“It could be months, it could be years but this is a historical period which would be the true challenge to see if the European experiment can succeed or will fail”
Former Greek Prime Minister George Papandreou was voted into office in 2009 and within a short period he was forced to seek international bailouts of about 250 billion euros and embark on an austerity program to fend off a debt crisis.
In an exclusive interview with The Hindu, Mr. Papandreou talked about how the Greek debt crisis unfolded, the current situation of the country's economy and the eurozone’s economic problems. Edited excerpts.
How severe is the eurozone’s debt crisis now?
Europe is still battling between recession, deflation and very slow growth. There has been a gap between the more competitive economies and high-surplus economies. For example: Germany has bigger surplus than China which it should invest even if it invests just only in its own infrastructure which would create more stimulus, more jobs which allows for more consumption and that will help the European economy. In the view of the markets the crisis has been mitigated if not completely solved. However if you look at the debt of certain countries, for example Greece, if you don’t have growth in Europe we are getting into a spiral of cutting, further recession, more cuts… and that just means that the debt is just growing.
Greece has capacity for investment. It is a small country but still we have millions and millions of tourists.
At the European level, after the 2008 crisis, what happened is that the need for central banks to stimulate the economy, they had the quantitative easing (QE), which obviously helped the United States. In Europe, we started the QE seven years after the crisis. There are two basic issues in Europe. First of all Europe is at a turning point as far as its own basic structure is concerned. Secondly there is a problem with the architecture of having a common currency with different economic policies and different levels of economies. We were less competitive, less developed economy than say Germany and this meant that with common currencies we could not keep up. That was a structural problem.
Is it right to say that your fiscal policies were not integrated?
That’s right. This means that we have reached a crossroad where we say either we go into a deeper integration or we start feeling the pressures of splintering and going our own way. Some countries were worried to pull their own resources, I would say pool their risks in a common European Union, which then moves toward a banking union. That means then that whether you have your money in a Greek bank or an Italian bank or a German or French bank your euros are equally valuable and equally guaranteed. We haven’t reached there but we have done the first few stages, which is the monetary, the resolution mechanism. Now we have to get the guarantee. Guarantee, of course, means pooling risk.
Is the banking crisis a less severe constraint now on the Greek economic recovery?
We just recently recapitalised our banks. The problem of the banking crisis …this is not just the Greek problem…has been so since 2008 is that even though at some point we did calm down the markets the banks became very reticent in investing. They would rather hoard the money to make sure that their accounts look good but that’s not their purpose. It is in fact to invest, take some risk and that’s what helps the economy. For a number of years now in many countries in Europe banks were slow to invest.
There was such a freeze in Greece and what steps did you take to overcome them?
There was a freeze and that hit the economy…that by itself, while we were adjusting and making very, very difficult sacrifices, the climate around Greece was devastating. So this is where I will say it is partly Greece’s problem but it was also very the responsibility of our common family called European Union to basically guarantee and say they are doing their job here we will not even discuss the idea of them leaving the currency. Had that been done at an early stage we would have been in a much better situation. But even till last year there was this discussion. So six years of insecurity is not good for any economy.
How difficult is it for politicians in Europe to sell this to the voters in their countries?
Of course, I had to…first of all when I was elected (in late 2009) I was saddled with the debt of the previous government.
Did you know this at that time? When did you first come to know of the actual size of the budget deficit?
No, I didn’t. And that was one of the problems. Well, in the first two-three weeks when the finance minister started gathering the data. Unluckily they had false reports from the previous government on what the level of deficit was. While they said that it was 6.5 (% of GDP) officially just before the elections it ended up to be 15.6 (% of GDP) which is a very big difference. Actually, the difference was part of the problem but the fact that they had been misrepresenting the deficit was an even bigger problem because that created a deficit in credibility. I always say, having gone through this crisis, we had a deficit in our competitiveness, current account deficit but the worst deficit was the deficit of credibility and trust. So we had to restore that. To do that I had to take very difficult measures.
How soon did you reveal the real level of the government deficit?
Well, quite soon. I didn’t think that there was any reason to hide it because if I did hide it, it sooner or later it would be revealed. It would have been counter productive …and I would have undermined my own credibility and my country’s credibility. The message, I always say, is that this crisis is an institutional one. It was not so much an economic one but how we governed, how we managed the country. We have resources, we have capacities, we have human capacity…how we manage this country is really the issue. Therefore, bringing in transparency in statistics… We have an ancient Greek word we call it ‘parrhesia’ which, if you Google it, means having the obligational responsibility of telling the truth even at the risk of your own life. So I knew I was taking big risk. Had I not done that I wouldn’t have been able to push reforms.
What would that entail?
It will entail more common economic policies that we look at each other not so much as nations but as citizens. So if somebody’s unemployed then we give unemployment benefits not through the Greek government but through the European structures. A political system which will be more transparent. For example we have to elect (election by the citizens) the head of Europe rather than sort of appoint. It could be by a parliamentary system or a presidential system but I would say bring in a democratic legitimacy. Europe has also been a bit of a project of the elite. It was there as a very grand and very important idea of never have walls again and link each other…
What sort of opposition is the idea facing?
Lot of opposition unluckily because of the crises… economic, financial, climate, the issue of movement of populations, whether they are migrants or refugees, conflicts also and there are pressures on our societies to adapt. Europe is still an attraction to so many people because of its social systems, health systems, employment systems, and so on. Lots of people are saying oh what we need to do is go back to our tribal instincts. Lets close our walls, lets close our doors. There is still a majority in Europe that is saying that but the forces of nationalism and populism, xenophobia, racism and so on are on the rise. The extreme case is Syria.
