Athens, 3 December 2013
Deputy Prime Minister and Foreign Minister Venizelos’ speech at the 24th Annual American-Hellenic Chamber of Commerce Conference,
on “The New Greek Economic Model”
Mr. President of the Hellenic-American Chamber, I thank you warmly for the welcome, for the opportunity you are giving me, once again, to address the high-level audience that always attends these annual meetings that have been organized by the Chamber for 24 years now.
I want to congratulate you on this effort, on the fact that you have created an institution that we use as a forum for public dialogue each year, so that we can consider the course of the Greek economy.
This year’s subject, the new Greek economic and production model, reforms, investments, growth, would be very easy to treat if we had not been in the midst of a crisis for many, many years now.
I would say that the description of the new Greek economic and production model is self-evident, because such a model is obviously based on all the elements that comprise national competitiveness; on national comparative advantages, on our endogenous resources, which are none other the land and people themselves. Land, as I often say, means many, many things. It means geography, it means history, it means culture, it means tourism, it means sea, it means mountain ranges, it means cultural heritage, it means agricultural production.
And the people mean even more. Our intellectual capital, capabilities, innovation – all these create national added value; they are an endogenous resource. Moreover, I would say that all of the studies on the new model for the growth of the Greek economy converge, in almost monotonous repetition, because it is obvious, virtually self-evident, what sectors are on the front line of a new productive model.
The agriculture/food sector – both primary and food processing, with emphasis on quality, standardization, branding – naturally, Greek tourism, which is the steam engine of the Greek economy, with the comparative advantage of culture. Greek shipping, which is a global power, maritime and other linked transport, energy, natural resources. Everything that can shape what is called Greek extroversion.
And of course, the prerequisites for this new economic and productive model are also obvious. The first of this is that there be a proper state, a state with an investment-friendly administration, local administration, and is linked with an investment-friendly society. A state that has fast, effective and credible judiciary mechanisms. A state that offers legal certainty and, mainly, a stable and simple tax regime.
A model that has financial support from the banking system, that has access to loans at a reasonable cost. A financial system that is again in touch with the real economy. Productive activity – mainly industrial – that has access to friendly energy costs. Funding outside the banking system that one can find in the new NSRF.
And of course all of this presupposes – I’m saying all of this very quickly – a society that is cohesive, that protects vulnerable groups, and mainly political stability and consensus.
If all of this were the case, things would be much simpler and much easier. Unfortunately, to come to the main subject of my intervention, because I have reversed things, starting from what you thought was the main subject, but it was merely a prologue to the main subject.
Unfortunately, all of these have been overcome by the recrudescence of an unjust and unjustified, supposed pending issue between Greece and our European and international partners – mainly the IMF – as to whether Greece wants to or is capable of bringing to completion the extremely difficult adjustment programme. Whether Greece is heading towards an exit from the crisis or is backsliding.
All of this, as you can see, creates an unfair international and domestic atmosphere that undermines the heart of our national efforts, as well as the overall efforts of the eurozone and the European Union towards a definitive exit from the crisis.
Unfortunately, this is happening on an institutional and political level. It is happening with the institutions participating in the troika and with our other institutional partners. That is, it is happening on the level of the international public sector, while the international private sector seems to understand Greece very well and is taking a clear stance.
The international private sector believes that Greece is on its way out of the crisis. That Greece offers an opportunity. An opportunity for investments. An opportunity for restructuring the operation of the Greece economy. And, of course, this opportunity belongs first and foremost to the Greek people themselves and to our younger generation, despite the fact that Greek society necessarily sees this – due to the pressures it has borne for years – less than the international private sector, which, in enterprising readiness, is out in front with regard to the prospects of the Greek economy.
This is readily apparent in the manner in which the ratings agencies are dealing with the country and upgrading its credit rating, in contrast to their treatment of other, strong European countries at the hard core of the eurozone; countries they are downgrading.
This is apparent in the manner in which the spreads are fluctuating, in how the post-PSI bond market is functioning. This is apparent in the public announcements and studies of many international banks. It is apparent in the manner in which funds earmarked for Greece are functioning, making significant capital available for Greece.
We hope this will become apparent in the privatizations, and I am certain that it will be apparent very soon in the developments in the Greek banking sector. I assume that the privatizations will speed up, and thus we will gain capital that the Greek public sector has provided for the recapitalization of the banks – sooner and better than initially projected.
Addressing this audience, to which I have spoken almost every year for the past twenty-four years – since this institution was established – I want to say in all sincerity where, in my opinion, we stand today, after six years of recession and four years of efforts to rescue the country and bring the Greek economy into recovery.
First of all – as I had the opportunity to say very recently to the Hellenic Parliament, as well as internationally – we confuse the crisis itself – that is, the causes and the time at which the crisis surfaced – with the efforts that started in 2010 to confront the crisis. Painful efforts, but these were caused by the crisis. They do not comprise the crisis.
Of course, these efforts made the consequences of the crisis felt; consequences that undermined society, the economy, even political institutions, but had not become visible to the naked eye.
And what’s more, these efforts have been accompanied by major side-effects suffered by the Greek economy; side-effects resulting from bad planning of the programme that was imposed on us by our institutional partners, because there was no tested system for confronting the crisis.
And there was no tested strategy because the very notion of the euro, the very concept of the eurozone, was the result of proactive policy oriented towards normal conditions of temperature and pressure.
The eurozone was oriented towards the ongoing normalcy of European integration, of the eurozone, and of the international economy. Just as in philosophy we have Kant’s ‘perpetual peace’, in the thinking of those who designed the eurozone there were conditions of perpetual normalcy. From good to better, without the possibility of crisis, recession; without the possibility of what we consider to be self-evident and ensured no longer being considered self-evident and ensured.
Of course, what is more, as you can see, a programme that would be better – a slower and milder adjustment – would cost our partners a great deal more. It would call for a much larger loan. A loan that Greece would repay, a loan that Greece would service faithfully, but this is not always easy to explain to unprepared partners when there is a crisis overtaking a monetary region overall, like the eurozone.
The truth is that, despite these problems, despite the difficulties of the negotiations, despite the fact that we have before us an unprepared Europe – a politically conservative Europe, a Europe that thinks about economics in the one-dimensional manner of the neo-liberal school – that wasn’t there when we needed it. That is, in the first half of 2010, another, better plan; a plan B. There was no plan B and there is no plan B.
I have often asked myself and been asked whether the plan A that comprises the great effort towards recovery and adjustment of the Greek economy within the euro, within the European Union, might have been better from the outset. And the answer is, of course it could have been better from the outset, if only our partners had realized it.
The fact that this initial plan A was subsequently improved with the so-called second plan, the second programme that was approved in February 2012, shows that this effort might really have been better from the outset, if there had been the requisite consensus and funding.
If PSI had happened earlier. If the loan had been larger from the outset, at what are the current levels of €250 billion. If the flexibility of our partners had been equal to confronting an unforeseen phenomenon, though it should have been foreseen and detected earlier by warning mechanisms that had not functioned.
And the fact that the warning mechanisms didn’t work also explains the decision of the powerful European governments to impose the presence of the IMF within the eurozone, precisely to show their lack of trust in the European Commission and the European Central Bank because they had failed to foresee the crisis and because the institutional warning mechanisms had not worked in a timely manner regarding the development of the crisis.
And in addition to that, we have and IMF that did not achieve a balance – though that was the role it was called upon to play – in its European dimension; neither with regard to its analyses and assessments, which it calls into question retrospectively, nor with regard to its relationship with the European Commission.
You are aware that the adjustment programme initially had two pillars. The first pillar – literally, fiscal adjustment – was vital, but if we were to have funded it and designed it ourselves, we would never have designed it in this way. We would never have designed an adjustment so fast, so demanding, so brutal.
But there was no other solution. With a primary deficit that reached the colossal level of 12% of GDP in 2009 – €24 billion – there was no room for other options.
But following a huge effort on the part of the Greek people, we can show an unprecedented fiscal achievement: Greece can now enhance its credibility, showing the largest primary structural surplus in the European Union and the eurozone and the largest nominal surplus.
I recently noticed an item in the Greek and international press that pointed out that Greece’s structural surplus is much larger than that of Singapore, and its nominal surplus is much larger than that of Sweden.
We can also show a public debt reduced in terms of nominal value by €135 billion; that is, 65 GDP points – a public debt radically restructured, with a much greater average duration, with a much smaller average interest rate, with much better maturations. A public debt that, in large part, is expressed in zero-coupon bonds, so we have a public debt that is very close to sustainability, and its sustainability is more a matter of a combination of minor technical interventions and stronger political will.
Naturally, we should have decided much earlier on the second part of the programme: structural adjustment. But it is exceedingly difficult, I assure you, to have parallel implementation of a fiscal adjustment program – with means reduction of incomes, reductions of wages and pensions, which means deep cumulative recession, which means increased unemployment – and ambitious structural changes that require consensus, that require social and institutional staying power, and that always entail a very high political cost.
Nevertheless, Greece has a radically restructured banking sector. It has drastically changed the labor market, and the cost of labor per unit of product has been reduced significantly. We have a drastically different insurance system. To a great – though not satisfactory – extent, to a notable extent, we have opened up professions and markets.
The privatization programmes are moving ahead, despite the great difficulties posed by the European Commission itself, for legal reasons having mainly to do with competition law and state subsidies. Major interventions are underway in Public Administration, mainly through the institution of mobility.
Many major public sector agencies and organizations have been restructured, often more radically than their counterparts in the private sector. Public expenditure has been reduced significantly, and this concerns the single payroll, pharmaceuticals and other health expenditures.
We have not reached a satisfactory level at all with regard to tax law, but we are hostage to emergency measures that must continue to be implemented if we are to achieve the very strict and urgent fiscal targets, and at the same time we have improved our preparation for utilizing the funding of the new NSRF, through the creation of new agencies like the Institution for Growth – the creation, that is, of channels for funding the economy; channels that can function in tandem with the banking system.
I want us to look at the overall picture in numbers. In the past 4 years, measures have been taken at a total cost of €70 billion to the economy. That is, 35 points of GDP. The adjustment in terms of primary deficit is over 23% of GDP. The cumulative deficit, 25% of GDP. Disposable income has fallen by 35 to 40%. Unemployment in the general population is over 27%, and 60% among the young up to 24 years of age. I needn’t go into the political and institutional cost.
After all this, one wonders what justification there is for a new round of friction, delays and tensions with the troika. None, in my opinion, but in any case, let us consider that there may be some reasons, perhaps institutional. The fact that we are going through a transitional stage in Germany, ahead of the formation of a new government of the great Coalition? Fortunately, this is coming to an end.
We want a strong German government that can play its leading role in Europe. A German government that understands Europe’s problems, Europe’s priorities, and how important an advantage Europe is to Germany.
Is there a problem in the relations between the IMF and the European Commission that we are suffering the consequences of? Possibly. Is there is a generalized European inertia due to the upcoming European elections and the need to synchronize various developments in various countries? Perhaps.
But the so-called “pedagogical reasons” cannot operate in Greece’s case. Because the Greek people – very conscientiously and almost without complaining, if one bears in mind the magnitude of the pressures and sacrifices – have achieved an unprecedented fiscal and structural feat. So the recycling of this debate is totally unfair and totally counterproductive.
Moreover, it does not have technical content, it doesn’t make sense from a technical perspective, because the discussion on the so-called “fiscal gap” and the discussion on the so-called “funding gap” refer to the sustainability of the debt. But the thing is, the sustainability of the debt does not depend solely on fiscal factors – which concern the numerator of the fraction expressing debt-to-GDP – but on macroeconomic factors: goals linked to the denominator.
Because if you meet the fiscal targets with regard to the deficit, the primary surplus, and you miss the targets for a return to positive growth rates, you are not producing – numerically or developmentally or socially or politically – the necessary result, which is the geometric reduction of the debt.
So how difficult is it for us to agree that the goals are macroeconomic, that the fiscal achievements are remarkable – unique, I would say – and that Greece deserves to feel secure; for this acknowledgement to be real and not rhetorical?
So what we want as a country, as a nation, as a society, is what I said: First, real and not rhetorical or phony recognition of the sacrifices of the Greek people, as well as understanding of what Greek society and the Greek economy can endure.
Second, we want it to be understood that, for the reasons I set out, any discussion of additional fiscal measures is totally pointless and dangerous. So, no additional fiscal measures that cannibalize the macroeconomic goals.
The third is that we want a timely – pre-European election – serious institutional debate with our partners on the completion of the programme in relation to the funding needs; that is, regarding confirmation of the sustainability of, and the potential for bringing down, the Greek public debt without problems with any country, with any other parliament, and without putting a real burden on any European taxpayer.
I had the opportunity the day before yesterday, in the meeting with the Bureau of Presidents of European Parliaments, to say, addressing the President of the Parliamentary Group of the European Left, that, yes, bilateral loans have been given to Greece by the other countries of the eurozone in an initial stage. Subsequently, a large loan has been provided by the EFSF, guaranteed by the shareholders, who are the member states.
But these loans are being serviced; no guarantee has been forfeited. In particular with regard to the first inter-state, intergovernmental loan from Germany, the KFW is involved, with the guarantee of the German public sector, so no budget or taxpaying citizen has been burdened.
The only case in which the budget of another state or the taxpaying citizen might be burdened would be in order to undermine the Greek programme and for Greece to be unable to service its debt obligations. But I imagine that nobody wants this – it won’t happen.
So, faced with this picture, the least that we want is no unjustified provocation as to the staying power of our society, our democracy and, of course the country’s real economy. How critical an issue is the auctioning of the first homes of poor and middle-income households in this picture? How critical is this issue for the Greek banking system, for the so-called culture of compliance with loan obligations, for Greece’s exiting the crisis?
I assure you, it is not at all critical. What the Greek government is saying is in complete harmony with the Greek systemic banks. The problem of the Greek banks is not the unserviced home or consumer loans of poor or middle-income households. There is of course a problem with unserviced business loans; of course there is an urgent need for the banks to reconnect with Greece’s real economy and lead a courageous effort toward the restructuring of the financial affairs of Greek enterprises, so that the Greek economy can emerge stronger from the crisis.
But the auctioning of the first homes of poor and middle-income households plays no role whatsoever. Because we are talking about households that are being threatened with the seizure of their homes because of unpaid tax or insurance obligations. And one must take an overall view of the profile of burdens of a low- or middle-income family. The obligations aren’t just to banks – there are tax and insurance obligations.
How important is it – now that Greece has radically changed the labor market, has rendered labor relations impressively flexible, and has perceptibly reduced unit labor cost – for one to say, “I want to remove the guarantees of group dismissals” that are also provided for if there is a problem somewhere; a real problem for the survival of a large enterprise?
So I refuse, and we refuse, as a country, as a society, as a political system, as Parliament, to accept that such a discussion is reasonable. Such a discussion is disorienting in economic terms. This is our role. And, allow me to say, it is also my personal role, the role of the President of Pasok.
Because as the President of Pasok and a government partner, I also exercise the duties of Deputy Prime Minister and Foreign Minister. Without considering the political cost for the party or for me, personally. Because if we look at the polls, which aren’t flattering for anyone, and if we counted the cost, Greece would not exist. And if it did, it would be a wasteland. Not a member state of Europe and the European Union.
So what we want is not a political negotiation that does us favors on an economic level. No. We want an economic negotiation with expert, intelligent institutional collocutors who are legitimized, who understand what is happening, and who are not caught up in bureaucracy.
That is what we are asking for. And I must say that, precisely because we have the data we have, I am optimistic. And I am optimistic because logic – political logic and the logic of numbers – will prevail in the end.
Under these conditions, Greece, following the crisis, is assuming the Presidency of the Council of the European Union on 1 January 2014. Because – and I heard my friend the mayor of Thessaloniki, Yiannis Boutaris, say, “should Greece perhaps have passed on the Presidency?” – we are entering the six months of the great European debate on what the new Europe’s narrative should be, on whether there can be a eurozone and a European Union that can manage crises, can meet challenges dynamically, can survive within a difficult global economy.
Because Europe has huge disadvantages: It’s population is falling, ageing; it is losing comparative advantages over other economic regions. It is very important for Greece to hold the Presidency during the six-month run-up to the European elections.
Because we have to carry out a debate. And that debate would do well to bear in mind what has happened in Greece, in Portugal, in Ireland, in Spain, in Italy; what pressures are being exerted on France; that the Netherlands’ credit rating is being downgraded. That unfortunately there are extreme-right parties not just in Greece, but also in Slovakia, in Austria, in many countries of the European Union.
Are we the epicenter of the crisis? We also deserve to be at the epicenter of Europe after the crisis. We have to act as an institutionally equal member of the European Union. And we have to regain our pride, our credibility and our dignity.
The Greek people are now asking to exercise a fundamental right: the right to optimism, which presupposes the right to security and stability. The right to have their sacrifices recognized. No one can deprive us of that right.