The Goldman Sachs Group, Inc. (GS) Earnings Call Transcript & Summary

I would like to welcome you all to the second webinar in the Capital Link Invest in Greece webinar series. Today's webinar will focus on the Greece economy, prospects and outlook post investment upgrade. We have with us a great group of panelists. Unfortunately, Filippo Taddei had a last minute emergency, literally last minute and could not join us. I will let Mr. Georgios Papadimitriou, the partner, Accounts and Markets Leader of Central Eastern and Southeastern Europe and Central Asia of EY introduce our panelists. Before that, just very quickly to say that participants can submit their questions through the Q&A button at the bottom of your screen. And your questions will be replied depending on time availability at the end of the Q&A. Mr. Papadimitriou, George, please take over and the floor is yours. And thank you to everybody for joining us today to this webinar.

Well, thank you very much, and ladies and gentlemen, good afternoon or good morning, depending on your time zone. As Nicolas said on the introduction, we'll have the pleasure to discuss today on Greek economy, more specifically on the prospects and outlook post the recent investment upgrade. We have the pleasure to facilitate this discussion with a panel of distinguished guests, who I will shortly introduce to you. But maybe first, a couple of opening remarks on my side to set the discussion. I think we all agree that we live in a really a very challenging global economic environment. We all know that economic slowdown that happens globally, the high interest rate environment, inflation, geopolitical tensions. But despite this environment, I think we all believe that the Greek economy has been slowly, but surely improving over the last years. The growth rates are above Eurozone. The inflation is improving. Unemployment has pulled back, GDP profile looks better. And the investments have also been looking better the last few years, not only the numbers, but also the investor sentiment as this is depicted in our EY surveys that we run every year over the last years. Still, we will also agree that despite the efforts there are still a number of concerns that still persist related to a number of reforms that have not gone as quickly as expected. And I think we will all agree that the recent investment upgrade had been a great milestone for the Greek economy, but it's not obviously the end of the road for us, but more likely an important milestone. So with this small introductory comments, I would like quickly to introduce you our great panelists, starting with Professor Michael Arghyrou. He is the Chairman of the Council of Economic Advisers for Hellenic Republic. We have Dr. Tasos Anastasatos, he is the group Chief Economist and Deputy General Manager for Eurobank. We have Dr. Ilias Lekkos, he is the Chief Economist of Piraeus Bank. And we have Mr. Frank Gill, Managing Director, EMEA Lead Sovereign Analyst for S&P Global Ratings. So let me start this interesting discussion from Professor Arghyrou. I would like him to give us to set the scene, some introductory remarks and presentation on the outlook of the Greek economy and that will be the basis of our discussion. You're also more than welcome to post your questions on the specific Q&A facility button that you have in front of you. And by the end, if we have time, I will try to pick some of the questions for the audience to our panelist. So Michael, the floor over to you.

Thank you. Thank you very much, George, and thank you also very much Nicolas and colleagues for inviting me to this very interesting webinar and hello to all our guests. So what I will do is that I will share my screen and go through an introductory presentation. So here we are, and let me share the screen very well. Here we are, and let me go to Slide show from the current slide. So here we are. I hope that you can see everything well. So things that have already been mentioned. Let me start by a review of the main macro and fiscal indicators of Greece. So what you can see here is the performance of Greece in terms of growth relative to the Eurozone average starting from 2021, the first year after the major lockdown that we all experienced during the pandemic. And the main message from this slide is that over the last 3 years, Greece has been outperforming the European Union average by a significant margin as you see. And the same is expected to happen in 2024. Of course, the growth rate in 2023 and 2024 is projected to be everywhere lower than the first year, immediately after the reopening from the pandemic. Nevertheless, the difference between Greece and the eurozone is quite substantial last year, and it is projected to be the same this year. So the process of convergence has been reactivated in Greece after the last decade when Greece went through a major economic crisis. Now this growth rebound, of course, is reflected in the unemployment statistics. You see, of course, that Greece continues to have higher unemployment than the Eurozone average. Nevertheless, in 2023, the Greek unemployment rate had gone down to 11%, which is, of course, much better than back in 2019 when the unemployment rate was 18%, not to mention the heights of Greek debt crisis, the unemployment rate had reached 27%. So of course, this is good for economics. It is also good for social stability. Turning to the third major macro variable, which is inflation. Greece was no exception. The energy crisis and the global inflation crisis that followed [Indiscernible] Ukraine, of course, had a significant impact in Europe and in Greece. Generally speaking, Greece had a lower inflation spike than the Eurozone average. Compared to a year ago, as you see, the inflation rate in both Greece and the Eurozone is significantly lower. It is true that the last mile seems to be a little bit harder to achieve compared to the previous ones. So the latest statistics show that Greece is close to 2.5% and the same holds true for the Eurozone average, still higher than the 2% deflation target of the European Central Bank, nevertheless, much better than 7% that was the case in the beginning of 2023. So gradually we are moving there. This picture, of course, the aggregate picture. There are areas of inflation where the rigidity has been higher than we would have liked, particularly food as well as services. But the direction of travel is good. Of course, when one speaks about the Greek economy, given the events of the last decade, the impression of public debt naturally arises. Compared to the rest of our Eurozone peers and the European Union peers, we continue to have the highest debt-to-GDP ratio. Last year, this closed to down 162%. But this, of course reveals a very significant progress compared to 2020, the year of the pandemic when our debt had reached 206%, we have now reduced in the space of 3 years by 45 percentage points. And indeed, this is a nice picture, which I would like to show. The reduction that Greece has achieved over the last 3 years in terms of its debt reduction is the fastest ever reported in Europe and perhaps globally, perhaps more successful episode of debt reduction was Ireland between 1995 and 2007. And you can see in the blue line that Greece over the first 3 years following the pandemic has reduced debt much faster. Portugal and Cyprus have done very well indeed, but Greece has done even better. So the big picture here is that Greek debt is still high in relative terms, but coming low very fast. Now this has to do with higher growth rate, the Greek economy [Indiscernible] but it also has to do with the recovery of the fiscal balance, as you see from primary surplus of 6.7% in 2020. We have gone back to 1.9% surplus in 2023, a very fast, very big, pronounced improvement in our public finances. Now some more things which are important in relation to Greece's underlying economic structure. A major success over the last decade has been the increase of Greek exports relative to the country's GDP. Of course, in years gone by, one could say that this had a lot to do with the reduction in Greek GDP, but not so in recent years, as you see, in 2021, 2022, 2023, the Greek exports have reached a very significant percentage, approximately half of our GDP is now exported whereas in the early 2010s that was just 25%. So we have converged fast to the Eurozone average. A very important macroeconomic variable for us is the investment relative to GDP. There is still a significant investment gap, Greece in 2023 invested 14% of its GDP relative to 22% in the Eurozone average. But that statistics does not reveal what you see in this picture here, which is that since 2019, the level of investment in Greece has increased by 41% and Greece, in other words, relative to 2019. In 2023, it was the country of the European Union that has increased its investment more than any other member state, 41% increase relative to stability basically in the euro area. Moving on to the banking sector, the banking sector, it had its own troubles in the past decade. Nevertheless, this legacy is gradually being eliminated. Basically, in the second picture, you see that in 2022, 2023, Greece has had a return of its banks to profitability. This return on profitability is improving if the capital adequacy ratios, you can see on the left-hand side that Greece has reached a number close to the European Union average. There is also an improvement in the quality of the capital of Greek banks. Of course, we still have some way to go there. And NPLs have reduced significantly, something what you can see here, much better. You can see the fast de-escalation of nonperforming loans in Greece. I remind you that in 2016, nonperforming loans in Greece have reached approximately half of the loan book, this is down to 6.5% now. Now this, of course, is the record so far, what the markets believe regarding the immediate future and the medium-term future, let's see some forward-looking indicators. Here, you have the economic sentiment indicator. The blue line is Greece, the red line is the Eurozone average. As you see over the last 2 years, the Greek economic forward-looking indicator is much stronger, the blue line compared to the Eurozone, which of course anticipates higher growth in Greece in the foreseeable future. Private bank deposits are also on the up. As you can see, gradually, we are recovering the deposits we had lost back in the height of the Greek crisis, which means that the Greek banking sector has enough liquidity, a lot of liquidity to finance new investments. And gradually, we have started doing so, particularly with regards to the nonfinancial corporations. So the credit rate is now positive. Our cost of public borrowing has declined significantly between the beginning of 2023 and present time. And this is particularly impressive given that this reduction in government bond yields has taken place during a period of high global inflation, high global economic uncertainty and increasing global interest rates. And you can see here the spread versus Germany, which is also significantly lower levels compared to the beginning of 2023. Just a reference to our stock market, in 2023, it was probably the world champion or the second best, 39% return in 2023, led by banks whose equity had return of 66% last year. Now the culmination of all this, good economic performance and banking performance, of course, the regain of Greece's investment grade starting from the second half of 2023, 4 out of 5 major credit rating agencies have restored Greece's investment-grade. This, of course, is the result of the record I showed to you, and this was the result of significant reforms that took place in the previous 5 years. Those reforms, they are quite a big list. I'm not listing here. What I'm listing here is reforms that are currently ongoing and forthcoming under preparation and actual reforms that are either already happening or will soon be enacted. So a major priority for us is the improvement of the justice system, namely the speed at which justice delivers decisions. Importantly, we would like to finish the cadastral reform and improve further the legislation about land users. This is important for property rights. A very big agenda for us, particularly given demographic dynamics is to expand labor market participation. Participation has been increasing, but there groups of population including women, youth, senior citizens, but also immigrants that could be integrated better in the labor market, and we are doing various things to that direction. Education. Private universities have been legislated in Greece for the first time and the reform of technical schools. Major priority for us, it is the health system, not just the service delivery, which is, of course, what matters for the cities and the frontline service delivery, but also the finances of our health system where there is a lot of room for improvement. Public administration. A lot has been done and what remains to be done, better regulation. And of course, on the question of finance, we want to reform capital markets to mobilize private funds in order to finance more risky investments which the banking sector may have a difficulty of providing credit and also increasing competition in the banking sector by means of enhancing nonbanking institutions in taking some role in the lending to consumers and also firms. And of course, we are focusing on the artificial intelligence revolution by means of creating infrastructure, which we take this very highly significant matter forward. So 2 slides to conclude. Greece is a very attractive investment destination, we believe. Why you can think of Greece as a country that is now converging back to the European Union average. Being a convergence country, Greece has the advantage of an emerging market in terms of high profitability, expected profitability. But at the same time, it has much higher visibility. It is a country, which is much more predictable because [indiscernible] monetary stability of the Eurozone and also the opportunities that come with EU participation in terms of access to a large single market. Greece, relative to other investment destinations, is a country with much higher political stability under a promarket, progrowth reform-oriented government. We are benefiting significantly from very large inflows of EU funds, structural funds, the common agricultural policy and the recovery and resilience fund. Together for the [Indiscernible] that we are now at, the funds that Greece receives are equal to the percentage of GDP which is double the Marshall plan, so you can see the opportunity here. There is a strong positive market momentum, which I have given you before. And finally, Greece is a country which has extra external credibility given its strong alliance to the Europe and Western political alliance. So in time of political tensions, Greece is a reliable ally where relocation of investments can take place. So my conclusion, the Greek economy continues along the improvement trajectory that has been set in 2019. Of course, nothing is perfect, and there are a lot of challenges. The external environment is particularly challenging. But despite these challenges, only the macro fiscal and financial indicators are improving. Macro progress has been enhanced by micro and [institutional improvement]. So the Greek economy is visibly changing towards higher and more resilient long-term growth. Of course, there is still work to be done and that is why the authorities are committed to further growth enhancing reforms. So to summarize, I would say that despite the challenging global environment, Greece is a place where the outlook is positive, making it a very attractive investment destination. Thank you so much, and I pass the floor. Thank you.

Thank you, Michael, and maybe we can ask our discussion with some open invitation and starting with you, Ilias to comment on the introduction of Michael. Any thoughts, perspective overlay on what has been said?

Yes. Thank you very much, George. First of all, I would like to thank Mr. Bornozis from Capital Link for the invitation. And also, I would like to thank Mr. Arghyrou for this very thorough presentation. And if anything, George, I would like to sort of -- to stress a few points that Mr. Arghyrou made in order to basically stress this need to progress further. As Mr. Arghyrou said, Greece [Audio Gap] above the euro area average, but I think that we should pay some attention to the fact that despite the fact that we have all these positive factors, substantial amounts of EU funding, a very robust banking sector, which I'm sure that we will touch upon later on, record levels of FDI, we don't see Greece being able to shift to a higher growth trajectory, but especially when the euro area is growing by 0.3%, 0.4%, but should be aiming for a higher growth trajectory, or rather than by [Indiscernible]. And although we have seen a substantial recovery in investment, I think that there seems to be a general, still risk aversion in the Greek economy and in the Greek corporate sector. And I think that one is a very strong indication of this risk aversion. It has to do with the lack of credit growth. All these substantial growth rates that we are seeing in the Greek economy, like 8% in 2021, 6% in 2022, 2% last year, et cetera, et cetera with zero-to-marginal positive credit growth. And I think that it's still indicative of the risk aversion in both corporate and the household sector. So we should be thinking that 2% is okay, but we should be thinking with policies both from the private sector, but also the government on how we can enable the Greek economy to see from a 2% trend to a 3% trend because all the components are there. If you look at capacity utilization rates are at record high, productivity of capital at record high, profitability of corporates at a record high. And yet we seem to be trapped in this 2% growth trajectory. So this is an idea. I don't claim to have an answer [Audio Gap] easy answers to that question. But it is an open question that we should really think hard about how we can shift to higher growth rates.

Thank you. Ilias. And Tasos turning to you on the investment point that has been discussed on top of the quantitative data on investment, right? And the FDI that has been doing better over the last years, we see as well a lot of qualitative improvement, right? As said in the [indiscernible] survey that we run every year since '19. On qualitive questions like do you plan to invest in Greece? Do you plan to invest in Greece in the next 3 years? In the next year? How do you see the [indiscernible] of the country from an investment perspective. All these qualitive data look much, much better over the last 2, 3 years. So from your interactions as Chief Economist in the context of roadshows with institutional investors and foreign investors, do you share this kind of feeling, so to say, from investors globally.

There is a feeling -- thank you very much for the invitation to begin with. I think there is a feeling of optimism shared among investors and analysts about the short and medium-term prospects of the good economy. And I would say it's rather justified. If one thinks where we are coming from and what kind of progress has been achieved in the previous years, I think it is justified to have optimism on the prospects of the economy. And to be more specific, the legacies of the crisis have been more or less dealt with. So the debt is on the declining trends and enjoying fixed and lower rates running primary surpluses. So the escalation is more or less guaranteed for next years. Fiscal prudence is assured by government policies as well as by prudent monitoring by EU institutions. There is political stability, one of the main things that investors look at. Growth is set to overperform the Eurozone averages for the next 3 to 5 years at least. And I would quote 4 reasons why this could happen. The first -- I mean, I'm just going to repeat many things that have been mentioned by Mr. Arghyrou as well, but just giving some color. The first is the fact that not only RF, but other EU structural funds are actually flowing into the country. RF -- Greece is the highest recipient in terms of GDP in the Eurozone, but it's also about MFF. But EIB -- [EIB funds] altogether, we're talking about along with leveraging by the banking sector and the corporate sector are talking about more than 60 billion by RAF and more than EUR 100 billion altogether in the next 5 years to enter the country. So by itself, this separates Greece by other countries in terms of the growth profile. Two was overperforming the Eurozone, the commenters raise for many years, and it will continue to do so in the next years. Last year, we had a performance that was 13% above 2019 records. And this year, it will be even higher. As a matter of fact, financial sector is healthy and Greece enjoys investment grade by 4 out of 5 major rating agencies. This has been reflected in portfolio flows, but not yet the real capital. So this is another engine of growth to be expected in the next years. Finally, I would like to mention the fact that price competitiveness has been restored. As a matter of fact, continues to improve because prices and wages are growing with lower rates in comparison to competitors. If there is one aspiration that we should be more keen on in the next years is to use -- to make good use of this opportunity window of good growth in the next 3 to 5 years in order to complete the change of Greece's growth model, i.e. to rely less on consumption and on tourism. And [indiscernible] that is more -- taking more contribution by investments by exports of goods that integrates more value-added and more technology. And the key in order to do that is investments, attracting more investment and more quality investments, especially before aging starts to kick in. And what is the main tool in order to improve the attractiveness of the country in relation with investors? Structural reforms. Mr. Arghyrou has already mentioned the main areas. Just to repeat, I think acceleration and conferment of justice, education that is much of the education expertise with what is being asked at the labor market, upskilling, digitization [indiscernible] of the economy at large and land uses. These are the priorities. But I would like to highlight here the fact that structural reform is a marathon, it's not a sprint. Because at the same time in which you reform other countries, our competitors are following as well. So this should be an effort that should be with us in the many years ahead.

Thank you very much, Tasos. And Frank, turning to you with the rating agency had -- we know that the Greek debt has a couple of interesting characteristics. One, the fact that it's held largely from the official sector post restructuring, a good debt repayment profile up to 2030, et cetera. So how do you view the long-term sustainability of the Greek debt, especially post 2030 when the profile will be different. Do you have any concerns? And if we turn that positively, what you think should happen up to that point so that we improve even further the view on the sustainability of the Greek debt.

Thanks again to Capital Link for organizing this conference. So to answer your question, I think over the next 3 years, clearly, Greece's debt dynamics are extremely favorable. So for starters, we're expecting that in nominal terms, the economy is going to be growing roughly 3 percentage points faster than its cost of debt. Because 3/4 of Greece's sovereign debt is now official, the effective interest rate Greece is paying on all of its debt is somewhere around 1.4%, 1.5%. So very low cost. As you mentioned, one of the longest average maturities of all sovereigns-rated by S&P, I think that average maturity is now around 19 years. I think only the U.K. has longer maturity, but the U.K. also has a quite high percentage of floating rate debt. So actually, its debt reprices much more rapidly than Greece does. We're expecting by 2032, 2033 that debt to GDP declines by another 50 percentage points of GDP. Assuming that this government and the next government will remain committed to running primary budgetary surpluses of around 2 percentage points of GDP that level of surplus can be difficult to sustain through electoral cycles as we all know. And obviously, as over time, the debt has to be refinanced at commercial terms in commercial markets, it's going to be subject to upward pressure on its cost or at least the cost of debt is really going to reflect Greece's underlying macro fundamentals, whatever those may be. I think Mr. Arghyrou made a really important point that Greece is a much more open economy than it was 15 years ago, and that makes it more resilient in the face of external shocks. Having said that though, Greece does have other challenges that I'm sure we'll talk about later, but I hope that I've answered your question. So back to you.

Thank you very much, Frank. And Michael, coming back to you as to close the first round. You presented on the introductory comments rightly, so the positive aspects of the fundamentals of the Greek economy, and this always makes a good introduction to think positively. But if you were asked to pick on a couple of 2 or 3 concerns from your side, you have concerns in relation to the fundamentals of the Greek economy, which would be those? And what could happen to turn these challenges into opportunities, if possible?

Yes. Well, I think that I would call them more challenges rather than concerns because of the opportunity element which you mentioned. If I were to highlight a couple of things that Greece obviously lags behind is, first, the level of productivity for the whole of the economy. Now on this one, there has been some interesting developments, which I did not present because obviously there is so much one can present in an introductory session. In order to have higher productivity, you need 2 things. First, as Ilias and other colleagues mentioned, is capital deepening that is to say investment. So the fact that Greece has low productivity today is to a large extent, the result of the output gap that opened in the previous decade. Of course, lower productivity was always a future of the Greek economy, but the problem became much bigger last decade. So clearly, here, you need to recover investment. And I think that as long as we continue to send correct signals to the market and we take action in order to improve further the business environment, this investment will come, as we say, economics when you're a catch-up country, you have an advantage all else equal in terms of attracting investment because you [Indiscernible] Ilias, again mentioned, high expected capital profitability. The second thing that we need in order to sort out so that in order to improve our productivity is education, it is the human capital of the country. And perhaps this is the most important thing for the long-term future of our economy. It is to improve the skills of our people. It is to produce students from more levels of education that can integrate into the labor market better and address the needs of employers because the current economic landscape globally is a much more dynamic, fast-changing one. So we need to equip our people with the right skills. So that's the first challenge the productivity. And the second, I would say, is the demographics. The demographics of Greece, like elsewhere in Europe are not great. In fact, they are rather lower than the average European Union country. Again here, there is some scope for optimism. Now our fertility rate is in the area of 1.35 to 1.40. Past data from international evidence shows that when your economy improves, your fertility rate improves as well. A classic example is Bulgaria and Romania. Back in the early 2000s, the demographic trends there were atrocious. The fertility rate is very low. But now they are the second best and third best respectively in the European Union. And this, of course, has to do a lot with the economic recovery of the country. But having said that, it's very difficult to go back to the replacement rate of 2.1. So here, the key in order to -- from the economic perspective to cancel out or moderate the effects of demographics on long-term growth is something I have already mentioned, the greater integration of crucial population in the labor market higher participation. And this includes, again, women, the youth, senior citizens and modern -- fair immigration policy. So I think that there are important challenges, but this can be done to address these challenges successfully. If I were to close this part, I would say the following in the past 5 years, we sorted out the macro of the Greek economy to a large extent. This is absolutely necessary to put a platform of some fundamentals. Now in order to continue growing increasingly, we have to focus on the micro. And this is something on which our reforms relate to. Thank you.

Thank you very much, Michael. And Tasos, turning to you for the second round. We all know that the financial system stability is important as well for the economic prosperity, right? The ability of the system to finance and provide liquidity for growth is of paramount importance. We have been through the crisis. Michael presented the heat on banking system, the NPLs, the exit -- the bank posted record earnings the last quarter again, but a large part of that attributed to NII and the spread between very low cost of liabilities and the yield on the assets. Do you believe that looking ahead, we have left for good behind us, the risk and the issues for the banking system. Do you see any challenges looking forward in the potential de-escalation of the rate environment? What would be your take on that?

One thing is for sure that the banking sector -- Greek banking sector has gone a long way since the crisis year. It has achieved remarkable progress in all fronts. Just as a quick reminder, the NPE ratio on the culmination of the crisis for Greek Bank's approached almost 50%. Today, for all major Greek banks, the NPE ratio is on low single-digit figures. Euro Bank actually being the frontrunner there, would now enjoy an NPE ratio close to 3% that is comparable to the major European groups. The capital adequacy ratios after so many [Indiscernible] recapitalizations of Greek banks, digital solutions, et cetera; now today, the capital adequacy ratios of all Greek banks are comparable to Eurozone averages with core capital adequacy above 20%, a very comfortable ratio. And even more importantly, Greek banks are sitting on a pile of liquidity with a loan-to-deposit ratio just below 60%. So on the condition of good quality of demand, which is lagging a bit behind, at least on the [indiscernible] sector at the moment due to uncertainty. But on the condition of good demand, Greek banks have the liquidity to finance growth in the years ahead, just through another very characteristic number, the LCR, the liquidity coverage ratio today of Greek banks is 218 versus 167 average in the EU, which is characteristical the fact that not only the system is resilient to potential external shocks, but also has the ability to use this successfully with the finance private investment, which is so badly needed in the Greek economy. Are we through with these features? Yes. But obviously, there are challenges going ahead. One remaining challenge is to reduce the share of [DTC] in Greek Capital. [DTC] is considered to be capital of loss absorbing capacity. And at the end of '23, it was a [ 53% ] of CET1 capital, now it's a bit below because of the healthy profitability. And another challenge that I can see going forward is the need to continue to produce healthy profitability. As you said, when NII goes down, how is this possible? Well, it is possible, first of all, because the model of Greek banks has been improved with more contribution being expected now by overseas operations. Just to give you an example, the Eurobank Group now sees 1/3 of its profit coming from overseas affiliates in Bulgaria, Cyprus, and Luxembourg mostly and is expecting that 50% of its profits in the next 3 to 5 years will come from this affiliate. So the model is becoming more balanced, firstly. Secondly, we see an increase in fee income, which is still below Eurozone average. So this can complement for any decline in the net profit margin. And the governance model of Greek banks has improved a lot with many best international practice being implemented in the Greek in recent years. Finally, but perhaps equally importantly, I see a challenge that can be turned into an opportunity with as long as the Green transition is concerned, in the sense that Greece is still lagging behind in limiting emissions of green gases as an economy, [indiscernible] so that means that there is catch-up to be done. And therefore, it means that there is financing of this catch-up to happen. So yes, this is another challenge for the future, but this is also an opportunity.

Thank you very much, Tasos. This is a great path actually for my next question to Ilias, which I wanted to be on this Greek transition, right? We know how a big theme is for Europe and not only for Europe. We know how much the discussion has been a bit derailed due to energy security coming now into the equation and people are saying that we need to reprioritize security versus stability. We know that it's an area that takes very big investments in renewables, in grid upgrades, et cetera. So what is your take on that? I mean, is the green transition -- the plan of Greece for green transition, a driver of growth on this period of geopolitical instability and concerns or an impediment? And how do you see the view of banks in the context of sustainable finance in contributing to this energy transition of the country.

Yes. Thank you very much, George. I think that's a very interesting and a very topical question. And to be on this drive of Greece for green transition and improving the -- or increasing the mix of renewables in our sort of total energy mix. Because I think that the green transition in renewables could change the structure of the Greek economy. In 10 years from now, if we look back and try to evaluate, for instance, the impact of the RRF, the Recovery and Resilience Fund on the Greek economy, we will see that one of the big structural changes that was sort of introduced or were enacted by the RRF was to allow Greece for the first time in its history to close its energy gap. I think that Greece since the introduction of the Greek state back in the 19th century was always a net energy importer, and that is a substantial drain on our resources. We have a current account deficit. And a big part of that is because we are net energy importer. So I think that improving and the sort of deepening the renewable sort of energy production in Greece could be a game changer. I think that in 10 years' time, by 2032, 2034, Greece could have a balanced energy balance. In fact, we could be net energy exporters and that could be a huge benefit to the Greek economy. It will increase the geostrategic importance of Greece in the region. And also it could sort of -- we could achieve that also by doing good to the environment. So I think it should be one of the major targets of the Greek government from now and during the next 10 years. How each year we could improve the introduction of renewables and how we could -- as time goes by, we could eliminate proactively any bottlenecks in the increase of the renewables in the Greek energy mix. And right now, I think that the biggest impediment towards achieving this -- sort of this target has to do not with our ability to install renewables like photovoltaic or wind turbines. But the grid we should improve the local grid in Greece, but also the grid connections with other countries. And if we achieve that, I think that it will be a major, we would have achieved a major strategic role in Greece and in our sort of local neighborhood. And I think that just to finish my question, and I think that Greek banks are extremely -- there is a lot of funding coming from the RRF, but also the Greek banking sector is extremely willing to finance, be cautious on the balance because if we introduce a lot of capacity without the grid then there will be a substantial sort of downtime on this renewable capacity, and this could create sort of operational problems. But if we manage to balance the introduction of capacity with the capacity of the grid to manage this new electricity production, then I think, as I said, it will have a transformational effect on the Greek economy.

Thank you, Ilias Lekkos and thanks again for in many parts touching upon RRF because that was the question I wanted to direct to Michael. And Michael, we have been discussing since we had the RRF approved and the money earmarked for Greece and there was some tens of billions for a number of pillars, including energy transition that Ilias mentioned, digitalization and a couple of more pillars. And it was held with huge optimism that it will contribute largely to the growth of economy because a significant part of money earmarked. So now a couple of years post that, what is your take on this? I mean, did it fulfill its expectation for contributing to extra growth? What is your take on the absorption of the funds and going forward.

Yes. This is a very interesting question. So I'll try to brief -- in precise. I think that the RRF not only for Greece, but as a whole for Europe, it's already a successful program. And the reason is that it allows the European recovery to the European recovery to take place under stable expectation conditions. If you see how Europe handled the crisis of 2011, 2012 and how it handled the pandemic crisis, the big difference was the signal sent to markets regarding the future path. So by providing reassurance to investors that public investment is not going to be curtailed, by sending a very clear signal that Europe is doing at the same time, investments in long-term enhancing reforms, there was the creation of positive expectations regime, which clearly played a role in the recovery of the European economies. From that point of view, the RRF is already a significant success. Now with regards to the reforms and the investments, I think that the RRF is already making a difference. As you remember in Greece, we have EUR 36 billion following the revision that took place at the end of 2023, EUR 18 billion are grants and EUR 18 billion is the loan facility. The loan facility, which is probably more straightforward is a very successful instrument. Demand for these loans, which I remind you are market-led decisions. The government simply has a rule book and eligibility area, and then it is up to the financial institutions to make the financing decisions, proves to be very successful in terms of demand. And to date, we have a significant amount, which is probably exceeding EUR 12 billion in terms of face value of contracts that have been signed. This money has started flowing into the economy. The average disbursement schedule for loans under the RRF is 3 years. So gradually, the money comes into the economy. And I think that it will have the effect of addressing liquidity and credit constraints of the previous decade in areas which are high value added, like the green transition, digitalization, [Indiscernible] economies of scales and innovation. With regards to the grant component, the grant component, of course, has a lot of reforms at the same time, which are gradually going through the parliament. I think that Greece is one of the countries that has been quite successful in terms of the disbursements. As you know, we have recently submitted the fourth request for the grants. I think that there were some -- generally speaking, observed everywhere in Europe, challenges, which have to do with -- to a large extent, the bottlenecks that were created as a result of international supply side constraints. But I think that the disbursements is now accelerating, and we can see this from the statistics, which the general accounting office is publishing. So it is true that in 2022, the disbursements to the real economy from the grant's component were a little bit lower compared to what we would have expected everywhere in Europe. But we see that gradually, this is coming back to the initial schedule. And this has, of course, an upside because growth that you would see in the previous months is now going to take place in the next months. There is no question that it is a very challenging endeavor. I think that it is something that a lot of administrations in Europe are having challenges with. There are places in Europe -- countries in Europe that did not have a single disbursement. Greece is at frontrunners. So I think that it is going according to plan, and I am optimistic that it will support growth in years to come. But [indiscernible] is how I would like to finish my intervention of this. The major impact of the RRF is going to be on the long-term growth. Now of course, continues to grow through the fiscal impact. But the main benefits from the RRF will come from the increase in investment and the increase in productivity through reforms and investments, and this is something that we will see towards the outer years. So it is going to have a very significant positive legacy. It is not just the money we spend now. It is the change in the structure of the economy that will come with it.

Thank you, Michael, and we move on to the last question on the second and last round, and it's to you, Frank. You have mentioned in your report about the downside scenario for Greece, the possibility of external imbalances worsening such as from the elevated current account deficit. So the question would be, if you could elaborate a bit on that concern, how big is this for you and give a bit of flavor around this concern?

Yes. Thanks for the question. So I actually think Ilias made an important point, which is the net energy bill of the Greek economy is roughly, I think, 2.5, 2.6 percentage points of GDP. So an investment in the energy transition to reduce the dependency on fossil fuels would cure as much as half of the structural deficit. I think the other big component of the current account deficit is just the cost of servicing liabilities to nonresidents. So the income deficits around 2 percentage points of GDP, that's going to take a lot longer to fix. But it is something of a constraint on the rating. I mean I wouldn't exaggerate it too much because it's really not financing consumption. It's not really financing lower quality components of growth. I mean, if you actually look at the last 4 years, not only did public debt declined a lot since the pandemic, private sector debt has too. So households companies are, perhaps, acceptably underleveraged at this point, which I think is the point that might -- the other participants have already made. I think one other point I would like to raise though is that I think original we project that Greece is going to be running primary budgetary surpluses of around 2 percentage points of GDP over the next several years, but we're still forecasting slight general government headline deficits. And maybe as a signal to the market, the way Ireland, Portugal and Cyprus now are running outright budgetary surpluses, maybe the government would want to consider running outright surpluses and paying down nominal debt as a signal to the market and its approach to recapping the market again over the medium term. So back to you, Georgios.

Thank you. Thank you, Frank. And we are thanks to your support exactly on time. We have 2 minutes left before we hit 6. So maybe we can take one question from the audience. Let me open the -- so I think it's mostly related to banks, so Tasos and Ilias to you. And the question is, capital markets are an important part of driving further investment into the system. How are you thinking about regulation and product structures that attract investors, tax benefits may be and innovation in the financial services industry. Anyone that would like to touch upon that.

Just a very quick phrase to say that obviously, this initial concerns regulation mostly, banks models have to do with that as well, but it's mostly about regulation. And it's mostly about the progress that's been not so far and the one that remains to be done regarding the capital market in your opinion. So this is a very large discussion. I don't think we have time for it, but obviously, very much supportive of it, and we think can be a game changer as regarding the availability of funds for productive investments in the country as well because as we know, the European model relies less on capital market funding and more on banking capital.

Thank you Tasos. Complement on what Tasos just said. I think that we saw the substantial outperformance of the Greek stock market. and further deepening of Greek Capital Markets, I don't think that we have the luxury to wait until Europe complete all the necessary steps for the capital union that Europe thinks that they have the luxury of time. I think that because we start from a very low base, we need to -- and if there is a point that I would like to sort of or a point that I'm trying to sort of get across is that we should aim for a faster pace. We cannot -- we are not Central Europe. We had 15 years of negative and very low growth rates. We had then the COVID, the impact of the COVID pandemic we should aim for to move much faster than the rest of Europe, just to close the gap that has been opened up during all these years of recession and the stagnation.

Thank you, and this brings us to the conclusion of this session. From my side, the big thank you to Nicolas Bornozis from Capital Link for organizing this discussion. A big thank you to you, gentlemen, Professor Arghyrou, Dr. Anastasatos, Dr. Lekkos, Mr. Gill for being in our panel and obviously to all of you for following this discussion. So my best wishes for a great day to all, and thank you again. Bye-bye.

And thank you from me as well. Thank you so much.