Interview by George Zavvos, Deputy Minister of Finance responsible for the financial system to Nena Malliara , economics news site ""


The development of the domestic capital market is for the government a goal inextricably linked to social prosperity and balanced, long-term growth. The banking system and the capital market are the two potential "turbo engines" of the economy, valuable for raising capital - a precondition for any recovery and growth of the country in the post-covid period. This was stated to by the Deputy Minister of Finance, responsible for the financial system, George Zavvos, revealing the entire plan of the government for the modernization of the Greek Capital Market and the Stock Exchange.

The completion of this plan comes as a sequence of interventions in the banking system, culminating in the drastic reduction of the NPLs through the Greek Asset Protection Scheme "Hercules". And it is an equally important priority, for the day after the pandemic crisis, to exploit the forthcoming resources of the Recovery and Resilience Fund and the cosmogonic changes taking place in the capital markets, which must find Greece prepared, as Mr. Zavvos says.

He believes that accelerating the integration of the European Capital Markets is of strategic importance to the European economy and that Europe should take a decisive step in strengthening the European Securities and Markets Authority (ESMA), to consolidate systemic stability, transparency and tackling unequal competition.

Central to the reforms in the Greek capital market will be the upgrading of the Hellenic Capital Market Commission, the modernization and the strengthening of its credibility.

Deputy Minister, within the framework of the broader reform of the financial system that the government began to implement when it took office in 2019, the reduction of non-performing loans of Greek banks is considered as a priority at the same level of urgency as the reform of the Greek capital market is. Why do you consider the reform of the Greek capital market as an urgent priority?

The government’s strategy for the financial system has a holistic approach for the reinforcement and modernization of the basic pillars of financing and growth of the economy, i.e. the banking sector and the capital market economy. There is a dynamic synergy between the banking system and the capital market: they are both potentially “turbo engines” of the economy, valuable for raising capital — a prerequisite for any recovery and growth in the country in the post-covid period.
We started the implementation of reforms with the banking system, by addressing first the huge problem of Non-Performing Loans (NPLs). Following the elections on 7 July 2019, we encountered a situation where almost 1 out of 2 loans were non-performing. NPLs amounted to EUR 75,4 billion at the end of June, i.e. 43.6 % of total loans portfolio. We set up the Greek “Hercules” Securitization program, which, as a systemic solution that aims to reduce NPLs, was embraced by banks, investors and European institutions. In just one year of its operation, it was widely adopted by banks, relieving them of around EUR 32 billion of NPLs. We are now proceeding with Hercules II — as you know, the Greek government has submitted a request for a 18-month extension of the scheme and we await the green light from the European Commission by the beginning of April — with the aim of reducing NPLs by an additional EUR 30-32 billion. Therefore, already by the end of this year, and in any event in 2022, all four Greek systemic banks will have achieved single-digit percentages of NPEs, converging thus with the European average. This is a remarkable success.
In his interview last Sunday, the Greek Prime Minister highlighted the strategic dimension of the “Hercules” scheme, noting that it is a crucial and useful tool for reducing NPLs, and that it constitutes one of the three fundamental conditions that the country needs for its economy not only to take a step, but to take the leap it needs in this decade. Last week, Mrs. Elizabeth McCaul, member of the SSM Supervisory Board which is the main supervisor of Greek systemic banks, praised Hercules’s success in reducing NPLs by 40 %. This, among other things, signals the continued support of the European institutions in our country’s effort.
Alleviating the systemic banks from the burden of NPLs will free up liquidity in order for it to be channeled to the real economy, in particular to small and medium-sized enterprises and households. However, the banking system cannot be the only means of business financing, nor the only pillar of growth. In parallel, a functional, sound and dynamic capital market is needed, i.e. an effective mechanism offering an alternative for financing via raising capital from the markets, especially for small and start-up companies that promote innovation. In particular, we need it to function as a reliable investment option, especially in the current close-to-zero interest rate environment, and ultimately be able to attract new investment funds that will help revitalize and strengthen the country’s business potential.

On which assumptions does the Greek government base the reform of the Greek capital market?

First, the need to strengthen investor trust and confidence by effectively strengthening of the institutional and supervisory infrastructure of the capital market and by increasing its competitiveness. We realize that the Folli — Follie scandal seriously undermined investors’ confidence in the capital market. And we know well that, without regaining trust, we cannot expect to attract investors.

Second, there is a need to modernize the regulatory and supervisory framework. A revision of the basic framework adopted several years ago is needed. We need to take into account the relevant international and European best practices towards effective market supervision.

Third, the Greek Government’s reforms of the financial system should be considered within the framework of the two major policies of European integration. On one hand, the European Banking Union, including the adoption of a European Deposit Insurance Scheme which is necessary, and, on the other hand, the Capital Markets Union.

Do you think that progress will soon be made in the integration of European capital markets, with the possible strengthening of the European Securities and Markets Authority? And what could this mean for the Greek capital market?

Accelerating the integration of European capital markets is of strategic importance to the European economy for a number of reasons, some of which should be mentioned in more detail.
First, the post-covid recovery and growth of the economy needs fully functioning European capital markets. This is because they will be used by the European institutions to issue bonds in order to finance the Recovery Fund. Companies should also have recourse to the markets in order to gain extended access to investment funds. In this way, they will alleviate the pressure and dependance from the banking sector, which now plays a predominant role in financing. Markets therefore constitute a stabilizing factor regarding household, corporate and government available financial resources, and above all, can play a crucial role for growth in the post-Covid period.
Furthermore, there is an inextricable link between the completion of the European Banking Union and the Capital Markets Union (CMU). CMU could be acting like the “reserve tire” of the banking union, when the banking system is confronted with problems.

Second, Brexit, i.e. the withdrawal of the United Kingdom and City, Europe’s largest financial center, from the European Union, constituted an important wake-up call. In order for the European economy to compete globally, it needs a deep and liquid capital market from which European companies can get funding. These include trading, resolution or supervision issues. Competition is now evident as the largest European capital markets try to gain a share of this market. Large companies in the financial sector have already shifted their activities from London to countries such as Germany, France, Spain and Ireland. Above all, I think we should be careful to ensure the systemic stability of the European financial system, which should not depend on entities and supervisors located in third countries — e.g. we need to consider how we can reduce our dependency on UK CCPs, now that the UK is outside the EU.

Third, an effective Capital Markets Union can have an important stabilizing effect by helping growth. It will unlock the huge surpluses of the northern Member States and turn them, through a well-functioning market, into productive investments, where they are mainly needed in southern European countries. This would be particularly helpful in the aftermath of the crisis to avoid a further divergence between the North-South economies that has been exacerbated by both the 2008-2009 financial and the coronavirus crisis. We should remember that such a process also enhances risk dispersion, since cross-border equity and bond investments are also a stabilizing factor for households and businesses.

Fourth, the Capital Markets Union can contribute more effectively to the green growth, for example via financing through green bonds.

Fifth, to the extent that the EU wants to achieve growth and innovation, it should resort to equity markets that are more effective in this regard rather than borrowing through bonds.

Sixth, the integration of capital markets will significantly strengthen the international role of the euro, in order for it to play the role it deserves on the international stage.

We understand that the positive effects of a well-functioning capital market are important but looking at the official European texts one spots sees a lack of clear objectives.

You are right, the Capital Markets Union seems to be like a large basket where everyone puts in what they wish. Personally, I would consider three main priorities:

First, as needed in any functioning market, there must be standards and harmonized rules and operating practices, as well as harmonization of insolvency laws that differ significantly between Member States.

Second, I believe that Europe should take a decisive step forward in strengthening the European Securities and Markets Authority (ESMA), which is necessary to consolidate systemic stability, transparency and address an uneven regulatory playing field. I believe that it is difficult to achieve a Capital Markets Union without this necessary supervisory infrastructure. It seems to me that this can be done gradually on the basis of the existing institutional framework. We already have the institutional precedent of the Single Resolution Board for banks. Now, there is a need for the political will of the Member States to open this discussion and move forward without delay.

Third, in terms of political decisions, there should be a commitment regarding digital transition and green finance.

And what does Greece do in this respect?

Greece has set the example first of how the capital market can be used intelligently to solve the biggest problem of banks, i.e. NPLs, without burdening the Greek taxpayer. The “Hercules” scheme, which is an innovative solution, relies literally on international capital markets to raise private capital by helping banks to sell their loans to an increasing range of investors, based on transparency and loan prices.
At the same time, we are preparing to set up rules for green bonds. We will modernize capital market supervision with up-to-date digital mechanisms and, of course, we will soon start designing a financial literacy strategy.

The upcoming resources from the Recovery and Resilience Fund will require important infrastructures for the banking system and the capital market in order for us to meet the challenge of them being properly absorbed by the economy, and above all by conducting the twin transformation which is urgently needed, namely that of the productive base of the economy and that of the banking system.

 What steps has the Greek government taken so far in reforming and strengthening the capital market?

As you can observe, we have demonstrated in the case of the transformation of the banking system, that the government has a concrete and realistic plan, and the necessary determination to implement it. The same is true for the capital market, since the relevant reforms have already begun and we are now accelerating them.

First, the government brought the Law on Corporate Governance and Capital Market to Parliament in June 2020, a Law which was voted by four major parties, establishing enhanced transparency rules for listed companies.

Second, we set up an informal committee with the participation of all market stakeholders, which submitted its proposals to the Ministry of Finance, with concrete incentives and actions that could relaunch the capital market.

Third, we set up a Legislative Drafting Committee at the Ministry of Finance, bringing together representatives of the Ministry, the Hellenic Capital Market Commission and experienced lawyers in European law, which will make proposals for the development of a new and comprehensive framework for the supervision of the Hellenic Capital Market Commission.

In addition, we have completed a new draft law governing the Investor Guarantee Fund, which we will shortly present.

Given current European developments, what is the plan towards upgrading the Capital Market Commission? Where will the Legislative Drafting Committee focus?

Our aim is to strengthen the Hellenic Capital Market Commission, giving it new powers and ensuring it can meet the challenges of the future.

The main focus of the work of the Legislative Drafting Committee is:

1.The overall upgrading of the Hellenic Capital Market Commission
2. Enhancing reliability and investor confidence through timely control and effective use of critical information
3.Modernisation (with regards to powers, organization and administrative operation) of the Hellenic Capital Market Commission.

When talking about a comprehensive upgrade and modernization of the Hellenic Capital Market Commission, what do you really mean? What will be the main tasks of the Legislative Drafting Committee?

The main tasks of the Legislative Drafting Committee should be:

First, the modernization and rationalization of the institutional framework, i.e.

- Reorganization of the mode of operation of the Hellenic Capital Market Commission.
 - Comparative study of the operation of the respective supervisory authorities in the EU, in order to identify the model that is appropriate for the Greek data.

Secondly, the strengthening of the Hellenic Capital Market Commission's independence, with an emphasis on its powers and control mechanisms.

Thirdly, clear corporate governance rules regarding the independence of the directors and staff.

All the above reforms aim to give the Hellenic Capital Market Commission an even greater authority and to enable it to play a key role in the forthcoming critical European developments.

Does the government’s plan for the reform of the capital market aims at a more international role of the Hellenic Capital Market?

The development of the domestic capital market is an objective for the government that is inextricably linked to social welfare and balanced, long-term growth. However, it should not be forgotten that we are in a period of radical transformations in the capital markets. This is why the internationalization of the Greek capital market is important and is expected to actively contribute in attracting investors, considering the frontloaded reforms of the government and the upcoming resources of the Recovery Fund.
This is a rare, unique challenge that we should meet and we are working to ensure that this opportunity is not missed. The Greek Stock Exchange and the capital market cannot stay in isolation at a time when other European capital markets and stock exchanges assess new developments, in particular regarding technological innovation, and explore their strategic synergies in order to open up to European and international capital markets. With the reforms we are launching, we aim to take all the necessary initiatives to expand the regional and international reach of the Greek market.