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Interview of the Bank of Greece Governor Yannis Stournaras to the newspaper “Fileleftheros” and Konstantinos Mariolis

14/09/2018 - Articles & Interviews

Ten years on from the collapse of Lehman Brothers, which triggered the worst economic crisis since the Great Depression, what is the lesson to be learned and to what extent do you think the world has learned from the mistakes that led to a global crisis?

The most important lesson from the 2008 financial crisis and the collapse of Lehman Brothers is that the financial system is not self-regulated; therefore, rigorous supervision, with modern instruments and well-trained staff, is absolutely necessary for its stability. Capital adequacy, liquidity and asset quality review, corporate governance and macro-prudential supervision rules are the main pillars of the bank supervision system, which had weakened or were completely absent in the 2000s. Today, banks are significantly stronger in these areas relative to the crisis period, but this does not mean that all sources of risk have been eliminated for good. This is mainly due to the complex interdependencies between the tightly regulated financial system and the so-called “shadow” financial system that is not subject to strict supervision, as well as to factors that affect the financial system but are outside its control (such as high public debt, extreme fluctuations in exchange rates, geopolitical tensions, trade wars, the consequences of wrong economic policy decisions, etc.), but also to the imperfections of the broader institutional framework (e.g. a lack of a pan-European Deposit Insurance Scheme).

Initially, many were of the view that Greece was beyond the reach of the crisis; this view proved to be wrong, as was the case with the rest of the world. How did the 2008 global financial crisis actually affect our country?

All countries and all financial systems are within the reach of a global crisis. No one is immune. Of course, the weaker the fundamentals and the financial system of a country, the greater the consequences of an international crisis. Our crisis, the Greek crisis, did not originate from the financial system, nor was it a crisis of the financial system. It was a fiscal crisis, a public debt refinancing crisis, a balance of payments crisis and a competitiveness crisis, which took a heavy toll on the domestic financial system. In this sense, the Greek crisis was different, and more pronounced than those of Ireland, Spain or Cyprus, which were purely banking crises (the Portuguese crisis was of a mixed nature), which affected public debt and the fiscal positions of those Member States, mainly through the recapitalisation needs of their banks. The global financial crisis certainly affected us, mainly because after the collapse of Lehman Brothers the spotlight of markets increasingly turned to obvious sources of risk, including Greece’s huge “twin” deficits at the time, i.e. the general government deficit and the current account deficit, coupled with high public debt and loss of competitiveness.

In recent years, you have been a member of the Governing Council of the European Central Bank, representing the Bank of Greece. Do you think that the necessary steps have been taken to insulate the European - but also the global - banking system against the risk of a new crisis? Are there other initiatives that in your opinion should be taken?

I believe that many important measures have been taken to shield banks on both sides of the Atlantic, as well as in many Asian countries, in comparison with the situation prevailing in 2008: supervisory measures, in particular a significant increase in bank capital; macro-prudential supervision measures to safeguard the stability and liquidity of the financial system as a whole; and corporate governance measures. The so-called Basel rules are now in effect everywhere, with no exceptions. However, it is with some concern that I see, on the one hand, a recent tendency to relax supervision in the United States and, on the other, delays in establishing the so-called “third pillar” of the European Banking Union, i.e. the pan-European Deposit Insurance Scheme, which is a necessary condition for a complete European Banking Union alongside the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM). In order to further shield European banks, this “third pillar” is essential, as is also the promotion of the Capital Market Union and a single rulebook on bank resolution. Progress must also be made towards correcting other imperfections of the euro area architecture, such as the asymmetric adjustment of its economies to shocks (meaning that the burden of adjustment falls almost exclusively on Member States with current account deficits and much less on those with large surpluses) and the lack of a safe European bond.

Lehman’s collapse reminded us that nothing should be taken for granted, and now everyone is trying to predict the next great crisis. In the current global environment, where all markets are fully interconnected and there are countless uncertainties, are you worried about a new global crisis? What should be the targeting of Greece so that it is prepared as much as possible?

Indeed, crises seem to be inevitable, no matter how much progress has been made in regulation and supervision, both for the reasons you mention in your question and for many others: shocks to emerging economies, caused by their own economic policy mistakes, the US expansionary fiscal policy and the resulting appreciation of the dollar, coupled with excessive foreign borrowing by emerging economies; the trade war of the United States, China and other countries that is already raging; the asymmetric effects of the upcoming tightening of monetary policies, mainly due to the high debt of certain countries, could be some of the causes of the next crisis or crises. What we can do, however, is mitigate the impact on the Greek economy: strong fundamentals; avoiding past mistakes; delivering on our commitments; reducing public debt; reducing the ratio of non-performing loans; further improving corporate governance in banks and businesses, private and public; further de-politicisation of public administration; promotion of excellence and evaluation in all aspects of public activity.

Furthermore, implementation of appropriate policies with a view to (a) attracting foreign direct investment needed to close the domestic “investment gap”; (b) increasing productivity, which is absolutely necessary to offset the impact of the projected population decline; (c) consolidating economic sentiment mainly by strengthening independent institutions; (d) fostering the “knowledge triangle” (education, research, technology), which is key to the long-term welfare of citizens and a shield against risks.


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