Brookings Institution | Prime Minister’s speech

8 March 2010

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It’s an honor to be here again in this great institution. And ladies and gentlemen, dear members of the Diplomatic Corps.

It’s great to be with you, and particularly to see Paul Sarbanes here, a very old and good friend from many years ago, and we have been working together. And his contribution to the United States of course but also to Greek-American relations has always been paramount and very important.

And I’m very happy to have Kemal Dervis here as a moderator.

Ladies and gentlemen, 53 years ago this week, on March 12, 1947, President Truman rose before a special joint session of Congress.

He was there to warn America of a looming new crisis. A crisis that revolved in part around Greece, but was in essence a European crisis. One that directly affected America’s interests.

In that speech, President Truman introduced a vision and laid down the sturdy foundation for policies and institutions—such as the Marshall Plan and the Bretton Woods arrangements. That enabled our two continents to rise above the crisis and build an unprecedented era of shared peace and prosperity.

So today, I have come to Washington this week to speak about another crisis in Europe. This crisis, too, revolves in part around Greece. This crisis, too, very much involves America’s interests.

And as in 1947, if we act with sufficient foresight, I believe this crisis also contains opportunities, great opportunities to strengthen our respective countries and our shared interests for decades to come.

What is this crisis? I would call it a crisis in global governance.

As we  basked in the triumph that the end of the Cold War symbolized for the West, we forgot three important elements.

First of all, the world’s problems were not over. No, history had not ended. New conflicts, new issues, and new complexities of a globalizing world arose.Secondly, we underestimated our own dogmatism.

While those on the other side of the Iron Curtain worshipped state-run economies as a master, we had created our own master. The free market. The master and the masters are not to be tampered with. They rule. Forgetting that, in democratic politics, our master is the people. Both the state and the market are there to serve them.

Thirdly, we neglected our transatlantic relationship. Either by paying lip service to it as something ‘matter of fact’. Or as something irrelevant to the new challenges of the time. So off we went with our respective, often narrow  politics, as the world was changing and as the balance of power was shifting.

That has undermined the extent to which our common values remain a dominant force in the shaping of this new globalizing economy and society. Values such as democracy, the protection of human rights, the rule of law.The core of the crisis is that today the international community seems impotent. Impotent to deal with the complexities of an interdependent market. Or the new threats of global warming and competition for energy resources.Or the spread of violence, terrorism, and the proliferation of nuclear weapons. Or our inability to solve protracted conflicts such as the one in the Middle East.

My conclusion is that cooperation between Europe and the US must be revitalized. To empower our countries, societies and our citizens so as we deal with these issues effectively and democratically. How does this relate to my country, Greece? You are all aware of the financial crisis Greece has faced in recent months—the crisis that confronted me when I became Prime Minister last October.

After we took office, we discovered that the budget deficit was actually double—double—what our predecessors had told us, told European authorities, and the Greek people.

So our announcement of this discovery rocked investor confidence—not only regarding the finances of Greece, but also the soundness of the currency we share with our European neighbors. All of you understand that this crisis, like Wall Street’s original crisis in 2008, risks spreading more widely. Many worry it could reignite the global financial crisis—and produce a Crisis 2.0.

That is why, in the past five days, I met with Chancellor Merkel and President Sarkozy, and previously visited with Gordon Brown and Jose Luis Zapatero,  to convey my ideas on how to resolve this ongoing crisis and how to prevent it from spreading.

And that is why I will meet tomorrow with President Obama—not only as a Greek leader, but also as a European leader—to discuss the important role I believe the United States can play to ensure Greece, Europe, and America, that we remain strong and healthy partners.

Let me exemplify the Greek case. I stood for election last fall before a country that was demanding deep changes. During the preceding five years, our public had grown increasingly alienated as Greece’s national deficit ballooned, wasteful expenditure mushroomed, and our GDP shrank.

During our election campaign, we promised to tackle head-on the chronic problems at the heart of Greece’s economic woes—structural problems that we often politicians had avoided addressing for so long, for such a long time. Our goal was – and remains – to transform Greece into a thriving economy driven by green technology and investment in our natural and human resources, such as education and health.

So when my party won a resounding electoral majority, we knew our mandate—like the mandate of your own President, your new President, President Obama—was to bring deep changes, even at a time of great economic challenge.

Now, I am used to change. I was born in Minnesota and raised in California, before eventually moving to Athens. And then, when my family was forced to flee Greece during the dictatorship, we lived in exile in Canada, and then in Sweden.

And throughout my political career, I have often taken office during times of crisis, as Strobe mentioned earlier. I became Education Minister during a teachers’ strike. I became Foreign Minister just as Greece was entering one of its most fraught stand-offs with Turkey. I took over as leader of my party in 2004, just a few weeks before an election that we were quite certain to lose. And now I have become Prime Minister during the gravest economic crisis Greece has faced since the Second World War.

So confronting upheaval and the need for big changes has been an integral part of my life. Even so, that doesn’t make change any easier. The enormity of Greece’s deficit made the imperative of deep changes absolute. And now the changes are under way.

To restore confidence in our country and stability to our economy, we pledged to bring the 12.7% deficit down to 8.7% this year, and to the EU-mandated levels of 3% by 2012. To meet those targets, the Parliament has adopted the toughest austerity measures in Greece’s modern history. The third round of those measures passed just last week, on Friday.

And we know Greece faced not only a fiscal deficit, but I would call it a credibility deficit. As a matter of fact, I call that the biggest deficit we had, as a result of the fabricated budget figures our predecessors had published. So our partners in the European Union were understandably skeptical about our promises to rein in the deficit and crack down on issues such as corruption.

But we are demonstrating the decisiveness of Greece. Public sector salaries have been cut, retirement ages raised, taxes increased. And these are painful choices. They have come with high political and social costs.

We have made them not only to rescue our own economy and prove our courage and our credibility. We do so also because we are part of a genuine community, the European Union.

And all of these measures reflect our commitment to protect the stability of our common European currency.

This medicine may be bitter, but it is only an immediate remedy, as we must deal with other core problems that have prevented Greece from reaching its great economic potential – and there is great economic potential in Greece – for far too long.

So I have told the people of Greece that 2010, this year, must be and will be a year of drastic reforms across all levels of government: changes in our tax system, our social security system, our public administration, our education system, our health system, and our development model.

At the top of the list is tax evasion. To give you just one measure of the scope of that problem: Fewer than 5,000 Greeks declare incomes of EUR100,000 or more. And that pattern must end, and it will end. We will be prosecuting offenders—no matter how rich or powerful—to show that we mean business. The rule of law means that the law applies to all.

Such changes we are sure will bring in billions of unpaid taxes, and help underpin our return to fiscal health. We are also tacking the challenge of corruption head-on. Within the first weeks of my administration, I dismissed a deputy minister and friend who was trading minor favors for voters. Corruption is hardly unique to Greece.

But it is a problem we are determined to address as part of our broader reforms. To usher in a new norm of transparency, we are televising our cabinet meetings; we have launched an open, online application process for public-sector jobs, even at the highest of levels, and passed a law so that every government expense will be published online—a first in Europe. every signature, from mine to the civil servants’ in local government, will be online.

We post all our proposals on the web to allow for deliberation and participation – in a Web 2.0 application – which empowers our citizens, puts a check on lawmakers, and strengthens the quality of our policies. These are among the changes my government has made and will pursue in response to this crisis.

So I am confident that Greece will very soon be a paradigm of open government, a leader in green development – as Greece has great, untapped potential for  renewable energy – but also a real magnet for new business, business  investment.

But there are two other seminal points I want to stress today—ones that touch ther longer-term challenges, and our shared responsibilities for building a stronger global economy. The first point is that while we must all respond with urgency today, we must also plan for the long term. The architects of the post-war recovery of Europe and the trans-Atlantic community—leaders like Adenauer, Schumann, Willy Brandt and Truman—had an eye on what made sense, not only for next week, not only for next year, but for the next generation.

So it must be today. The crises the world has faced over the past few years should alert us to the fact that we need more cooperation; we need regulation and foresight. My own people, the Greeks, understand this. The majority of Greeks recognize that the very difficult changes we are making are in our own long-term interest. And there is wide public support for these reforms, and I would say much more than in previous times in my country.

I see this every day. Even those who have volunteered to help, such as well-known singer Nana Mouskouri, who has given her pension back to the state, who spoke about Greek ‘filotimo.’ Filotimo is a word that is difficult to translate, but it means a sense of pride, a sense of honor in giving to the common good.

Europe, on the other hand, needs to recognize that the measures we have put in place, and those still to come, need a certain time to take effect. Countries are not like financial markets. Social change cannot be executed as swiftly as credit default swaps.

You cannot sell short on social commitments and political responsibilities.  So although there are great risks in the current crisis, there are equally real risks in unrealistic expectations and inflammatory impatience, something that we have seen in the press around the world. It is dangerous to push people too hard and too fast.  For example, Greece already has one of the lowest wages in Europe. The average wage in Greece is just under $24,000, compared to just over $40,000 in the US.

We intend to reform our economy with the help of our citizens, not in spite of them. And here, this is where Europe needs to join us in taking a longer view, because certainly we need our budget cuts, but at the same time we need to have sustainable economic growth.

And if we’re not careful, both higher taxes coupled with lower revenue could actually slow down our recovery. That would be both unjust, but also could create a lot of social unrest. Deflation is also a genuine risk, if we don’t take parallel measures to kick-start productivity and create new jobs.

This is not about asking Europe to rush to the aid of a reckless country. On the contrary, standing by Greece, as it makes deep and responsible reforms, is in the interests of Europe as a whole. And this, I think, is now understood by the other leaders in the European Union. So the price of not acting together will be higher taxes, higher unemployment, a slow economic recovery, not only for Greece but for all of Europe. So Greece may be doing all the right things to revive our economy. But not everyone may want us to succeed.

And this brings me to my second point: the need to address the threat of speculation and ill-regulated financial markets—a threat that imperils not only Greece, but the entire global economy. I see that threat every day as we manage this crisis, for the immediate problem we face is not dealing with the recession, but in servicing our debt.

And despite the deep reforms we are making, traders and speculators have forced interest rates on Greek bonds to record highs. Many believe there have been malicious rumors, endlessly repeated and tactically amplified, that have been used to manipulate normal market terms for our bonds.

Partly as a result, Greece currently has to borrow at rates almost twice as high as other European Union countries. So when we borrow EUR5 billion for five years, we must pay about EUR725 million more in interest than Germany does. It would be like, let’s say, California having to borrow at a rate of EUR5 billion, which would mean that they would have to pay USD725 million more than another state in the US. and when you have a common currency, that is simply not viable.

So we will have a very hard time implementing our reform program if the gains from our austerity measures are simply swallowed up by prohibitive interest rates. This whole affair has a horrible sense of déjà vu. The same financial institutions that were bailed out with taxpayers’ money are now making a fortune from Greece’s misfortune—while those same taxpayers are paying the price in deep cuts to their salaries and social services.

So unprincipled speculators are making billions every day by betting on a Greek default. All this may sound a bit familiar to American ears. Yet unlike the bankers, Greece isn’t asking for a bailout—let alone a bonus. Indeed, we have slashed the salaries of every single government official.

I myself and Cabinet members have all taken significant pay cuts in our salaries. Yet our correct decisions may still be undermined by speculation, and to me this is a challenge to our democratic institutions. And elected government making huge changes with the consent of its people is being undermined by concentrated powers in an unregulated market, powers which go beyond those of any individual government.

A further point is that even though Greece accounts for just about 2% of GDP of the European Union, our economic conditions can have a far larger impact than that figure implies. An ongoing Euro crisis could cause a domino effect, driving up borrowing costs for other countries with large deficits and causing volatility in bond and currency rates across the world. A small problem could be the tipping point in an already volatile system.

We should remember that the Great Depression in the US was followed by a second recession in 1937-38 that derailed the world’s recovery and prolonged the crisis. So if the European crisis metastasizes, or any other crisis around the world, it could create a new global financial crisis with implications as grave as the US-originated crisis two years ago.

For America, a weak euro also means something else. It could mean a rising dollar. That, in turn, means a rising US trade deficit—which will not help America’s economy rebound. If the EU—still America’s biggest trading partner—should falter, the consequences here would be palpable.

That is why Europe and America need to work together to say “enough is enough” to these speculators, who only place value on immediate returns, with utter disregard for the consequences on the larger economic system—not to mention the human consequences of lost jobs, foreclosed homes, and decimated pensions.

These market manipulations—which were at the heart of the banking system’s collapse—are still legal practice. So it is hard to fathom that we have allowed this to continue, after what we went through. It is common sense, enforced by insurance regulators, that a person is not allowed to buy fire insurance on his neighbor’s house—and then burn it down to collect on that insurance.

Yet that is exactly what is done in the market for credit default swaps. This malaise has led banks to foreclose on the homes of millions of Americans. But this malaise now haunts not only Greece but all of us. But if Europe and America jointly step in and shore up global financial regulation—and finally ensure enforcement of these regulations—we can curtail such activities.

It is an encouraging sign that the American authorities have ordered some speculators not to destroy records of their trading in euros. And I would encourage US authorities to continue these investigations. Since the 1980s, we have witnessed a succession of global financial crises—the Third World debt collapse, the US savings and loan debacle, the Asian financial crisis, the high-tech and housing bubbles, and now the worst global recession since the 1930s.

Globalization—which promised so much, and opened so many doors to those of us with the good fortune of advanced educations and careers—has also brought new inequalities and new risks. So this crisis is an opportunity to correct many of the excesses of globalization. It calls for deep structural changes, changes to our global institutions, to our system of global governance.

At the G20 and at the meeting in Copenhagen for climate change, we did fall short of our citizens’ expectations. We fell short of our own rhetoric. So we cannot afford to squander another opportunity to make the critical changes that our current reality demands. This crisis should be an opportunity for decisive and collective action, for regulation, which is urgently required if global economic growth is to be sustainable.

We need global coordination of monetary policies. And if we let market forces alone dictate the terms, our economic recovery will almost certainly slip into reverse. I have just arrived from Paris. Before that, I was in Berlin and in Luxembourg.

Together with my European partners, we have taken a common initiative to strengthen financial regulation, particularly vis-à-vis speculation. We need clear rules on shorts, naked shorts, and credit default swaps.

So I hope that there will be a positive response from this side of the Atlantic to bring this initiative to the G20 in its next meeting. I know that some fear the word regulation. They claim regulation curtails our freedoms. But I would simply say that it is like saying that we should go without traffic lights as it slows down our cars.   So let’s make the markets work for us.

All of this is possible if we—Greece, Europe, the United States—have confidence and trust in each other as partners. There was a debate for some time about whether the European Union would work, and then whether it was better for it to be weak or strong, particularly vis-à-vis the euro.

Even now, there are debates about whether the new Europe is a force to be reckoned with, its global role strengthened by our new President and High Representative. Or whether it is a nonentity of a continent disappearing off the map, as Time magazine would have us.

My view is that the world needs more Europe today, not less.  In saying so, I would like to say that Europe, the European Union, as a model, as a prototype, is a very interesting experiment in a globalizing world, a world which is in need of a more humane globalization.

We are a political union of 27 nations today, and a monetary union of 16 members. Each of us brings our own experience, our own idiosyncrasies, even our own language. Imagine uniting America if a different tongue were spoken in every state. But we have been a catalyst for great progress and prosperity in the region, and democratization of many countries.

With a whole raft of global crises urgently calling for closer global cooperation, we in the European Union have pooled some of our national sovereignty to become more effective in protecting our common interests vis-à-vis these world challenges. Creating our common currency—a currency shared by 328 million Europeans and backed by an economy larger than America’s—is perhaps Europe’s greatest achievement.

The euro has been called “a post-modern or a post-sovereign currency.” Whatever we call it, we European leaders must now show real leadership to prevent unbridled market forces from hijacking this success story for their own ends. I am confident we will succeed, and we cannot fail.  There is reason to have confidence in my country also during this crisis.

We have shown determination, and I think this is a sign which shows that we’ll be ready to use this crisis as a real opportunity for change.

I say that, because a decade ago, when I launched the process of Greek-Turkish rapprochement as Foreign Minister, everyone said that it was doomed to failure; but our countries are closer than they have been in centuries—and there is no better symbol than the fact that my good friend Kemal Dervis is moderating this discussion.

I look forward to Turkish Prime Minister Tayyip Erdogan’s visit to Athens in the coming months. I believe we can make new breakthroughs in our relationship and become a symbol of stability in the Eastern Mediterranean and the Middle East.  Prior to the Athens Olympics, so many voices said Greece would fail—but we pulled off one of the most secure and successful Games in history.

Today we will be using this legacy to revamp Athens and our public administration. And so we will overcome this new challenge. And we will do it with the cooperation of our partners in Europe and America who have stood with us on so many vital tests. For this new crisis is a moment of great opportunity for Greece, the chance to modernize and revitalize its governance and development model.

For Europe, a chance to become more fully integrated. We are talking now about more coordinated economic governance, for example. And for the world, this is the moment to move toward greater democratic cooperation at a time when, once again, the global power of poorly regulated markets is proving dangerous for us all. Yet well-regulated markets can truly lift our people to new heights, and our economies.

At its heart, our very modern global economy faces a very ancient challenge, which I’d like to simply conclude with. Before the advent of democracy, Greece’s city-states were ruled by rich and ruthless oligarchs who belonged to powerful, interrelated clans—not altogether unlike the mergers between powerful financial institutions that dominate today’s global market. Platon then made a critical remark about a system controlled by the vested interests of a minority elite: And he characterized such a system as one where ” ‘just’ or ‘right’ means nothing but what is in the interest of the stronger party.” Not the rule of law, but the law of the powerful.

So we have a shared responsibility to create rules and institutions that can provide a more just and sustainable answer for our planet. Let me take you, in concluding, to the Parthenon as I finish my speech.

If one stands by the Parthenon and looks down on Athens, you will not only see the new Acropolis Museum waiting for the return of the Parthenon marbles. To the other side, you will see the ancient market, or ‘agora’ in Greek. Agora in Greek has two meanings. It means marketplace, but it also means public speaking. A place of politics. So ancient Greece should guide us here in saying that the market is and must be part of the realm of our political decisions. And we separated the two, as if they can be separated.

If you look over to a hill on the other side you will see the Pnyx. There each and every citizen could stand on a rock, speak and be heard. Politics in ancient Athens was participative.

Everyone had the power to be heard. So we must use the new means we have, such as the Internet, but not only, in our globalized society to empower our citizens and give them a real voice in politics. And that’s much more than just a technique; it’s a question of political will.

As you look towards the sea, you will see the islands of the Aegean. In ancient Greece, every island was a country unto itself.  A city state. Yet they all were aligned to a common purpose: the protection of democracy and common values. So let us see our countries as a vast sea of diverse islands linked by a common set of values. And that is what Europe is striving to be.

The ancient philosopher Isocrates said: ‘being Greek is partaking in Greek education. Meaning, very simply, sharing in common values. Greece has long been America’s partner in values and in history.

We are determined to be an ever-stronger partner for the US in world affairs-in commerce, in culture, in security.

So now I ask you to stand with us and work with us again—as we each confront our own challenges of change, as we work together to realize our shared interest in a strong Europe and a sound global economic system.

Thank you very much.