The positive prospects of Greece for the coming years are underlined by Filippo Tantei, Executive Director of Goldman Sachs – Global Investment Research, in an interview with Business Daily. It stands out as a key change, which drastically improves the data for Greece, political stability: “This is an advantage that Greece has over other countries that we should not ignore. “It is perhaps the most politically stable country in southern Europe.”
He also appears reassuring about the debt, emphasizing that after the pandemic, the additional increase of the debt does not concern only Greece but Europe in general. “A common problem is a smaller problem,” he says.
Mr Tandey emphasized the importance of the Recovery Fund, stressing that resource utilization could make a big difference, strengthening development dynamics of the Greek economy. “The Recovery Fund could lead to the mobilization of resources and the implementation of investments that correspond to 18% of Greece’s GDP, by 2026. This is an impressively large support package. The Fund will boost investment, which is extremely important, as investment creates jobs and leads to growth. At the same time, they offer the country additional funds that are crucial for the long-term development of the Greek economy “, he notes. However, he refers to the risk of whether our country will be able to absorb European resources: “The big question, the challenge, is to have the structure, procedures and mechanism for Greece to be able to implement these projects so that to receive European funds “.
Regarding the international economy and the impact of Omicron, the Executive Director of Investment Research at Goldman Sachs estimates that the impact will be limited, delaying rather than derailing the growth potential of the US and Europe. In terms of stocks, he estimates that European stocks tend to perform better when the Fed raises interest rates. “The tendency of European markets to perform better is also due to the fact that in Europe we have more shares of value than shares of growth,” he notes.
What is the assessment of the Fed’s next moves? Will it proceed with an aggressive increase in interest rates?
Our basic assumption is that The Fed will raise four interest rates this year. Note that the US economy and in this context the Fed is moving in a fairly predictable way. What we are focusing on is what will be the monetary tightening policy that other countries will follow and what will be the impact on the markets. The investment community has already invoiced and discounted the Fed’s change of tactics. We believe that the US economy is in a strong upward cycle, which will have a significant duration.
How will the tightening of monetary policy affect stocks? Is there a risk of serious correction? We are already seeing a significant decline in New York and Europe.
It is a fact that in the markets we have seen a significant volatility and nervousness lately. It must be said that market trends are a kind of synthesis of many factors, while not all stocks are affected in the same way. We see that the more traditional stocks, the so-called value stocks, such as financial companies, are currently performing better than the growth stocks. The better course of value stocks is a typical feature of a growth business cycle. There is also a significant difference in the behavior of individual markets. As you pointed out, there was a significant drop in Wall Street, but European stocks tend to perform better when the Fed raises interest rates. The tendency of European markets to perform better is also due to the fact that in Europe we have more shares of value than shares of growth.
What is your assessment of the state of the economies in the US and Europe after the pandemic, given the disruptions caused by the health crisis?
We must distinguish between the common shock caused by the pandemic and the different impact on the economies of Europe and the United States. It is clear that the Omicron variant is milder and puts less pressure on economies than we experienced in 2020 and 2021. Recent PMI data for the euro area support this approach. In southern Europe, in countries such as Spain, Portugal and Greece, there is already discussion and moves to relax the restrictions imposed. As in Germany, which was most affected by the strict restrictions imposed last December. In general, it seems that the situation is now moving towards a normalization. In other words, the Omicron variant caused a general shock, the effects of which were significantly smaller than what we experienced in the past.
It is also important to see how individual economies are gradually emerging from the pandemic. The US reacted vigorously by providing very strong fiscal support very quickly. They provided huge income support in all directions throughout the first wave of the pandemic in 2021. This resulted in the US economy stabilizing and regaining its pace a little faster than Europe.
The interventions were great on many other levels, from the budget support to the strengthening of the investments, while the initiative of the Recovery Fund is of exceptional importance.
From now on, we can say that President Biden’s plan to restructure the American economy has become less ambitious in the process, while Europe has moved more vigorously and quickly in this area by providing investment-boosting funds. The fiscal support provided by Europe in conjunction with the Recovery Fund creates a more positive environment for the development of the European economy than the US. Our estimate, which is certainly subject to the uncertainties caused by the pandemic, is that the growth rate in Europe and will be higher than in the US.
For 2022 we expect growth for the US at 3.5%, while for the euro area we currently forecast growth at 4.2%. I repeat that there is uncertainty in this assessment, conditions may worsen, but this is a first indication of how support programs can lead economies in Europe and the US. In any case, I believe that Omicron should be seen as a factor of delay and not of destruction: it is not something that is going to derail the recovery, maybe it is delaying it.
Greece’s great advantage is political stability
The Greek economy after many years of recession and instability returned to an upward course. However, it remains outside the investment grade. What are the most important challenges that need to be addressed to recover the investment?
As far as Greece is concerned, there are three factors that place the country in a better position than it has been in recent years.
First, in terms of the debt you point out. Of course, this is a problem, but after the pandemic, the additional increase in debt does not only concern Greece but Europe in general. And a common problem is a smaller problem. I think this applies to Greece. We do not want to ignore the concern, but we must approach the issue from a broader perspective. If we look more closely at the current European fiscal rule, the stability rule, at least 10 countries will be violating European fiscal rules. Debt is therefore a much more general issue. In addition, there are two factors that work positively for Greece. Greece is compared very favorably in terms of political risk with other countries in Southern Europe and in general with eurozone countries. This is not a given, nor has it always been. In the past the political environment in Greece was unstable while now, on the contrary, there is a feeling that the continuation of governance is not a problem. There is a strong government and the political risk is small, unlike in other European countries such as France or Italy. This is an advantage that Greece has over other countries that we should not ignore. It is perhaps the most politically stable country in southern Europe.
Stability is valuable for another reason: it is linked to the third important factor, the Recovery Fund. The resources that will be channeled to Greece through the Fund, for the implementation of investments, are impressive. The Recovery Fund could lead to the mobilization of resources and the implementation of investments that correspond to 18% of Greece’s GDP, by 2026. This is an impressively large support package. The Fund will boost investment, which is extremely important as investment creates jobs and leads to growth. At the same time, they offer the country additional funds that are crucial for the long-term development of the Greek economy.
So the Recovery Fund will play an important role in getting Greece out of the crisis.
I would like to note, regarding the Recovery Fund, the strategy chosen by Greece. It is both ambitious and interesting. The resources of the Fund are divided into two parts. One concerns grants and the other loans. Greece has drawn up an extremely detailed plan. Reading the Greek plan one can see when electric buses are expected to run in Thessaloniki or see when a hospital is planned to be built on an island. The design is so detailed.
Also of interest is the way in which private investment is encouraged. In essence, the government says that private investors who invest in sectors such as the digital economy or the green transition will have government support for these investments through the Recovery Fund. The Greek government does not need to be interested in finding this money in the market, because it exists from European resources. This is a great opportunity. It is an opportunity and a challenge. The big question, the challenge, is to have the structure, the procedures and the mechanism in order for Greece to be able to implement these projects in order to receive the European funds. Will the country be able to deliver these projects? Will the country deliver on its promise? Will the implementation be fast enough? This is the challenge for the government.
One obstacle, if you will, which does not exist only in Greece, is more general, is whether the goal of mobilizing private investment through the loans of the Recovery Fund will be achieved. Great care is also needed on how public-private partnerships are organized.
Bussiness Daily
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