonable
budgetary surplus…
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The Constraints:
(3) The Mantra According To Which
There Should Be No Stimulation Of Growth
With Larger Public Expenditures
 The concept we propose is « saleable » is the
sense that there is no additional public funding
sent to Greece
• It can be presented in various ways:
- « Mere restructuring of the debt »
- « Investment in the future of Greece/Europe »
- « Plan to stimulate the whole of the European
economy: for Southern countries through the
investments made and for Northern countries through
the export opportunities »
• Always, with no public additional funding
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The Main Rationale
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The Main Rationale
 The main rationale for the concept we propose is to
convert part of the debt load into a form of
“equity”
 The main principles are as follows:
• A: Creation of a series of Bilateral Investment Funds
• B: Funding in part using the primary budget surplus
• C: Exit via sale (auction) of the investments, the first
dividends going to the foreign partner in the relevant
Fund
 The underlying basic principle in matter of
investment is to introduce cooperation between
European peoples, instead of competition between
their social systems
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The Main Principles:
(A) Creation of a Series of Bilateral
Investment Funds
 The vehicles used for the conversion would be
bilateral public Funds, held equally between two
public institutions: one Greek and one from the
relevant creditor country
• In the French example, these could be the Public
Investment Bank (BPI) and its Greek counterpart (the
Development Bank)
 The governance of the Funds should preserve Greek
sovereignty to the largest extent possible while giving
a significant say to the former creditor State
 Of course, the various Funds could co-invest in any
given project
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The Main Principles: (A) (continued)
Governance Issues
 The Funds would be advised by teams of experts in charge of




analyzing and selecting the investment opportunities and
monitoring their implementation
Experts should be selected by common agreement between Greece
and the other Member State
The basic criteria for the investments would be
• the promotion of a durable economic development
• answering to the fundamental needs of the population
• raising the level of qualification of the Greek workers and employees
The Greek Parliament should have the last say in the selection
The Funds could invest in new joint ventures, credit operations or
equity investments in existing companies, Greek new companies
and Greek subsidiaries of foreign companies
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The Main Principles:
(B) Funding
 Funding would be provided by using the primary budget
surplus
• and through time by a conversion of part of the bilateral debt
service/principal into equity in the Funds
 There is here no economic and legal debt cancellation
• Instead of being used to reimburse a creditor, 50% of the flows
•
•
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(in our example) would be directed to the Fund
The (former) creditor State would receive investment certificates
giving it priority of payment for its cash injection (plus interest)
upon monetization of the relevant Fund’s investments
The remainder (if any) can be divided following a formula to be
agreed upon
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The Main Principles:
(C) The Exit
 Each Fund would aim at monetizing its investments once
realized and operational
 Such monetization should be left, in each Fund, at the
discretion of each partner. Greece could be interested to keep
national control on the future of the investments with regards
to national needs
 Especially privatizing through such a differentiated schedule
would have as its main interest for Greece to keep control on
privatizations and to orient them towards the basic needs of the
Greek population
 The ex-creditors, now investors in effect would not lose their
claims against Greece
• they would alleviate in a first step the Greek debt burden while
• participating financially in the economic reconstruction of Greece and
• recovering their converted investment upon exit
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One (Rough) Example
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The Example of France
 If one takes the example of France, which directly/indirectly
holds about 40 billion Euros in claims
• 50% of the claims could be converted over a period of (say) 5
years
 The French-Greek joint investment Fund would benefit of 4
billion Euros made available for productive investments each
year for 5 years
• this could be increased through leverage
 Of course, the rate of conversion and the terms of the
remaining debt would have to match the possibilities offered
by the projected primary budget surplus
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The Point of the Proposal
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Without Productive Investments in Greece
the Debt will Never be Reimbursed
 The Greek economy is moribund, is not able to produce
enough revenues to face humanitarian urgency,
remunerate factors in activity and reimburse the debt
 The risk of a Grexit is a major obstacle for any progress
• It is making the privatization program very difficult to
implement
• Local and foreign investors have no confidence
- The level of FDI is very low
- Greeks themselves do not invest in Greece
- Displaced capital will not return without serious incentives
and solid perspectives
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The Concept proposed
 Would make it highly credible that Greece will remain in the
Eurozone
• Restores trust in the future of the Greek economy
• Evidences a commitment by the Eurozone members to keep
•
•
•
•
Greece within the Eurozone
Makes it easier to implement the following possible privatization
program (and the funding of the Funds)
Makes it easier to attract FDI
Will contribute in a reduction of the real interest payable by
Greece
Would facilitate the repatriation of displaced capital
 Will lead to a direct injection of billions of euros of
investments in the productive sector
 Could comprise a partial tax forgiveness component for
repatriated capital
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What’s in it + for who
in the concept?
1/2
 For Greece
• part of the proceeds of the effort requested from
the Greek population remains in Greece and
translates into
-
Growth and Development
Jobs
Consumption
Taxes
• the debt load is reduced by half (in our example)
and the interest should be reduced as a
consequence
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What’s in it + for who
in the concept?
2/2
 For the « creditor » country
• there is no haircut
- The debt load is reduced with no debt cancellation
- The risk on the « equity » is probably not higher than on the
remaining of the debt
• its industries have investment opportunities in Greece
 For the Eurozone, BCE, IMF
• A viable solution to the overall European debt problem has
been implemented
• Cooperation and economic solidarity, instead of
competition and pure national interest, become principles
to build an economic and social Europe
• A serious new impetus to the European economy and
construction is thus given
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Identified Challenges
 Need to identify productive investments
according to a Greek recovery plan
 Need to deal with the existing structure of the
debt and preferred creditors (IMF, ECB)
 Need to match (with some flexibility)
• the service of the remaining debt and the
•
contributions to the Funds
with the primary budget expected surpluses
 Need to deal with EFSF and treatment of
guarantees under ESA 95 (European System of
Accounts)…
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