ATHENS, Greece – Britain’s exit from the European Union single market would not hurt the continent’s eurozone economies as much as initially expected, and it will be Britain that suffers most, European Central Bank official Yannis Stournaras said Friday.
As Britain and the EU, of which 19 countries are in the eurozone, prepare to enter heated discussions on how to set up new trade relations, Stournaras’ comments suggested the eurozone would be in a stronger position to weather the uncertainty.
“Negotiations will not be easy,” Stournaras, who is also the governor of the Bank of Greece, told The Associated Press in an interview. “But it seems that the effect on the euro economy will be much less than initially anticipated. I think the greatest cost will fall on the U.K. economy, I’m afraid.”
Britain voted in June to leave the EU, and will become the first nation to ever leave the 28-member bloc, which grew out of efforts to foster closer ties on the continent in the aftermath of World War II. British Prime Minister Theresa May has suggested the country could be heading for a definitive break from the EU’s single market, in a move that has become known as “hard Brexit.” The comments have put renewed pressure on the pound and rattled markets.
While economic indicators of both Britain and the eurozone have held up since the June vote, experts warn that the impact could be felt over the longer-term. Once Britain starts the official negotiations, a move expected before April, it will take years to find new trade relations.
Leaving the EU single market will throw up tariffs on trade between Britain and the EU, though Britain depends more on the EU for its exports than the other way round.
Greece, which is struggling to emerge from six years of a deep financial crisis that has roiled the euro currency, will barely feel the impact of Brexit, Stournaras said, as its economy was not particularly exposed to Britain apart from in the tourism sector.
“There’s already some impact from the depreciation of the pound, but we don’t envisage a disastrous effect on Greek tourism,” he said.
Greece has been dependent on rescue loans from three successive international bailouts since 2010, when years of profligate spending and fiscal mismanagement exploded into a financial crisis that left it unable to borrow on international bond markets. In return for the loans, successive governments have had to make deep reforms to the economy, including tax hikes, deep spending cuts, privatizations and structural reforms.
The painful austerity has led to a series of political crises that have seen seven governments since 2009, while a quarter of the country’s economy has been wiped out and unemployment remains hovering at about 23 per cent.
Greece has long argued its debt — currently at 179 per cent of GDP — is unsustainably high and that debt relief is essential. The International Monetary Fund, one of Greece’s creditors, agrees, bringing it at odds with Greece’s main lenders in the eurozone, and particularly Germany.
Stournaras said it is time for the eurozone to “commit realistically to debt relief as it has committed itself since November 2012,” adding this would be fair given the “huge restructuring” the Greek economy has undergone.
Outright debt forgiveness was not being sought, Stournaras said, but rather “a mild restructuring of Greek debt, including perhaps the extension of Greek maturities, the extension of the period during which we must have interest payment smoothing.”
He said it would benefit both Greece and its creditors to ease requirement for Greece’s primary surplus — the budget without taking into account interest repayments on outstanding loans. While the government could meet the 3.5 per cent primary surplus target in 2018, this was a “very ambitious” program. Reducing it a little “will be better for growth,” he said, adding that the current bailout program “is too tax-heavy at this moment.”
While there were delays in the implementation of Greece’s bailout program, and in particular in privatization and structural reforms, Stournaras said the current government — one with which he has often been at odds in the past — is now more committed to privatization, though not all ministers were on board yet.
“I would like to see more ministers committed to privatization, to land development, land development owned by the state, through a proper legislation. That could be a catalyst for higher growth.”
Greece’s return to the bond markets, however, is “still distant,” the governor said. The country would first have to complete another review of its economic policies and carry out “one or two more privatizations,” he said.
Greece has also been seeking to participate in the ECB’s stimulus program under which the ECB is buying 80 billion euros ($90 billion) in bonds every month with newly created money. Participating would mean the ECB buys Greek bonds, too, which would indirectly lower the country’s borrowing rates and help it financially.
Stournaras said that if the bailout creditor’s next review of Greece’s finances is concluded successfully in 2016, “I think it’s a fair guess that we can have a good discussion before the end of the year.”