Prime Minister Kyriakos Mitsotakis spoke at the Hellenic Capital Market Commission Conference on “Climate in the Center of Economy”, in the context of the annual meeting of the International Organization of Securities Commissions (IOSCO), hosted for the first time in Greece.
The Prime Minister’s speech follows:
Well, ladies and gentlemen, it’s a great pleasure to be able to address the IOSCO President’s Committee meeting. I welcome you to Athens. I hope you’ll have a good time in Greece, that if you don’t spend all your time stuck in this lovely ballroom and that you get to appreciate the beauties of the city.
For those of you who are football fans, there’s a big European game taking place tonight. Please root for the Greek team. It is actually taking place in Athens, so wish them success.
Now, I would like to, first of all, thank the Hellenic Capital Markets Commission and its President, Mrs. Vassiliki Lazarakou for her invitation to speak at this prestigious event. Congratulations for bringing this event to Athens. It gives me the opportunity to share with you some thoughts on the important role of capital markets, both in Greece and the fast-changing global economic landscape, as this is shaped by megatrends of climate change, which I understand is the topic of this year’s gathering, demographics, increased economic competition, and unfortunately, renewed geo-economic and geopolitical uncertainty. The global and European economies have proved rather resilient in the face of consecutive major adverse shocks, as well as the ensuing monetary tightening and the fiscal normalisation.
Nevertheless, I think it’s fair to say that we are not yet out of the woods. In 2023, growth in Europe was rather subdued. 2024, we only expect a modest uptick. Euro area inflation, though declining, I think has been more persistent than expected, especially when it comes to the price of food. While I see significant growth downside risks. These, of course, include the possibility of renewed energy shocks. I see general complacency when it comes to the prices of energy. I don’t think it is totally justified. There’s always a risk of continued inflation persistence, and of course, the elephant in the room, geopolitical instability.
Another important source of economic risks is related to climate related disasters occurring with increased frequency and severity. We know something about that problem. We suffered last year, both from catastrophic wildfires, but also catastrophic floods. The total bill just for the floods in central Greece in terms of building back resilient infrastructure is going to exceed €3 billion.
But within this challenging global environment, I think it’s fair to say that the Greek economy is Europe’s positive surprise. We also had a chance to hear, I understand from the Minister of Finance.
But let me just give you my very quick assessment of the state of play of the Greek economy. We’ve seen the growth numbers. We’ve been able to significantly outperform the European average. After a long period of a deep, deep financial crisis, our goal has always been to put the convergence process back on track. In order to do that, we simply need to grow faster than the eurozone average. Unemployment, which is always a major economic and social concern, has fallen to its lowest level for 15 years, inflation remains a challenge, but has declined significantly and is gradually converging its target value.
Public finances are in order. Greece has returned to primary surpluses. Not all European countries have been as fiscally disciplined as Greece. I hope I don’t offend some of you by making this comment. But combined with the accelerated economic growth, the result has been the fastest reduction in public debt to GDP ever recorded in the Eurozone over a three-year period. We’ve had positive developments in the banking system, which include continuous deposit inflows and steady improvement of capital adequacy and quality. Of course, there’s also been a lot of significant foreign interest in obtaining stakes in the Greek banks.
At the same time, we continue implementing ambitious reforms, improving the business environment, attracting record levels of foreign direct investment and portfolio investment, increasing the share of investment and exports in GDP. Not many people know that οur exports of goods and services are already at 50% of GDP. It’s been a significant improvement, significant change over the past years.
Of course, we were just elected a year ago with a strong reform mandate which we’re implementing across the board, justice, civil service, education, tax avoidance and tax evasion. The electronic transactions that dominated the way we did business during the pandemic have really helped us address the question of the VAT gap. Digitising the state, this has been a big success of the government, and to name but a few of the reforms that we’re currently focused on.
So despite the major challenges we have faced in the recent years, the Greek economy has made significant progress, and I think continues to progress on all fronts. And this has been recognised by markets, as evidenced by the significant reduction of Greek government bond yields, which are now at levels not many people expected them to be four years ago.
We got back to investment grade, a big vote of confidence by the rating agencies. Of course, this turnaround has also been mirrored in the performance of our capital markets. The Athens Stock Exchange has been amongst the world’s best performers, while significant progress has also been made in terms of increasing stock market capitalisation, the value of transactions, new funds raised from the stock market, and of course, the participation of serious long-term value-oriented international investors.
Of course, we are also developing other segments of the capital markets. Corporate bond trading has been expanding. We have a significant number of private equity and venture capital funds, which now operate in Greece. As someone who started my professional career in venture capital many years ago, I’m particularly pleased about this development. So we have a new ecosystem which is emerging. I would like to stress the operation of the Hellenic Development Bank investments, which has played an important role as a catalyst for mobilising private resources and constitutes a significant upgrade also of the non-banking financial system.
Having said that, the scope for further development of the Greek capital markets, I think, is still substantial. The importance of achieving this objective is timelier than ever.
I think this stems from two necessities. The first is about covering the large investment gap of the previous decade. We should not forget that what happened in Greece during the crisis was unprecedented. The largest contraction ever recorded in any OECD country after the Second World War. We have made significant progress in covering this investment gap. Indeed, Greece has been the country presenting the highest increase in investment over the past five years, but we fully realise that we still have some way to go.
The second, of course, is related to the new policy priorities that have risen for all countries in Europe and beyond. The green transition, the digital transition, increasing productivity and competitiveness, making Europe relevant again in this changing geopolitical landscape.
And addressing these needs is necessary in order to ensure continued and substantial economic growth to increase the living standards of our citizens. But also in the context of the present geopolitical environment, this also includes the necessity of upgrading Europe’s defence and security capabilities.
Let me open a parenthesis here by pointing out that Greece never benefited from the peace dividend after the fall of the Berlin War, for the simple reason that we faced our own geopolitical challenges. We’ve always been spending more than 2% of our GDP on defence. If you do the math, over 20, 25 years, your 1% of GDP, the difference between spending 2% or 1%, that’s actually a lot of money. But I think Europe is waking up to the reality that we need to be independent when it comes to our defence capabilities.
And of course, all these combined require large investments. Public funds will make a substantial contribution, particularly in areas where market failures or major externalities are present. But we have restrictions in our fiscal space. It will not suffice to cover the full set of needs. This is why I have called for an international coordination to also increase efficiency in investment spending and in the European context in particular, I have proposed common financial instruments to cover common European investment needs, especially in the areas of the green transition, but also in the areas of defence.
Recently, I co-signed a letter with Prime Minister Tusk of Poland calling for a flagship European defence project, which would be a sort of, imagine a European “Iron Dome” that would offer all European countries protection from missile defence. When we talk about mobilising European funds at the European level for common defence initiatives, we need to be very concrete in terms of how these funds will be used. And in my mind, this could be a flagship project that mobilises European resources for the common good of protecting our European airspace.
But of course, multilateral development banks can also finance a substantial volume of the investments which are necessary, and also through the mobilisation of private investment resources. Banking finance can also finance a substantial part of the elevated investment needs, particularly in view of the very large amount of savings firms and households have placed with them in the form of deposits.
Banks, however, also face important limitations in terms of financing many projects related to the twin transition and the drive to increase competitiveness as these involve higher risks than banks are typically willing to carry. So particularly in view of regulatory changes aiming to increase financial stability following the global financial crisis, we need to be aware this is a fact.
Therefore, it is necessary to strengthen capital markets. This effort has both a domestic dimension, in the case of Greece, but also an international one. Starting from the domestic dimension, we have defined, with the support of the European Commission, the DG Reform, a national strategy for the development of our capital market built on six pillars.
Each of them is dedicated to a specific area of improvement, regulatory, supervisory framework, investment opportunities and ESG, the fintech ecosystem, the taxation framework, the operating framework of the capital markets, and the market demand side, including SMEs and retail investors, and of course, the question of financial literacy. I think it’s an important structural reform that will strengthen our financial system and increase further the volume of investment in Greece, particularly in high value added activities activities.
And moving on to the international dimension, as in other areas, Greece sees considerable advantage in policy coordination. In recent months, as you’re very well aware, a very active debate is ongoing on strengthening the European Capital Markets Union. We fully endorse this effort as we agree with the high importance and urgency attached to making progress, the Capital Markets Union.
I’ve been at the European Council for five years now. We’ve had these discussions numerous times, but we have to be honest. Progress has been limited. In my mind, it’s simply inexcusable that European citizens constrained by fragmented, nationally underdeveloped capital markets are forced to channel their hard-earned savings to capital markets in the US and elsewhere, only to see the fruit of the savings come back and bite them through stronger investments outside of Europe. So, it is imperative that the European capital markets are upgraded to the standards that our citizens, but also our firms deserve.
Among others, we do support measures aiming towards harmonisation, convergence, and integration in such areas as insolvency frameworks, listing requirements, accounting standards. And furthermore, we also support the development of the European securitization market, but in a way that is consistent with financial stability. We also support providing the right tax framework for firms and investors to channel savings to investments through capital markets.
And I want to emphasise my endorsement of the measures aiming to strengthen the financing of small and medium-sized enterprises from capital markets. And of course, let me come back to the question of ‘How do we enhance financial literacy?’, particularly among our youth, children, but also vulnerable groups. These are very important for ensuring a critical mass of supply and demand of saving instruments traded in capital markets.
At the European Council in April, we agreed to closely follow progress in the implementation of the measures agreed in March. We will continue discussing the future of CMU, also in the light of the recently published Letta report, which stresses particular emphasis on capital markets union, but also the shortly forthcoming Draghi report on the single market and competitiveness, I think, will make very similar points.
So going forward, I believe that we should further increase our degree of ambition, particularly in the area of supervision. I think it is difficult to argue against the benefits of an integrated supervision for a capital markets union fostering substantial cross-border flows, specifically within a single currency area. It’s important that rules are common. It’s also important that these rules are applied in a uniform and standard manner.
As a result, I believe the whole of the European economy and individual member states, particularly those in the process of convergence, such as Greece, will benefit substantially if the supervision of national capital markets is reformed, in our mind, along the lines of the successful SSM single banking supervision, which I think sets a successful precedent.
This will increase intra union capital flows. It will boost investment financing, particularly in fast-growing convergence economies but also it will channel more capital towards high-tech sectors, critical technologies, startups.
The question of whether a company such as Tesla would ever have existed, that could ever have been financed in the European capital markets keeps coming back to the table of the Council. I’m afraid we don’t have a concrete answer yet.
But to maximise the potential of the Capital Markets Union for enhancing long-term growth in Europe, I think we need to meet another requirement, and that is the completion of the European Banking Union through the introduction of its third pillar, the European Deposit Insurance Scheme. These two projects are inherently intertwined.
As national banking systems are fragmented, I think so will capital markets. This is another area which we should now draw our attention to. The prospects of progress on the banking union have now increased, as through our agreement on European fiscal rules last December, we have now reduced the scope for a banking-fiscal nexus risk.
Therefore, we should endeavour as we move towards a new European cycle after the European elections to pursue these interconnected projects simultaneously so as to endow the European firms and citizens with the best possible financial infrastructure, enabling them to grow and prosper, respectively.
Ladies and gentlemen, let me conclude by saying that the economic and financial landscape we live in has changed drastically over the past five years, not always towards the better. We faced new challenges. We now have new important priorities, and among the latter, a major one is financing increased investment needs, particularly for the green transition, but also other important policy priorities. To be a little blunt, there’s a discontinuity, and you know that well, between the level of our ambitions in terms of what we want to do as Europe and the financial tools we have at our disposal.And these require the mobilisation of significant resources which traditional financing approaches, financial intermediation models, and institutional setup cannot necessarily deliver in their entirety.
And in this context, the role of capital markets in meeting these investment objectives is absolutely critical. High quality and effective securities regulation is key for capital markets to fulfil their growth-enhancing mission. And your role as security regulators is of paramount importance for national and international financial stability, long-term growth, and of course, the prosperity of our citizens. And be assured that Greece, under our growth-friendly government, fully supports your mission.
I wish you a very successful conference, and I hope you’ll have a chance to also appreciate the beauties of Athens. Thank you very much for inviting me.
