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CNBC Transcript: Greek Economy Minister, Giorgos Stathakis

Following are excerpts from a CNBC interview with CNBC reporter Julia Chatterley and Greek Economy Minister, Giorgos Stathakis.


JC: Minister thank you so much for speaking to us. You managed to pass a number of reforms last night to unlock the latest tranche of money. You must be relieved?

GS: Yes, I think it was another step in this process. We have completed the first review, this was the last bit of the first review. And we have ahead of us the second review in the coming months and we are optimistic again that things will go quite well.

JC: The prime minister is also optimistic - he said you'll have the second review done by the end of this year. You'll manage to get further details on debt relief and you'll get access to the ECB's QE program. There are those out there, and there's many of them, that say you are wildly optimistic and unrealistic.

GS: Well after the completion of the second review, actually there isn't much left from the current program. There are some reviews in 2017 but in reality the whole package is there. Obviously we have already the first review some very strong mitigation. The European Central Bank finances the group banking sector with the common rules as every other European system. And everybody expects that with the second review QE might be in the picture particularly if we get the debt deal until Christmas. So, those are the facts. I mean everybody expects that step by step…

JC: Do you think you could get access then to the QE program without getting any further details on debt relief even just getting a sign off on the second review – could that open that up?

GS: Well I think that the second review is directly related with the debt – that's what the schedule is all about that we have by Christmas to have completed both. So the optimism lies on both issues having a deal rather than getting some deal on the debt at a later that stage.

JC: Do you think QE and access to that program will unlock crucial investment for Greece?

GS: It will help the banking system with fresh cash - obviously that's a major effect. But on the other hand I think it has a very strong symbolic message because it's the strongest indication that the economy is back to normality - things have moving okay so the foreign investors would be safe enough to express their interest in the Greek economy again.

JC: You know I talk to companies here and they say actually they're still struggling with liquidity but the time that they have to make payment to their supplies is instantly a give the people that they produce goods for actually 120 days to pay. So they've always got this mismatch. The banks aren't lending. The banks obviously have got tensions over the time it takes to resolve their non-performing loans. The government's got tensions with the central bank. That entire sector feels very complicated. What's the situation?

GS: Well obviously there complex issues to be resolved. The NPL issue is a huge issue. The legislation is there nowadays concerning the NPL's management, their establishment of a secondary market interest.

JC: Why is it being used then?

GS: I think it was completed last May so practically it required three or four months to establish the market. Everybody expects prior to Christmas the market to be there. But on top of this I think that nowadays the banks have a specific time table to their NPL's by 2019 - 40 percent. So they have targets, they know which tool - it's their choice - to use and they think that there are on all these complexes issues, there are certain processes that are starting. Everybody would feel confident that things are moving on this front as well.

JC: You've also had changes with the exec boards of the banks and there's been a degree of frustration I think on the behalf of the government with the central bank governor with him suggesting that your choices are not fit and proper. That's right isn't it?

GS: Well there was obviously some different views on specifics small banks actually that was the case but at the end of the day they were resolved. And I think that our relations with the Central Bank are excellent and will remains so.

JC: Are they, because there was a raid on the offices of the Central Bank Governors' wife and she said that was "politically motivated" - Is she wrong?

GS: I think that this issue has been resolved. There was no relation at all. That's an independent process done by judges has no relation actually with the role of her husband as a central banker.

JC: So just to be clear, the government isn't in any way trying to intimidate the Central Bank Governor or force him to resign?

GS: Not at any point. I think we're working very closely - I mean economic ministers - we're working very closely with the Bank of Greece on all the issues, NPL's and others on the program itself so I don't think that is, by any means, there is an issue for not continuing this collaboration.

JC: And your message to the European Central Bank if they're concerned about some kind of impingement on the independence of the Central Bank. What's your message to them?

GS: My message is straightforward: the independence of the central bank is there and it will be protected. And there is no intention at any level of really making an issue of the independence of the Greek Central Bank. Actually the ECB and the rest are a primary factor and a major agency in the Greek program. I don't think that there is an issue of creating troubles at this level.

JC: Let's tie the issues as you mentioned as well in the banking sector that there is still a lack of investment that needs to be resolved to the growth picture because you're still suggesting that growth could be more than two and a half percent next year. And again there's lots of scepticism. So what are the growth drivers going to be?

GS: There are three or four very strong indications which we have this optimistic version that that will have 2.5 percent rate of growth. The one very important index is that we have the second quarter with the positive rate of growth they held down during 16. That makes the tendency much stronger. The second index is for the first time we have a very positive capital formation index in the Greek economy indicating that there is a lot of investment going on at various levels which reverses the previous quarter. And the third indicator is that unemployment rate has been reduced by 4 percent during the last 12 months which is another strong indication that things may move faster. So we tend to undermine those basic indexes in order to say something very simple: we to tend to think that the recession is back and we are at the turning point, where the positive rates will be the name of that day.

JC: I read recently that eight out of 10 jobs have been created, if we look over the summer, in particular in the tourism industry. So obviously we're going into the off season now and then we look at some of your exports in July they were quite significantly down. Obviously, you are tackling and dealing with a broad environment not just the Greek economy but then we also look at your tax policy. And that's also quite stringently impacting consumers too. So there's lots of different angles actually that are going to be a drag on growth rather than adding to growth?

GS: The economy is going to go in and is affected by various developments in the international economy. Our exports are doing well towards the European community But they were very much affected by Russia, Ukraine and Turkey because, a lot of our exports are directed there. We are doing quite well in having good performance for much of the tourist industry but we are affected negatively by the shipping industry which is facing an international crisis. So yes we have this indication of back and forward. But if we take into detail the exact data that we strongly support the idea that exports are doing much better than last year. Particularly towards European economy and on top of this that stand strong standards indicating that things in the export sector would do quite well next year.

JC: The refugee crisis also was a critical factor in the tourism industry in particular certain islands that were hit. Have you been surprised actually by how well they performed and in light of the refugee issue and of course the VAT hikes that you acted on the islands as well?

GS: I think that was a great year for tourism for Greece. I think the refugee problem and the way that we treated the refugee problem last year was a positive element in our tourist business. Obviously the more sensitive islands were affected negatively. And the government does a lot of work to support those islands. But overall the big story there was of a very positive year for Greek tourism and good news.

JC: The prime minister has reiterated that more needs to be done on the part of other Europeans to help with their with the refugee crisis…financially?. If that's the case, do you need more financial support?

GS: I think we have reached a deal on financial support and we are implementing the program, financed by European money. That's one point something billions and I think this is not the issue. The issue is at the political level to have the European Union united the very center at least instead of having different strategies pursued by each and every country which is not good news.

JC: Greek voters are getting frustrated. They think it's more to do with the economy or do you think it is the impact and the ongoing impact of the refugee crisis and the politics of that are denting your support as a government?

GS: You know we that's what is indicated in the policies is a mixed signal. Because I think the one strong messages is that we continue to have widespread support. And This indicates that there is a perception that the governments should be allowed to complete this four year period and develop its policies one by one. On the other hand obviously there is some dissatisfaction because things are moving under very strict conditions which is also understandable. But we tend to view the situation that political tension has been lowered quite a lot compared with the past and the government is committed to go on, implement its policies and complete the four year period which is the mandate that the electorate in the last election.

JC: Are you following the right mix of policies, do you think? Because again you're coming under criticism for focusing too much on tax rises rather than anything else, like are there other things like, again, tackling the public sector for example that you could be doing better to save money rather than putting the burden on the Greek people.

GS: Well that was a choice that was done by the government last year. We had the feeling, and I think we were right, that no further cuts were possible in the public sector. Wages and salaries were slashed by 40 percent during the last three or four years, public expenditure in education and health had reached a very marginal level. So we made the choice that no further cuts were there. Our fiscal targets would be attained by having A: a more gradual adjustment of the fiscal targets and B: raising taxation where it has less effect, which is the most wealthy part of our society. So we made this choice. Our taxation system became more progressive. We made the major reform in the insurance system, again on the same idea for a more progressive reform.

JC: Do you believe this bailout deal is actually preventing you providing serious growth policy?

GS: It's a, on the one hand I think that the program, by providing fiscal and financial stability, is good for growth, obviously. Because that's the most important factor. On the other hand, having to adjust to a program that produces surpluses, particularly the 3.5% surplus, obviously it affects growth. Taking into account both considerations, I still consider that growth is possible with the program.

JC: And it's a positive message that this government will continue to fight on?

GC: Well the government I think might be criticised for the mix of policy, for a whole range of issues, it's up to opinions, nobody cannot criticize this government that made an agreement, it is committed to implementation of agreement, that it attains targets, particularly the fiscal and other targets. And is a government that is committed to the other things will move according to what have been agreed.