Business Review 2015 - page 10-11

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BUSINESS REVIEW 2015
2015was a year duringwhich theGreek Economy andour
banking system came under severe strain. The uncertainty
about theoutcomeof theGreekGovernment’s negotiations
with theEuropeanpartners, whichdominated the entire first
half of the year, resulted in significant deposit outflows and
in the impositionof capital controls. In addition, it aggravated
theproblemof nonperforming loans and set back theGreek
Economy’s anticipated recovery.
Despite thesedevelopments, theGreek Economy proved
remarkably resilient. At just -0.2%, recessionwasmilder than
theonepredictedby the international organisations following
the impositionof capital controls. This development canbe
attributed to the low elasticity of the – already significantly
reduced – private consumption, aswell as to thepositive
contributionof net exports to theGDP.
TheGreek Economywill remain in recessionduring2016,
while theGDPgrowth rate is expected to return topositive
ground as of the second half of the year, as confidencewill
be restored and structural reformswill be further promoted,
following the completionof the first reviewof the new
EconomicAdjustment Programme. The eliminationof the
uncertainty surroundingour country’s future in theEurozone
and the successful outcomeof the negotiationswith the
Europeanpartners create a new framework that favours the
recovery of economic activity and the returnof economic life
to normality.
The liftingof political uncertainty could have a substantial
effect onour country’s international competitiveposition.
Thegreat improvement in competitiveness in terms of labour
cost, whichwas registered inour country over thepast
years, was not enough toboost investment and exports. A
major component of competitiveness is the cost of capital.
The latter is determinedby the high cost of raising liquidity
due to the high risk premiums, whosepricing also reflects
political uncertainty to a large extent. Thus, the reductionof
political uncertainty bolsters the country’s credibility, which in
turn leads to a reduction in the cost of capital, has a positive
effect on attracting investment capital and strengthens
the country’s productivepotential. The recovery of the
economic activitymust be the cornerstoneof our policy,
not only because itwill help improve incomes and reduce
unemployment, but alsobecause itwill bepivotal to the
national effort to improvepublic debt sustainability.
At this point, it isworthmentioning that the commitment
madeby theGreekGovernment in the context of the first
reviewof theEconomicAdjustment Programme, regarding
the adoptionof a contingency planproviding for additional
cuts onpublic spending in the event that the fiscal targets are
not achieved, enhances the country’s credibility in the inter-
national markets. This contingency plan serves as additional
assurance toour Europeanpartners of theGreek authorities’
resolve to honour their commitments, aswell as a factor that
alleviates concerns in the capital markets and establishes a
climateof stability in thebusiness environment.
Yet, the eliminationof political uncertaintywill merely trigger
thedevelopment process. The sustainability of this process
presupposes the attractionof direct domestic and foreign
investments, whichwill improve the international competi-
tiveness of our products and services through improvements
inproductivity and, secondarily, will increase the efficiency
of other businesses aswell, through upgrades in technology
and know-how. The failure to achieve a shift in theproduction
model of Greeceduring the crisis is closely linked to the
scarcity of investments inour country. In recent years, disin-
vestment inGreece has takenon largeproportions. In2007,
investments corresponded to25%of theGDP; in contrast,
last year they stood just above 11%, while currently they lag
behinddepreciationof production equipment.
Disinvestment is largely responsible for themost significant
socio-economic problem causedby theprolonged recession:
the explosive riseof long-term unemployment and especially
youth unemployment. Beyond its social dimension, this
problem also has a negative impact on thedevelopment
process, as it erodes skills and causes anoutflowof high
quality human resources – a phenomenonwidely knownby
theEnglish term “braindrain”. As a result, Greece is deprived
of high-qualityworkforce andof innovativebusiness ideas
and, consequently, of a key driver of economic growth.
In addition to restructuring theproductivebaseof theGreek
Economy, the achievement of the fiscal targets, towhich the
Government has committed itself, remains a key element of
the economic policy. It isworthmentioning that thepackage
of fiscal adjustmentmeasures relies primarily on increases in
the rates for almost all direct and indirect taxes. The interna-
tional aswell as theGreek experience show that this policy
reduces the international competitiveness of goods and
services andgives rise todisincentives to employment and
investment, aswell as to incentives for tax avoidance and tax
evasion. It couldbe argued that curtailingpublic spending
would result in thedeteriorationof the services providedby
theState. Yet, thegeneralised increase in tax rates ultimately
leads to a further reduction in incomes, while theburdenof
indirect taxes falls proportionatelymoreon the financially
weak. For this reason, limiting tax evasion and improving the
efficiency of public spending are imperative. Thiswill allow
for reducing the excessively high tax burden and, at the same
time, will improve the social services provided.
Despite theweaknesses of the fiscal adjustment policy, the
completionof the review, the commitment topromoting
swiftly the structural reforms and the adherence to the
scheduleof privatisations can restore confidence in theGreek
Economy. The acceptance, once again, of GreekGovernment
securities as collateral by theEurosystem can lead to a signif-
icant reduction in the cost of financing for theGreek banks
and, consequently, for the real economy. The roleof the
banking system in this national effort is of crucial importance.
Inorder to respond to this role, credit institutions should rise
to thegreat challengeof recovering the highest possible
percentageof nonperforming loans. The institutional and
legal environment that has beenput inplaceby legislating
the country’s obligations under the new agreementwith the
Europeanpartners can assist thisHerculean task.
Facedwith the volatile economic environment of 2015,
AlphaBank coped successfullywith the test of its new
recapitalisation, withoutmaking any useof State aid and thus
without burdening thepublic debt at all. Additionally, the full
coverageof theBank’s capital requirements byGreek and
foreignprivate investors, affirms once again their trust in the
Bank and in itsManagement.We should also not forget that
AlphaBank is thebank receiving the least capital support
from theGreekState.
Thegreat challenge now is themanagement of non
performing loans. As I have alreadymentioned, the new
institutional and legal framework provides thepossibilities
for addressing this problem in amore activeway.With a
particularly highCashCoverageRatio, we are ready to
Letter from
theChairman
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