IIF Conference – Vienna | Prime Minister’s speaking points

11 June 2010

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Ladies and gentlemen,

It is a pleasure as well as an honour to address such a distinguished audience tonight.

Even more so as over the last 8 months not only I but also every Greek from a child of 7 to a pensioner of 97 now knows words such as ‘spreads’, even follows the bond market and tries to decipher the financial pages.

Yes the average Greek on the street could easily paraphrase a great politician and say ‘ich bin ein banker’.

But we share much more.

You have lived through the rollercoaster experience, the sense of terror, during the 2008 Wall Street collapse.

Nervousness, worry of what may be around the corner tomorrow, fear, panic even hysteria.

This is also the mindset that has dominated our lives in Greece over the past few months.

We also may have our differences, governments and banks.

On how we regulate the financial sector, on the causes of the fallout in 2008, on who is going to pick up the check.

Yet we share a common challenge.

We, humanity, have unleashed or created amazing capabilities.

Be it in finance, energy, biotechnology, communications, informatics, research and human knowledge.

Yet our institutions seem ill prepared to use our huge capabilities or to deal with this rapid global transformation.

One way or another our citizens, whether they are clients or voters, want us to restore confidence in their lives.

A sense of security, real transparency, with a clearer common plan a need for participation in dealing with this very complex globalizing society.

So this will be a national, regional and 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 recently decided on the 750 billion-support package it did so at 2:00 Sunday morning in order to send a positive message to the markets in Japan just as they were opening on Monday.

Very simply our challenge is to develop more partnerships and greater understanding of our respective or common problems.

So my first point is maybe obvious – we are in this boat together.

Deep down our institutions are in one way or another facing a deficit of trust.

If I can make one contribution tonight I hope it will be to strengthen the trust needed between us.

I will attempt to give you a pragmatic picture about the real problems Greece is facing, what we are doing and our capacity to make major changes.

I would also like to do away with much of the mythology around the Greek case.

But I will also try to offer some suggestions.

I will draw on my own experience, Greek case, in the hope I can contribute to our ongoing debate concerning European and global institutions.

We inherited a terrible fiscal mess.

A deficit that in 2009 was budgeted to be 3%, was reported in September to be 6%, and ended up exceeding 13% of GDP.

A public debt exceeding 110% of GDP – and clearly on an unsustainable trend.

As if the fiscal debt was not enough, we faced a competitiveness deficit.

And last but not least – and most damaging – a credibility deficit.

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 and patronage, inequality and injustice.

Captive to special interest groups with special privileges.

With it a huge, overcentralized, inefficient and bureaucratic state lacking transparency, meritocracy and accountability.

This in turn allowed for growing graft, which not only undermined public trust, hindered entrepreneurship, but also wasted taxpayers’ money, and investors’ time and patience.

It also created a culture of tolerance towards tax evasion and in no way helped foster civic responsibility.

No, it is not our welfare system that brought us down, 40% of all total health and education expenditures are paid out of personal income of Greeks not public monies.

However huge costs are accrued for example in the hospitals because of corruption and lack of transparency in their management.

Eight months ago we were elected on a mandate for change – the kind of change Greek society has been yearning for years.

Sweeping changes concerning these core problems.

And we were and we are ready and we are already turning Greece around with major reform.

But we first had to restore confidence as by March this year, the markets had essentially closed down on us.

We did so by taking measures both severe and of immediate outcome.

And on the other hand we worked with our partners in the EU in order to develop a very substantial guarantee and support package.

Financing by the EU and the IMF.

This – let me again stress – is not free money. It is loans to be paid back with substantial interest – and it is a package to support change in Greece – not to return to negative practices.

However painful this crisis may be I see it as an opportunity to come out much stronger and viable as an economy and society.

So what have we achieved in these few months?

And today I can honestly say that I am proud of our achievements in this period.

Today is the first time when I can look to the future with optimism.

We have taken difficult decisions, tough but necessary decisions.

And we are now witnessing the first signs that we are turning the corner.

We have embarked on a massive fiscal consolidation effort.

Aiming to bring the deficit down from nearly 14 per cent in 2009 to below 3 per cent by 2014.

And to put the debt to GDP ratio on a downward path after 2013.

It is an aggressively front-loaded programme.

In 2010, on the back of measures totalling 9 percentage points, we will be reducing the deficit by 5,5 percentage points – from 13,6% to 8,1% of GDP.

We are producing this result through some very tough measures that we have taken this year.

A cut in public sector salaries by an average of 15% in nominal terms.

A cut in pensions in the public and private sectors by nearly 10% — while protecting those on lower pensions.

Horizontal cuts in public sector expenditure of 10%.

Freezing hires for 2010 in the pubic sector.

A 4-point increase in VAT.

A 30% increase in excise taxes – for alcohol, tobacco, and petrol.

To name a few that have already been voted on.

And we already have results:

in the first 5 months of the year, the deficit is down 40% compared to the same period last year.

Revenues are up, and expenditures have been severely curtailed.

So we are well within the targets we have set – and this even before many of the new measures have taken have locked in.

Fiscal consolidation has been and continues to be the cornerstone of our programme.

But fiscal consolidation by itself is not enough.

Without structural reform its results can be quickly undone.

We have therefore moved quickly to address long-standing problems.

First on our list in restoring credibility was restoring faith in our data and statistics.

The newly established Hellenic Statistics Authority now has full operational and administrative autonomy.

Second was a complete overhaul of the tax system.

The legislation passed in April makes the system more fair and effective.

It attacks evasion, a perennial disease in countries with high self-employment such as Greece.

We are using the IMF expertise to guarantee best practices in tax collection.

Thirdly were have enacted new rules for our public administration.

Full tranparency and meritocracy in hiring and promotion in the public sector.

This is a major blow to clientelism. Even top political posts were advertised through our Open Government system on the Web.

We are soon passing a total tranparency law where all minsterial and public servant signatures will be posted on the web.

We have pased new laws concerning corrupt practices of public servants including politicians.

And there are ongoing commisions weeding out past corrupt practices where multinationals – such as Siemens – and public officials did deals under the table at the expense of the public good.

We recently voted on a major radical reform of regional and local administration.

Effectively cutting out two layers – from five to three – of local administration.

Merging prefectures or lander from 60 to 13.

Merging municipalities – from over 1000 to 325.

Abolishing over 4000 public sector entities.

We are simplifying doing business such as founding a company not in forty but in one step.

While we have passed laws to encourage investment in green technology, where wind sun and geothermal energy happen to be abundant on our islands and seacoast.

We have set in motion a wave of reforms that our country sorely needs and that had always been postponed.

My goal is a complete reorientation of the Greek economy.

A week ago, we unveiled an ambitious and wide-ranging privatization programme, complemented with a number of other policies, so as to push forward policies that create opportunities, attract investment particularly gren investment and jump-start the economy.

Later this month, we will be legislating to safeguard the long-term viability of our pension system.

If left unreformed, the system will collapse in a few years.

Ladies and gentlemen

We are still on the very start of our three-year economic policy programme.

Yet we are very far away from our initial point eight months ago.

The 3-year programme will be closely monitored through twelve quarterly reviews.

And it will give us the time and financing to make the changes the Greek economy and society needs.

Since the 3-year economic and financial programme was announced, a number of questions have been raised.

Can the Greek government implement it?

Will it be able to withstand the social pressures?

What about social unrest?

How will our banks survive?

The next question we hear is: does the math add up?

Or will Greece be forced to restructure its debts? Or even leave the Euro?

Implementation:

I have already given you the budget figures.

We are on target, and expect to remain so.

Social Pressures and social unrest:

Yes these are painful changes and no one denies the difficulties for our people.

We are a proud people. We want to see change.

We were voted in on a strong mandate for change. We want to see a better, more competitive more credible economy.

We want to see a more trasparent and effective public sector.

Polls today show that if there were elections we would win 45% of the vote. [Better than the previous elections]. 55% of of the Greeks back the program.

We have a strong and solid majority in the Parliament.

We take our mandate for change very seriously.

And I have absolutely no intention to give up or back down.

I have said it publicly – I do not care if this is my only term as Prime Minister.

I have done what I thought was necessary to save Greece from disaster.

And I will do what it takes to move my country forward and out of the crisis, restore sound public finances, make the economy more competitive, and safeguard social cohesion in our society.

Our Banks?

Our Banks emerged basically intact from the 2008 crisis.

They have a strong standing and play an important role in our neighboring economies of the Balkans, Turkey and in the Black Sea region.

Their problem was our sovereign debt. That is why the EU-IMF package provides for a 10 billion package going into a Financial Stability Fund, a safety net for them if necessary.

Our debt and our participation in the EURO:

Yes we know our debt is high.

But we also know why and where we need new policy.

We are making changes.

We are taking radical measures.

The EU and the IMF have created a support package.

And we have done so

- to exclude default.

- to exclude exit from the Eurozone.

Those would have been a very different option – which we very clearly decided not to buy into!

So those who expound these theories – whether in good faith or are simply hoping to undermine the Eurozone – are wrong!

This is not just a case of hope over experience.

It is plain good economic – and political – sense.

The debt dynamics driving this belief are indeed there.

But they depend crucially on Greece’s capacity to implement its reform programme and in doing so restart a virtuous growth cycle.

Remember: up until recently Greece was one of the fastest growing EU countries – even the fastest-growing in 2003.

With the policies in the programme, the growth cycle that ended abruptly can start again – on a different, more sustainable basis.

Greece has tremendous growth potential waiting to be realized.

We already are getting huge interest for investment so that Greece becomes an energy hub. Qatar, Abu Dhabi, Libya, Azerbaijan, Turkey, Russia and Italy are some of our partners that have expressed not only interest but have already signed up on strategic agreements over the last few weeks on the energy front.

China has decided that Greece – major shipping nation, and Pireaus our major shipping port become a hub for their products to Europe.

Also – a major opportunity – Bringing into the formal economy what is now effectively the largest informal sector in the EU will add to these growth prospects.

Theories about default, haircuts and exit from the Eurozone show a remarkable lack of historical perspective and understanding of the basic rules of European economics and politics.

Hence, our one and only option:

The consistent pursuit of success in implementing the economic programme we are committed to, restoring confidence and getting the country moving again.

But as we are doing our part we do need your help.

Greece has become the object of countless analysts often without much knowledge of Greece, journalists ready for a sensational story, academics hoping to prove a pet theory of theirs, local politicians hoping to score points against their opposition, populists who lie to create stereotypes and scapegoats for the real problems their societies face.

We are restoring confidence in our economy. But this constant pounding is undermining our best efforts. It is undermining the sacrifices so many people are making in Greece.

And it is simply unjust!

We are not asking for accolades. We are doing what must be done.

But we are asking for the necessary respect and calm so that we can do our work under the best of conditions – where our citizens are not terrorized every single day with rumours about losing their money and returning to the drachma or being expelled from the European Union.

This is nonsense. But it is also dangerous as it undermines our genuine efforts to make the changes in our country.

As a New York based Wall Street blogger wrote a few days ago about Greece:

“No one is saying don’t sell or don’t buy, just do it on hard fact and reputable news.”

So there is where we need your contribution.

Ladies and gentlemen,

If the last eight months have been a test for Greece, they have also been a test for Europe.

And a test of our collective ability to rise to the challenge, find solutions to new problems, to react swiftly and effectively.

A test of the construct and the architecture of this great achievement of ours, our common currency, the euro.

Have we been successful?

Sure we could have been quicker in our response but if four months ago you said that Europe would have in place a fully functioning support mechanism and Greece would be well on its way to fiscal consolidation few would have believed us.

Europe is now leading the way to clarify the framework within which international markets operate.

We welcome this week’s final agreement on a stabilisation fund for the euro zone and we call for the mechanism to be permanent.

What is important today is that Europe has reacted.

We should now work for a permanent stabilisation fund, a new European Monetary Fund financed by contributions of eurozone members proportionate to the size of their wealth.

These are practical steps towards more effective economic governance, an issue on which we hope to reach an agreement at the October European Council.

And as we are all moving to fiscal consolidation I believe we will need a countervailing growth dynamic. This could come, not from our national budgets but from european sources.

Or as we call it ‘own resources’.

Yet as own resources in Europe are basically dependent again on contributions from national budgets I believe we need to find other tools.

These could be a transaction tax, a carbon tax, green bonds, that would be used to fund indrastructure projects, research and education, green technology that together will make our products much more competitive on the global market.

This crisis also clearly showed the extent of the potential cross-border impact, with Greek debt being broadly held among the European financial institutions.

I am not a financial expert (yet) but some points just seem to be common sense.

Today’s structures in the financial markets enhance cyclical developments and do not sometimes match movements in the economic fundamentals.

We clearly need a more efficient financial supervisory framework. Within this context, enhancing transparency is critical. The largest shortfalls in this area fall in the sphere of off-balance sheet items and derivatives, in particular which may also represent significant risks, especially the credit default swaps (CDS).

The role of Credit Default Swaps on market liquidity and sovereign bond spreads should be closely examined.

This is a topic on which we took a common initiative with Chancellor Merkel, President Sarkozy and  Luxemburg’s Prime Minister Jean-Claude Juncker.

Followed by my discussion with President Obama on the need to enhance regulation of financial markets, a matter on which we agreed that should be an integral part of the next G20 agenda.

Ladies and Gentlemen,

My key message:

Greece will persevere. Greece will overcome its current predicament.

Socially and politically, the stars are aligned for our success.

Who knows, Greece may be getting a head start on a wider European reform agenda – being first in but also being first out.

Thank you.