Economist Conference: «Meeting the challenges through leadership strategy» | Prime Minister’s speech

PRIME MINISTER’S PRESS OFFICE
April 29, 2010

Ladies and gentlemen, dear friends and dear guests,

I thank you for gracing me with this invitation to give the opening speech of your annual conference. I guess that when you decided on the date of this event you could not possibly have imagined it would be taking place in such tumultuous times, with Greece making headlines for months in a row in all the international media while international press agencies are closely watching for and broadcasting every single word, or even every rumour, as there have been infinite rumours about Greece and the crisis and they have all been communicated to the world, by both objective observers and people acting in either good or bad faith.

To date, we have heard almost anything about Greece, from the most accurate but painful truths to some extremely unjust inaccuracies. No matter what, this continuous interest in Greece and the Greek economy undermines the situation and distracts people, if you like, from those real, effective and brave changes, reforms and sacrifices we pledged to proceed with so as to put our house in order.

We ask the country to show its determination while making painful decisions and changes; we are asking for time, patience, calmness, to be given a chance to put things in order and get back on the path of normality and sustainable development.

For the past six months this new government, elected on a mandate for change with a view to doing away with the negative practices of the past, was not granted by the markets the calmness it needed so badly. Yet, in the meantime, it formulated, legislated upon and implemented three sets of measures.

Following a marathon of negotiations, and indeed pretty fast by European standards and despite the fact that markets are being far more critical and very quick in their responses, we managed what is actually vital for democratic institutions worldwide. We asked for and succeeded in introducing a support mechanism, not to bail us out, but to support Greece in these great reforms and changes that are currently being carried out.

This sense of agony today is not merely ours as the markets are being far more swift, as I said before, and follow-up on political decisions taken. It is not just us that agonise over the matter; it is the same angst that all European partners and the world community share, as to the extent of this crisis and whether it might spill over into the eurozone, the national systems and then the global economy.

Markets are already reflecting and projecting this sense of fear and risk.

So allow me to continue my speech in English, to thus stress the importance of the reactions and the response of the international community, given the current circumstances and crisis.

I wish to be very frank about the situation we are all facing, not only Greece, but also the European Union and the world community. In doing so, I will try to answer some frequently asked questions that have been posed to me and my government during this crisis.

First question: ‘Are you ready to proceed with the necessary changes to make Greece a viable economy?’ My answer is: I was elected, we were voted in only six months ago on a mandate of change. We knew that Greece needed to change. We were, and still are, the champions of change.

Another question: ‘Did we expect the situation to be as bad as we found it to be?’ Certainly not. But we were honest and endorsed transparency, and with good reason. We wanted to bridge the credibility gap Greece had created. We wanted to make a fresh start. We wanted to get to the core of our problems and make radical and major changes.

Yet another frequently asked question is this: ‘Are you doing your part in dealing with your country’s crisis? Are you making all necessary changes? Because we have heard a lot of rhetoric over the past years, but saw no action.’ And my answer is: In six months we have already done more than the previous government managed to do in six years.

Next: ‘Are you ready to take the pain? Are you ready to make sacrifices to put your economy in order?’ Our answer is: We know that we must put our economy in order if we are to survive. And we not only are ready to take the pain but we have shown we can and have taken very painful measures, measures which are of extreme importance. We took emergency measures to stabilise the situation, and more than brought about deep changes in institutions and structures which will have a long-lasting effect.

Let me be more precise, because I truly feel that few have been able to communicate the breadth and the depth of changes we have already made in five areas:

Fiscal consolidation and stability,

Growth and the green economy,

Social safety networks,

Institutional changes, which are of particular importance and I’ll get back to this and, last but not least,

Foreign policy.

As concerns fiscal issues, in order to help reduce our budget deficit in 2010 by at least 4% we have already taken measures such as VAT rate increases, an increase in excise taxes, in petrol excise taxes, in cigarette excise taxes and we introduced excise taxes on electricity, increased excise taxes for luxury goods, cars, yachts, etc.

We carried out tax reforms and introduced a new taxation law making the system more effective while broadening the tax base and combating evasion.

We reduced public sector nominal wages and pensions, which was very painful. There was a 12% cut in salary allowances and benefits, a 60% cut of the 14th salary, which is equivalent to a reduction of about 8% in the nominal wage rate, and an 10% cut in the real wage rate for general government employees. A 7% reduction of nominal wages, and a 60% cut in the 14th salary, equivalent to a drop of about 11% in the nominal wage and almost 13% in the real wage rate apply in the case of public enterprise employees.

Salary caps, lead to salary reductions for heads of independent authorities, presidents and CEOs of public enterprises and fees paid to public sector BoD members dropped by 50%. Bonuses in public sector enterprises were done away with and the same goes for all extras paid to civil servants who participated in special committees and working groups.

Overtime payments were cut by 30%. Pension rates froze in both the public and the private sector while retired personnel who used to work for electricity and telecom companies had their pensions decrease too.

There will be no new staff hired in 2010, with exceptions solely in the sectors of health, education and security. Ten thousand successful applicants will not be employed though they have duly completed recruitment procedures as the five-to-one rule applies: for every five that leave, only one new civil servant will be hired to replace them from 2011 onwards. Moreover, the number of people working under term contracts will be cut and eventually contracts shall be terminated.

There has been a reduction in public investment programmes and additional structural changes to ensure transparency and proper fiscal management.

A fully independent statistics service was set up while reporting requirements apply for each budget line and ministry on a monthly basis.

Bilateral inter-ministerial working groups will be monitoring our budget and there will certainly be more and larger administration changes.

Obviously, beyond fiscal consolidation and stability, we also need growth; this is part and parcel of the viability of our economy to become competitive and grow. For this purpose we have been capitalising on advantages we provide for investment and foreign direct investment and channel them towards activities which enhance productive restructuring to increase our competitiveness.

In particular, our priorities include:

Renewable energy and wind, geothermal, hydro, high-end tourism, cultural sectors, information technology, biosectors, high-quality nutrition and agriculture, mobile penetration, major infrastructure projects and other business services, including logistics, in order to implement major regulatory reforms.

We have been cutting down on red tape for businesses in Greece. We are reducing time required to open up a business in Greece from 38 days to one day, and from 15 steps to one.

This alone will increase our ranking in the World Competitiveness Index by 97.

The new investment law will strengthen our competitiveness by promoting R&D, supporting green entrepreneurship and human capital development.

We are promoting special capacity-building measures for Greek companies going international and welcome foreign companies that want to invest in Greece, in a targeted and high-added-value sector.

As far as public investment is concerned, we are moving towards ‘green’ activities, productive restructuring, innovative and human capital investment, much-needed job creation, and social investment in health and education.

We are also encouraging public-private partnerships along with the European Investment Bank. We are concluding negotiations with the EIB to extend programmes such as the JEREMIE and JESSICA for small-scale industry and small and medium-sized enterprises, and we finance with up to EUR2 billion using funds from our NSRF the development of the Hellenic Development Fund, while we are moving towards a more ‘green’ model of development.

We are doing so because it is true that our developmental model was not competitive and we want to add new value to all sectors, from agriculture to services, from tourism to energy. And this is why we believe that the green economy is a major advantage for Greece.

That’s why we are now in the process of pushing through Parliament –actually, it is in Parliament today – a new law to speed up the utilisation of renewable energy sources, especially for electricity purposes, providing feed-in tariffs and a long-term legal framework that would reassure investors, both local and foreign.

We are establishing a green fund, the revenue of which will be coming from taxes and fines. We will be auctioning emission allowances and other sources which will be accrued to be used for green investments.

We are providing incentives for refurbishing housing stock, especially for low-income areas, to improve performance and reduce energy consumption. This will also generate jobs.

We are also utilising Community funds to help the Greek power grid improve, strengthen and expand, to contain losses as well as to accommodate the respective increase in renewable sources.

We are improving legislation for energy services’ companies that aim towards energy conservation, both for residential and industrial users. And we are addressing the problem of ageing commercial vehicles to reduce emissions and guarantee energy conservation.

As for our social safety network, we are reforming our pension system to make it just and viable. We are also creating job incentives.

We are moreover taking measures to increase extroversion of the markets, to make them more open. We are promoting electronic governance, opening closed markets in a number of professions thus helping with new areas for investment.

One, for example, very important step in opening up closed professions, includes the revocation of cabotage which I announced to the tourist industry last week.

We are moving forward, and this is our fourth priority, with institutional changes. Why are they important? Well, I think it was only a week ago when the Brookings Institute previewed a publication about Greece according to which should Greece be run like the Swedish economy, if the Greek public sector was run as that of Sweden or Denmark, that is with the same transparency, then our GDP would increase by 8%, i.e we would save EUR20 billion.

Now, 8% of GDP is a staggering figure to achieve through transparency, which means that, yes, we do have a problem of graft, and we do have a problem of corruption and clientelism.

The same article also claimed that even if we did not opt for the Swedish but followed the Spanish model, we would save EUR10 billion, which is 4% of our GDP and another staggering number.

That is why this is the centrepiece of our policies. This is also an opportunity. It shows there is a cushion there, there is an opportunity to make major changes, and by dealing with the issue of corruption and bringing in transparency, we can make our economy much more viable and, of course, much more business-friendly.

That is why we are already introducing measures regarding the financing of political parties and we are currently revising the law on ministers’ accountability. We have already set up investigation committees within the Parliament as regards major scandals. We have adopted a code of ethics for the members of our government.

We are making everything accountable. Everything will be on-line: whether it is a decision by a minister or the local government or a secretary general or a director of a public sector agency, it shall be posted on-line and people can see where their money goes and who makes decisions, when and where.

We are also making a major change in the administration by means of the so-called ‘Kallikrates Programme’, through which we are closing down 4000 local enterprises. From having more than 50 municipal prefectures, we are now down to 13, and instead of having thousands of local governments there will be 333 local governments. We are also cutting down on the levels of governance from five to three.

These are not only major changes for Greece, but I would suggest they are revolutionary changes for many other European countries. These are real changes.

Of course they will bring transparency and accountability; they will bring a new sense of evaluation and, I believe, those revenues which are now being lost due to clientelistic and non-transparent political systems and highly bureaucratic procedures.

And we finally come to foreign affairs and policy issues. In foreign policy, we are reinvigorating politics we began some years ago- and on this note, I’d like to welcome the Prime Minister of Serbia here. We are reinvigorating our policies for the Balkans by setting a date, which we, of course, must convince our fellow member-states in the European Union of, so as for 2014 to be the date for the entry of the Western Balkans into the European Union.

This is a symbolic date, but also a realistic one: it marks one hundred years after the beginning of World War I, which began in Sarajevo. After a century and a cycle of instability and, very often, violence, these countries are becoming part of a family of peace, democracy, stability and growth.

I think it is a realistic date also, as this will create momentum for the region, not only in terms of carrying out internal reforms needed at the level of national economies and administrations, but as it will also provide new impetus and act as a catalyst in dealing with thorny bilateral and multilateral problems, such as Kosovo or our problem with our friendly neighbour to the north, where we have a name problem. And we are working hard to try to find a mutually acceptable solution.

We also are expecting Prime Minister Erdogan from Turkey in the next few days to renew the process of rapprochement between Greece and Turkey, a process which began in 2000, with the decision to make Turkey a candidate for the European Union. And we have already begun very important preparations for close cooperation in many areas.

Hopefully, of course, this again will be a stimulus; it will be the beginning for more important dialogue, in order to move forward and deal with major issues. We do have major issues, such as the delimitation of the continental shelf, but also finally freeing Cyprus of occupation troops, Turkish occupation troops, and allowing the Cypriot people to feel free, independent, as the motherlands are there to help and not to be creating dependencies and problems.

And I’d like also to welcome Dimitris Christofias, President of Cyprus, who is here with us tonight.

So, Greece has relaunched itself, with a realistic but also radical reform programme.

But there are still questions. “Can we trust you?” they say. “Can you carry it through? You have endemic problems”, I hear, ”such as clientelism and corruption.” Yes, we do have corruption. “Which means that you are condemned to failure. What is your answer?”

Well, let me answer by revealing an underlying assumption in these questions. The assumption is based on less reality and more prejudice and preconceptions. “You Greeks, you cannot succeed. You had two hundred years of delinquency,” and so on and so forth. That is what we have been hearing over the past weeks and months.

But let me give you a real perspective of where Greece has come from. I’ll begin with my own family, my grandfather and father. We are not unique to Greece. My grandfather was exiled six times, my father twice. Their generations went through two Balkan Wars, two World Wars, civil wars (one of which was right after the World War II when napalm was first used), a full-blown famine, a huge exchange of populations with Turkey, a catastrophic war in Asia Minor with millions of refugees moving to Greece. We went through Cold War, when we were completely isolated geographically and our one ally and neighbour in NATO was also our major threat, particularly after the Turkish invasion in Cyprus.

Our military budget being the highest in Europe, one of the highest in the world, per GDP, made it a consistent drain on our economy and our growth.

In the last 20 years, our population grew by 10%, basically because of illegal migration, which we are faced with much more than many others and still migrants are successfully integrated. We recently passed a law changing the rules for citizenship, to help integrate many of the migrants who have been here for many years and those who were also born here, in Greece, allowing them to be full-fledged citizens of our country.

After the Berlin Wall fell, our neighbourhood did not become quieter. It was an arena of ethnic cleansing and ethnic wars. Despite this, despite all the problems and that historical background, allow me to remind you where we arrived only six years ago.

Six years ago, Greece was in the home stretch of its preparation to host the 2004 Olympic Games. And despite the cost of the Olympic Games, at the end of 2004, public debt stood at only 97%, and was decreasing year by year. Public deficit was 5.9% of the GDP even after the previous government changed the accounting rules for defence expenditure, which it did, I believe, for petty political purposes.

We became members of the eurozone on merit – yes, on our merit. Even with recalculations, our deficit was only 3.1% when we entered, while others entered it with slightly higher deficits.

We became the champions of growth and investment in the Balkans, and our banks have a major share of the market in the region.

We became a force for peace and cooperation, and European prospects for Southeastern Europe.

Our troops took part in peace missions around the whole area.

We became members of the European Union many years ago. We did so and showed that we could consolidate both our democracy and our economy, but also assumed and played a very important role for the whole region and for Europe in the region.

So if we are facing a grave crisis today, we know we have the strength and potential to deal with it. The message is very clear: Yes, we can.

And we have proven it before, despite major difficulties this country has faced.

So, ladies and gentlemen, though our country is responsible- and we are not looking for scapegoats for what has happened over the previous years or we would not be in this position of crisis otherwise, we need to have a look at the global situation.

Our problems would have been much more limited, limited by far, if, first of all, the international community had drawn the necessary conclusions and made important and necessary decisions after the international credit crisis in 2008. That was a crisis chiefly provoked by a ‘lack of rules’, ‘lack of transparency’ – these are the words used now in the US – ‘fraud’, as to how credit markets are to function, especially the speculative part thereof.

Any sign of vigilance on the part of the international community as to the need of adopting transparency rules has been unluckily so far anaemic and slow. The result is that even today irrationality holds sway.

For example, interest rates on loans for Greece today are four times higher than what they were four months ago, without there being any logical explanation based on objective criteria.

Markets project their fears. Markets are projecting their fears particularly today, because of the 2008 crisis of trust. They are fearful and base their calculations on the worst-case scenarios. They base their calculations on the worst-case scenarios rather than the most probable ones.

This is irrationality. And if left to their own devices, predictions will become self-fulfilling prophecies.

That is why we need to intervene. It is paradoxical. Several months ago the risks were in fact even greater. Deficits were out of control, there was no stability programme in Greece. There were no tangible results, unlike today. There was no deficit control. There was no political will, no volition for international support for Greece. There was no support mechanism with specific capital earmarked, which we nonetheless have today.

Even so, today, the interest rate on our loans is much higher. It actually is prohibitive.

For those of you that are still not convinced, this is yet further proof that markets do not regulate themselves, and they do not, by definition, function rationally. The interest rates on loans to Greece today are beyond any logic, and this reflects on the one hand the total loss of sobriety by the markets, but even worse the power of speculatory pressure exerted on our country.

Yes, we Greeks do have our special problems. And we are dealing with them.

Still, let this be a clarion call for the wider emergency we are facing. We need global governance, global financial governance, and we need it fast.

We cannot let a small fire – a small fire because Greece is only 2-3% of EU GDP– get out of control. It would be dangerous for Greece, damaging for Greece. And we can already feel the damage. But it could be catastrophic for the European Union and the world, yet once more and actually right after the crisis in Wall Street only two years ago.

So the message is: Don’t let this small fire become contagious and create a major forest fire both for Europe and the world.

This is not only a problem for Greece, nor is it a problem that Greece alone can solve and deal with.

We know indeed that the European Union has its procedures, and there has been much criticism about what Europe is or can do. And obviously we would like to have seen decisions taken much more quickly.

At the same time, we did make decisions much more quickly than almost ever before within the European Union in the past months and with institutional political restrictions. I think that this is also a positive sign of what Europe can do.

Greece has embarked on a road to put its house in order. It is the road of sound economic management and great changes which will permit the economy to restructure and move forward stronger, more competitively.

In Greece we are implementing an ambitious stability, development and reconstruction programme, as we call it, which consists of very specific measures and goals.

These include, as I mentioned before, a 4% reduction of GDP for 2010, and we have indeed taken measures that are already in excess of 6 percentage points to make sure that we get to that 4%.

We see already these efforts bear fruit. We are having the budget implemented in such a way that indicators show we are doing better than projected despite the fact that many of the measures taken have not yet brought about all the results.

A number of indicators are better than last year’s, despite the fact that the economy is still in recession and there are still some elements of uncertainty.

Greece is asking for nothing else but attention to be given to its efforts and to be given time needed to proceed to changes that the economy needs in order to revive. Time has proven to be the most expensive commodity now that the markets are in crisis.

Our political and economic allies can give us the time that the markets refuse to give us today. We ask for no bailout. We are only asking for reasonable terms on our loans, so that we can carry on with more creative, more innovative work. Rather than watching the spreads go up and down -usually go more up than down, we want to move onto making changes for our people, for our nation and for Europe.

This, today, is our responsibility as Greeks. We are ready and we are doing our part. But this is also a collective responsibility.

Greece is turning this crisis into an opportunity. I believe both Europe and the world can make this crisis an opportunity also, to make globalisation more stable, more humane, more green, more equitable.

And I do believe Europe will live up to this challenge.

Thank you very much.