Speech at the Economist Conference
Speech at 15th Roundtable organized by the Economist entitled “In the aftermath of the global economic crisis: what next?”/ Re-inventing Greece: a leadership vision
“Thank you, Andrew. Ladies and gentlemen, friends and colleagues, let me begin with a story, a small story but real story.
Only a few days ago I asked my Finance Minister, Giorgos Papakonstantinou, how deep our recession seemed to be this year.
He said, “I can’t tell you until our independent Greek statistics authority announce the figures.”
I replied, “OK, but surely you have an initial indication from them.”
He said, “No, I don’t.”
I said, “Well, ask them.”
He replied “I have. I have asked them.”
So I asked, “What was the result?”
He said “They have decided that no one, not even God himself, will get a preview on the statistics before they are officially and publicly released, not even finance ministers will in the meantime.”
And so it was.
We waited for the 2011 first-quarter figures on our economy, as did everyone else and we received the results on Friday, at the same time as everyone else in the world did.
Yes, we have an independent statistics authority in Greece. Some might say so what? Isn’t that supposed to be self-evident? It is, but it represents a sea change in our country. Actually, we may be frontrunners, compared to many other countries, even in the developed world.
But that is why I call what we are doing in this country the revolution of the self-evident. It may sound easy, but in fact it is painful.
Last year our 2009 deficit was revised from 6% of GDP to 15.4% of GDP. That is painful. Transparency is painful. But it is a necessary prerequisite to know where we are, where we are today, to begin the difficult journey – we have already begun it, of course – to a better and more viable economy and society, and repair so much damage that had been made.
I see this revolution of the self-evident having as its basic goal to create trust and regain our lost credibility, create the trust we need in our institutions, our capabilities, our own selves, to regain credibility we lost amongst our partners, our investors, the credibility our citizens want to see in government institutions.
So tonight I would like to make five points, five comments on, first of all, on where we were a year ago. Secondly, why were we in the situation we were in at the time? Thirdly, where are we today and what have we done to get here? Fourthly, where do we need to go? And finally, how are we going to do this?
Where were we last year? Well, we all know: there was a huge deficit, a huge debt, a huge deficit in current accounts, lack of competitiveness. But most of all, the biggest deficit of all, was a lack of credibility.
Why were we in this condition? This is the second point. Greece has had and still has great potential.
Let me quote what I said a year ago in a speech to bankers in Vienna. I said, “The Greek economy is no poor economy. It was a mismanaged one.
And if I translate that to the reality on the ground, it meant a political system built on clientelism, patronage, inequality and injustice, captive to special interest groups with special privileges, and along with it a huge, over-centralised, inefficient and bureaucratic state, lacking transparency, meritocracy and accountability.
“This in turn allowed for growing graft, which not only undermined public trust, but hindered entrepreneurship and also wasted taxpayers’ money along with investors’ time and patience.
“Huge costs are accrued, for example, in the hospitals because of corruption and lack of transparency in their management. And the welfare system, where 40% of all total health and education expenditures are paid out of personal income of Greeks, not public monies.
“This created a culture of tolerance towards tax evasion, and in no way helped foster civic responsibility.”
That is what I said a year ago. So we knew and we know our problems. And I am happy that both the European Union and the IMF are coming to an understanding of the deeper challenges we have, where our deficit and our debt are indeed a major burden, but they happen to be symptoms, not the cause.
We obviously have to deal with the symptoms, as they can be grave enough to create havoc.
But even today, if there were a magic wand that would make these grave symptoms of deficit and debt disappear into thin air, we would still be up against a huge challenge, one of making structural changes, changing practices, even attitudes, changing our public civil service and sector, making our economy both viable and competitive, moving into a green and sustainable economy, investing in our comparative advantages.
Otherwise, in only a short time we again would be in deep waters, with new deficits, with new debts.
Yes, we knew, if not exactly in statistical terms, still we knew and still are aware our problems. And certainly we are not going to tolerate concealing them, because this was a cardinal sin.
And we are being more self-critical than anyone else outside Greece, because we know we need to change and because we want to change.
We, in Greece, our government and I, are all committed to facing up to our responsibilities and are doing so in the best of ways.
Yet, we all know that this problem is not only a Greek problem and this I have said that much long before Ireland or Portugal became recipients of help and decided to implement a robust programme for change.
We have all lived through the rollercoaster experience, the sense of terror of the 2008 Wall Street collapse. There was nervousness, worry of what may be around the corner tomorrow, fear, panic, and even hysterics.
And there was much debate worldwide about how we regulate the financial sector, the causes of the fallout in 2008 and who is picking up the check. What are the rating agencies doing? How do we create sustainable growth?
We all share a common challenge. We, humanity, all of us have unleashed or created amazing capabilities, be they in finance, energy, nuclear energy, bio- and nanotechnology, communications, informatics, astounding innovation, research and human knowledge.
Yet our institutions and we seem ill prepared to use our huge capabilities wisely or to deal with this rapid global transformation.
Ancient Greeks would have called this problem ´´hubris´´ (ύβρις).
But beyond theory and practice, this means that one way or another our citizens want us to restore confidence in their lives, a sense of security, real transparency, with a clear common plan guaranteeing all real participation, a worthy job, a good education, a respectable pension, and a respected voice in decision-making, as we deal with this very complex globalising society.
So this will be and indeed constitutes a national, a regional and a global governance challenge for us all.
We have linked our fates so closely together so that, for example, when ECOFIN, our European committee of finance, with the ECB and the EU Commission decided last year on the EUR750 billion support package, it did so at two o’clock Sunday morning, in order to send a positive message to the markets in Japan just as they were opening up the next day, on Monday.
This is only one example of the intricacies we are facing, complexity that makes our work even more challenging in Europe, which is not necessarily equipped to deal with similar situations, although we have seen amazing steps be made. Maybe they were slower compared to the way the markets react, in terms of creating new institutions which have helped supporting Greece, Ireland, Portugal, and the eurozone in this difficult situation, which we appreciate very much.
We are in this boat together. A monetary union without, however, a coordinated fiscal or economic policy, is the one thing we are trying to fix. We are in this boat together, and I often read articles in The Economist rightly making this point, particularly concerning Europe.
Just some of the titles of the past weeks bear this out: ‘How Dithering Could Wreck the Eurozone’, ‘Decision Time’, ‘Politics Raise the Cost of Eurozone Solution’, ‘Dogmatists Raise the Cost of Eurozone Crisis’.
So as we in Greece are showing lack of trust in our institutions, deep down our own institutions are, one way or another, facing a deficit of trust worldwide as well as in Europe.
The third point: Where are we today, and what have we done to get here? Well, let me take you back to our independent statistics agency. A few days ago, the Greek Statistics Authority announced that in the first quarter of 2011 Greece’s GDP grew 0.8% on a quarterly basis. On an annual basis the economy contracted by 4.8% in the first quarter of 2011, compared to 7.4% in the previous quarter.
On Friday the European Commission predicted that Greece will return to positive growth rates in 2012.
– Exports are growing fast: 35% average growth in exports per month during both the fourth quarter of 2010 and the first quarter of 2011.
– Competitiveness is improving.
– Current account deficit reduced from 14% in 2009 to 11.8% in 2010.
– Tourism and shipping, two cornerstones of the Greek economy, have posted strong growth this year.
Despite higher inflation in other European Union countries and high oil prices, we are seeing inflation in Greece being reduced, slowly but surely. As a Greek TV commercial states “Was this by luck or chance? I don’t think so.”
These are encouraging signs that the country is emerging from recession. It is an important glimmer of hope and we get to see it because we have made a colossal effort in the past months and year.
Bear with me, as I mention some of the goals we have achieved:
– The largest annual deficit reduction ever by a eurozone economy. Government deficit reduced by 5% of GDP in 2010. Cyclically adjusted, primary deficit reduced by 7.2% in 2010, from 9.8% to 2.6%.
– Primary expenditures reduced, as a percentage of GDP, from 47.6% in 2009 to 44.0% in 2010.
– Total revenues increased, as a percentage of GDP, from 37.3% in 2009 to 39.1% in 2010, which is the second largest increase in the European Union.
– Concerning expenditure cuts and tax measures, we had a reduction of public sector fixed-term contracts by 38%, or 29500 people, in 2010.
– Total public sector employment significantly cut: a net reduction of 82,400 people in 2010, or a 10% decline of the total.
– State-owned enterprises: a reduction in deficits by 20% in 2010 and an additional reduction of 35% in the first quarter of 2011.
– In education, we had 1976 schools merged, with a net reduction of 2000 teaching positions and hope we will offer better education in those schools that have merged.
– On spending: From a revamped pension system, we got an overall reduction of EUR3.4 billion or 1.5% of GDP on pensions, illness and pharmaceutical benefits in 2010.
Although deficit reduction is essential to put our economy back on a sound footing, cuts alone are not enough. Our goal is to drastically change the way both the state and the economy operate in Greece. In spite of fierce opposition, and conservative reactionary forces that resist change at all costs, we have implemented a broad programme of structural reforms.
Let me share with you some of the major reforms we carried out in the past year:
– The reform of the social security and Pension system, making it a viable system for the next generation, was complete ahead of schedule. Measures reduced the actuarial deficit to 2060 by 10% of GDP.
– We established an independent statistical authority, as I mentioned: President and the majority of the Board members appointed by a four-fifths majority of Parliament, and full validation of data by Eurostat.
– Stronger fiscal management: Creation of a medium-term fiscal framework, including a parliamentary budget office which controls expenditure, monitoring mechanisms, and binding expenditure ceilings in ministries.
– Tax reforms: New management information systems, alternative tax dispute resolution mechanism legislated, shortened judicial procedures for tax evasion cases.
– Combating tax evasion: Imposed fines of EUR3.4 billion in 2010, which is an increase of 182% compared to 2009. There was a six-fold increase in audits on self-employed professionals, penalties were enforced for undeclared assets. Five hundred and fifty-five yachts were seized. EUR10 million in fines for offshore real estate assets in 2010. Preparation of a three-year anti-tax-evasion plan.
– Local administration reform: Municipalities reduced from 1034 to 325. Local authority entities reduced by 4000, from 6000. Decrease in elected officials from 30,000 to 16,000; 30,000 work positions abolished in prefectures. Fixed-term contracts reduced by 50%.
– Health expenditures: Average expenditure reduced by 30% year-on-year, in the first quarter of 2011, despite the increase in patients. Ten hospitals are being merged, with more mergers planned in 2011.
– Online publication of all government spending, transparency.
– Simplification of new business startups. A company can now be set up in one day instead of 19 days. Fast-track process for large-scale investment.
– Abolition of cabotage. Restrictions in order to boost cruise tourism, one of Greece’s greatest assets.
– Liberalisation of road haulage or truck driver professions. Unlimited licences with fees gradually declining to zero between January 2011 and June 2012.
– Liberalisation of closed professions. The new law is effective July 1st 2011, and covers over 150 professions. With this new law, all restrictions automatically are lifted. The default is open professions. A presidential decree is required only if some restrictions are to be kept, and only if a reason of public interest can be proven.
– Restructuring of the national railway and urban transport. EUR150 million savings in 2010. EUR400 million projected in 2011.
We have established a meritocratic system of recruitment for the public sector, enforcing performance-based monitoring and tougher penalties on civil servants who abuse their positions.
We have succeeded in delivering all these reforms in a remarkably short space of time, and under incredibly challenging economic and political circumstances.
When people tell me that they are impatient for change to happen faster, I ask them to reflect on where we were ten years ago, five years maybe, or even one year ago. Remember no other Greek government has managed to push through so many reforms so fast, and certainly not while contending with such a complex global crisis at the same time.
But don’t get me wrong: We still have a long way to go. But there is also much to be optimistic about. These things haven’t just happened. Every single Greek has played his or her part, making huge sacrifices in this past year.
And I know this is not easy. But our resolve is unwavering, and we will persevere. Our immediate priority is to ensure that Greece has a primary surplus, and I will do whatever it takes to achieve that. This will be a clear sign that we are on the road to deal with our debt.
What we have introduced is a completely different kind of politics, making a clean break with past practices, changing the way the state functions, setting an example for our citizens and other political parties by taking a long, hard look in the mirror, acknowledging past mistakes, and facing up to our responsibilities.
In the past nineteen months we have established a new political discourse, based on transparency and honesty, even when that means telling people things they don’t want to hear. The era of sweeping uncomfortable truths under the carpet is over.
And our goal is to guarantee that Greece is no longer dependent on creditors, even if they are our allies, partners and friends, to indeed be able to stand on our own two feet.
My fourth point: where we need to go. In order to restore sustainable economic growth, deficit reduction remains our priority, both through cutting waste but also promoting sustainable growth.
That’s why we have just tabled an ambitious mid-term fiscal adjustment programme for 2012 to 2015. It includes extensive privatisations, economies of scale in the public sector, minimising waste in public spending, and restructuring our production model.
We will undertake any additional policy measures necessary to ensure that we meet our original fiscal targets we set in 2011.
What is needed to be done from here on? First of all, as I said, a robust four-year programme which guarantees that we are moving, implementing policies and all necessary major changes in our society. This is called technically a mid-term programme, but it is nothing less than a small revolution, one of restructuring our institutions, our society, our economy, one that moves from austerity to structural changes, programmes to fight unemployment, to make and ensure competitiveness and growth. Certainly green and quality growth.
Secondly, in this package we need a clear commitment for the necessary support of this programme from our institutional partners. And finally, we manage our debt.
More specifically, we are finalising our medium-term programme, fiscal strategy. And this is the first time Greece undertakes such a project. And this will bring our deficit below 3% in 2014, and around 1% of GDP in 2015. This will allow us to create a primary surplus above 5% from 2014 onwards, which will reduce the debt-to-GDP ratio and make the Greek debt sustainable.
Our medium-term fiscal strategy will be fully quantified, and all the necessary measures will be completely specified.
On the expenditure side, they will include a reduction in public sector employment of 150,000 people over this period, or a 20% reduction of total, which will be achieved mainly through not replacing people who retire, but also through voluntary redundancies, where necessary.
A new wage grid for the public sector, which is more in line with that of the private sector, fairer, rewarding effort and productivity, and containing wage costs.
Merging or closing down state entities that no longer serve their purpose.
Streamlining, means testing and targeting social benefits to those most vulnerable.
An unrelenting effort to cut waste and reform all of the public administration.
On the revenue side a re-evaluation of tax exemptions, with a view to keep only those that are socially needed or can be justified for growth and competitiveness in areas where we have comparative advantage. We have done this in the tourist industry, for example.
A full-fledged attack on tax evasion, which is an impediment to growth and one of the main causes of social inequality, creating a strong sense of lack of fairness. Certainly we would want a lower tax rate for business, but this we can achieve, as we see greater transparency and as we see that we are truly fighting tax evasion.
At the same time we will announce and push forward our next steps in our ambitious privatisation and asset management strategy. We have aimed for a target of EUR50 billion in revenues, which can cut public debt to up to 20 percentage points.
Equally important, however, we will use privatisations to re-invigorate critical sectors of our economy and boost growth.
We will frontload this process by announcing the reduction or elimination of the stake which the state owns in listed companies, in telecoms, ports, water management, as well as electricity and gaming, bringing forward in time transactions that are mature and will signal the direction which we are taking.
A word on debt restructuring. I know that analysts are talking about it, and many have already discounted it. but we, the Greek government, European institutions and other eurozone countries, all continue to believe that the costs far outweigh any potential benefits for our citizens, for the economy, for the Greek and European banking system, for social security funds, for the eurozone.
So we stick to doing what we need to do in any case: create a primary surplus. Get the economy growing again through structural reforms, and use our assets to reduce our debt. All other discussions seem to be a distraction, and we refuse to be drawn into them.
In the long term our policies are designed to lay the foundations for a much more dynamic, viable and competitive economy, an economy based on innovation, green growth, and high-quality products and services.
Finally, how are we going to do this? First of all, no one should doubt our commitment and resolve. Don’t interpret any difficulties as faltering. We may need time for deliberations. We may need to tweak or even change some of our initial assumptions. We may need to further help and empower a public administration that had never before been asked to perform with such speed, such innovation, such a different approach and attitude.
That in no way changes our will and our decision for major change in our country. Yes, we are changing everything.
And we are doing so during a period of great international turbulence, the global financial market continuing to be volatile.
Just imagine how it would be in your country if, as you are making a small revolution, analysts around the world, experts, or many who recently seem to have become experts on Greece, pontificate and predict the doomsday just around the corner.
This is not the most conducive of atmospheres for change, for investment, for confidence or for hope.
From the international media we ask no more than respect for what we are doing. No accolades, but no trashing. Because again, yes, we are changing everything.
First of all because we came in on a mandate for change.
Secondly, we owe it to ourselves. We know down deep, even when we don’t see much light at the end of the tunnel, that our people and our land have great potential. Our own tradition has taught us from ancient times what it means to decide to take a voyage such as one to Ithaca. We know there are perils on the way, Cyclopes and Sirens, black swans. Yet we know we will learn and become better through this very trying journey.
We are creating a much healthier relationship between the public and the private sector.
Changing our education system, our social welfare system, our health care system, to make it more efficient and effective and serve our people better, give prospects to the younger generation.
In the long term our policies are designed to lay the foundations for a dynamic economy.
How will we do this? Final point. Beyond our commitment, our resolve, our political will, we have our partnerships. And let me say a few words, a short few words, in Greek, because one of the partnerships is the ones we create in our own society, within Greece itself.
The primary necessity is to have a new nation-wide understanding within our country.
Experiences in recent years, the tough reality and truth on our conditions, do not allow for embellishing the situation or offering magic recipes.
They all call for a serious and responsible stance, persistence and commitment on the part of us all.
And this must be communicated and expressed by all, society, business people, social partners and political party leaders alike.
This is a national necessity for us: we have to change Greece.
And indeed show that everyone everywhere understand this.
Our experience, my personal experience over the past year has only strengthened my belief in the need for deeper cooperation in the European Union and internationally. We are facing a common challenge: to strengthen the trust needed between us, to strengthen the trust in what we have already achieved. And it is much, be it the euro, be it our democracies, be it social cohesion, or be it peace on our continent.
Very simply, our challenge is to develop more partnerships, greater understanding of our respective or common problems, and deeper integration and cooperation. In our democracies and our economies, with and between our peoples, we need this cooperation.
The opposite would signify xenophobic rhetoric, easy scape-goating, nationalistic entropy and all these are recipes for disaster for Europe.
So this is a challenge we must, and I believe we can, muster and overcome together.
Let me add one more point concerning Greece and its international role makes it unique in Europe. And it only further proves both our need for close cooperation, but also our amazing potential, which I believe we in Europe have not yet realised, or even understood. Yes, we have underestimated, as Europeans, our potential as Europe.
Over the past year, most of what one hears concerning Greece is the terrible financial crisis. For all our problems, Greece is and remains a point of important stability in this region, a frontline state of the European Union, bringing its values and stability to a difficult and changing region.
We have a key-role to play for European prospects and integration of the Balkan countries into our European family of values. And this is important for stability and peace in the region.
Our banks have heavily invested in the Balkans and are providing both growth and jobs.
We are key in the relation to Turkey and the solution to the Cyprus problem. Our relation with Turkey epitomises the possibilities as well as the difficulties in the relation between Turkey and the European Union.
Greece is close to the biggest, population-wise, city of Europe, and a very dynamic one from an economic point of view for that matter, and that is Istanbul.
And tourism, trade between our countries is booming, yet only at a fraction of its potential.
We are becoming a hub for China and its exports to the European market. Our main port, Piraeus, has been chosen for this purpose, and we, our shipping industry and port authorities, are working systematically towards this goal.
We are an honest broker in the Middle East; where our relations with Israel have improved, while we maintain strong traditional relations and ties of friendship with the Arab world and the Palestinians. We are determined to help peace in this region.
Greece is also part of the contact group on Libya. We are also taking initiatives to find a peaceful resolution to a conflict we all know can have no exclusively military solution.
Greece is becoming a hub for energy networks, with grids already from Russia, Azerbaijan through Turkey, and potentially others from Israel to the rest of Europe.
We also are in advanced stages of providing for important investment in wind, solar and geothermal renewable energy, becoming fast a frontrunner in this area also.
Then we are all facing the amazing changes in the Arab world. Yes, we in Greece knew that democracy was no Western patent or exclusivity. As a matter of fact, one should not forget, and we Greeks don’t forget, the legacy of the Arab and Muslim scholars during the heyday of Arab culture. During the eighth to tenth centuries, there was a massive translation of ancient Greek works from Greek to Arabic by Muslim scholars.
Had these translations not been there, there would never have been Enlightenment, as we know it in the West. The world would possibly not have known of ancient Greek culture, from philosophy to medicine. Many ancient Greek texts do not exist in the original Greek, but are available exist in Arabic given those scholarly translations.
I am only saying this to remind all of deep historical and cultural ties linking the countries and peoples in the region, and thus the liberation of the Arab people will mean an awakening, not only of the past but also a search for a modern identity, as democracy is also theirs, and not a monopoly of the West.
The relation of the Arab and Muslim world with Hellenism coincided with the pinnacle of Arab civilisation. And the rise of the Arab civilisation today will inevitably again revisit the concept of democracy, of its relation to Athens, the birthplace of democracy.
This is not only symbolical. I’d like to quote Jeffrey Sachs in one of his op-ed articles recently published. He says, “It is true that Greece will have to sustain tough economic adjustments for many years, and that the national will might falter. But there are certain cards up the country’s sleeve.
“First, Greece’s debts are more manageable than they seem, because Greece’s hidden economy and hidden wealth of the elites are also much greater than they seem. Money has been salted away for years in hidden bank balances. If that wealth can now be tapped through honest work of the tax authorities, the budget will be brighter than appears possible today.
“Second, and even more important, is the growing role of Greece in the wider world economy. Greece’s new rapprochement with Turkey is not only diplomatic but increasingly economic as well. Two-way trade is on the rise, as are regional infrastructure projects. Greece has also branched out to Bulgaria, North Africa and other neighbours. With rising demand coming from the Middle East too, economic recovery could yield pleasant surprises.”
We are facing many challenges, and certainly democracy is one of them, and we are all in need of this redefining of democracy in the time of social media, rediscovering democracy, its meaning for us in a globalised economy. And this will be crucial for Europe’s relations with its Muslim and Arab neighbours.
These are not lofty goals, compared to the financial challenge we in Greece are facing today. But I believe we can and we will succeed, first of all because we owe it to ourselves, but secondly also because we know we have the potential, and we know we can do it.
Thank you very much.”