George Papandreou, a third-generation scion of Greece’s foremost political family, entered the global spotlight with his efforts to turnaround his country’s economy during the height of the European debt crisis. Upon becoming Prime Minister in 2009, Papandreou’s government inherited a deficit that was much larger than was reported. As PM, he tried implementing some key reforms but was overtaken by the downward spiral of the domestic economy and the potential of a cascading impact that held out a big threat for the rest of the Eurozone. Papandreou resigned as PM in November 2011 as part of a deal to pave the way for a coalition government to restore stability, but remains a key figure as a MP and as President of the Socialist International formation. Speaking to Anil Sasi, Papandreou shares his thoughts on the crisis in Greece and on how his administration handled the darkest period of the meltdown. Excerpts:
Is the economy beginning to look up in Greece?
Well, we have gone through a lot of pain and sacrifice. Still there is a large amount of unemployment… But what we have also done is on the fiscal side, we had a record adjustment for any OECD country in the last four years, and we also have made quite a few structural changes, making Greece more transparent, more business friendly, more open to investments and building a lot on improving the competitive advantages.
There are reports of Greece reporting a primary surplus. Does this signify a bounce back?
Yes, it’s true. We do have a primary surplus. It’s an achievement… a very difficult achievement as we had a very large portion of GDP that was a deficit. So a primary surplus means we are not accruing any more debt. That is a sign of stability and enables us to approach the bond markets again. Already, we have seen a drop in the interest rate spreads, yields if you like… we had reached a point where the difference in the interest rate between the German bonds and ours was at 40-45 per cent, now it is down to about 8 per cent, and its moving down. Already the market has been buying few Greek bonds, and that’s a big positive.
You essentially represent the centre-left. But the crisis thrust you into a situation were you had to take all the difficult steps of cutting salaries, pensions… Considering that these steps fundamentally militate against all of what you and your coalition stood for, how difficult was the task of implementing the austerity measures?
I would say there were two sides of the coin. One was the structural changes, which for me, was very close to what I was proposing — greater transparency, fighting crony capitalism, corruption, making the state work more efficiently. So when I say I’m a socialist, I don’t say that I am for a big state, but for a better state. I don’t have a problem with the market as long as it is regulated. Of course, we had to cut the deficit run up by the previous government, which unluckily meant we had to bring in measures that hurt a wide margin of the population, and some were paying unjustly. …we tried to make this progressive taxes so that the rich would pay more. But if you have ways and loopholes so that the rich can get away without paying taxes, the burden will inevitably fall on the poor or the middle class. So we probably needed more structural changes to tackle tax evasion. Raising taxes was an immediate measure but what we needed was a more efficient tax system. Unluckily, we didn’t have the time… Our party took the brunt, even though we were tasked with cleaning up the mess that was left behind by our predecessors. We had to take difficult decisions, but had I made other decisions. We could have gone bankrupt, which would have been much worse even for the poor.
How aware were you of the problem that were building up at the time you took over?
I knew that there was a larger deficit that what we had been told. We had no official figures. I had even asked during the public debate on what the situation was, but I did not get an answer…
But weren’t they (previous Conservative govt) supposed to release estimates to the European Commission?
Unfortunately, they gave numbers, which were false. So three days before the election, the official statistics bureau sent a number which was 6.5 per cent… it turned out to be 15.6 per cent. This was not helpful. I sometimes say we had three deficits, one was the current account deficits, the other one was the budget deficit and the third was the credibility deficit, which was the most difficult to bridge… So to be credible again, the first thing we did was to change the statistical bureau… make it completely independent so that there is no government intervention.