July 30, 2019 / 3:08 PM / 24 days ago

Breakingviews - Cox: A mall and gold mine are key to Greek revival

ATHENS (Reuters Breakingviews) - The word most frequently used by Greeks to describe their new government is “weird”. That is not meant pejoratively. Instead, it describes the unusual speed and specificity with which Kyriakos Mitsotakis has taken to the job of prime minister. What people mean is: “This is really weird for Greece.”

Main opposition New Democracy conservative party leader Kyriakos Mitsotakis waves to supporters during a pre-election rally in Athens, Greece, July 4, 2019.

The former McKinsey consultant has outlined key priorities in the three weeks since his centre-right New Democracy won a clear majority in parliament, ousting left-wing Syriza boss Alexis Tsipras. Mitsotakis has even passed a series of decrees and sent legislation to parliament. At the top of his to-do list are what appear to be weird priorities for any new government, including a gold mine and a massive shopping mall.

But there’s nothing odd about either. Despite a decade of bailout-related austerity, Greek debt is worth more than 180% of GDP. To shrink that, the economy needs to expand faster than the 1.9% that the Bank of Greece forecasts for 2019. “The new government wants to expand the denominator with business-friendly policies, and shrink the numerator,” says Panos Tsakloglou, a professor at Athens University of Economics and Business, and a former chairman of the Greek government’s council of economic advisers. Attracting foreign capital, alongside more public investment, is key to the plan.

That requires some emblematic wins to show global investors and corporations that Greece has not merely regained its mojo, but turned its back on fiscal mismanagement and sclerotic bureaucracy. That’s how an urban renewal and construction project, which envisions a shopping centre and a casino on the Athens waterfront, rises to the top of the agenda.

The growth such projects will generate will also help reduce the stock of non-performing loans gumming up the banking system. These amounted to 80 billion euros in March, or around 45% of total loans. Though Greek bankers say they are back in the lending business and believe the stock of dud credits can halve by 2022, they agree higher growth will allow them to work through bad loans more quickly, releasing capital that can be funnelled back to small businesses and consumers. 

Investors are optimistic. The benchmark ASE index has rallied a fifth since Syriza’s poor showing in May’s European Union elections, which forced Tsipras to call an early election. And the yield on Greek 10-year debt recently fell to a record low below 2%. That was less than comparable U.S. debt.

Mitsotakis is living up to such hopes. The son of a former prime minister has already sent a bill to parliament to cut levies on real estate, which should also boost bank collateral. He has promised reductions in corporate income and dividend income taxes. And while pledging that Greece will make the primary budget surplus of 3.5% of GDP this year and next that its lenders require, he told legislators “our reform drive and credibility will form the basis of target renegotiation beyond that”.

That is where the mall and the gold mine come in. The former refers to the Hellenikon Project, an 8 billion euro plan to turn the capital’s former airport into a 6.2 million square meter paradise that, in addition to a shopping centre and a casino, will include gleaming office towers, fancy new homes, a public beach, top-notch aquarium and shiny new marina.

After the airport moved to a new facility in 2001, the site served briefly as a sports venue for the 2004 Olympics and even as a refugee camp before falling into disrepair. In 2011, development rights were acquired by a consortium led by Lamda Development, a publicly-traded company controlled by the Latsis family.

But Syriza created numerous roadblocks. Even as Tsipras tried to get Hellenikon back on track in the final weeks of his re-election bid, his culture minister thwarted those efforts with a series of last-minute approval requirements, according to Greece’s Naftemporiki newspaper. Jumpstarting Hellenikon could lift GDP by 2.4% and create 10,000 jobs during construction, and many more when operational, according to the consortium’s estimates.

Or take Eldorado Gold. Two years ago, Syriza forced the Vancouver-based miner to halt construction on its Skouries development in northern Greece, which has reserves of 3.7 million ounces of gold and 1.7 billion pounds of copper, citing mainly environmental permit delays. Eldorado’s value more than halved since Syriza took power, but has rallied since the Greek election on July 7. 

Like Hellenikon, the Skouries mine development offers a growth opportunity. Reopening it without trampling on legitimate environmental concerns would show the country is not just open for business but transforming the way it operates. That may help Mitsotakis end Greece’s modern financial tragedy. Nothing weird about that. 

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