Together, we will make it, Rehn tells Kathimerini after Greek debt deal
By Nikos Chrysoloras
In an interview with Kathimerini a few hours after the eurozone and the International Monetary Fund agreed on a program to reduce Greek debt to sustainable levels, European Economic and Monetary Affairs Commissioner Olli Rehn said that Greece’s lenders are committed to the scheme even if the bond buyback fails to produce the expected results.
Rehn insists that Tuesday’s agreement could prove a turning point for Greece and the eurozone.
I would like to start with an assessment of Tuesday’s Eurogroup decisions. I read two lines of criticism in the international press. One is that the decisions – the conditionality of the decisions – are too harsh; there are too many ifs in the deal. The second is that it doesn’t address Greece’s fundamental debt problem and will therefore not restore confidence. What do you think?
Last night’s decision is a major milestone for Greece and for Europe. It will reduce the debt burden of Greece by 20 percentage points in 2020, which is around 40 billion euros of debt reduction, which is a very substantial amount and will help Greece to be more sustainable in economic terms.
As far as these points of criticism to which you referred to are concerned, the decision is very clearly formulated so that in the immediate phase there is a very clear commitment of the euro-area members for debt reduction along the lines I described. Moreover there is a further commitment for further measures in the case that Greece does meet all its targets and commitments with regards to reforms and consolidation, after which euro-area member states would be ready to consider further measures of debt reduction to get public debt substance relowered than 110 percent of GDP.
These are very important decisions and they are as clear as they can be from the eurozone point of view.
One of the big ifs is that the IMF’s continuing participation in the program is dependent among other things on the success of the debt buyback program. Is there a plan B if the debt buyback doesn’t work out? Can you offer a commitment that no matter what, the next tranche from the bailout money will be released to Greece on December 13?
First, the delays were caused mainly because of a lack of implementation and political turmoil in Greece, which created the delays in the first place. Now that Greece has implemented the necessary reforms and legislated them, the eurozone has delivered. I cannot speak on behalf of the IMF. I can just say that from the point of view of the European Union, Europe will stand by Greece, and the eurozone is committed to those actions that are clearly defined in Tuesday’s decision.
You mentioned political turmoil in Greece. The program has so far faced many ups and downs. Do you think it would have been in better shape without two successive general elections? Or has something else caused these ups and downs in the program?
There is a saying in English, “There’s no point crying over spilt milk.” I think that’s a good saying in this context. The successive elections did not help in terms of the implementation of the program and all the reforms that are needed in order to boost economic growth and improve employment. But that’s in the past. The new government has shown that it is able to take decisions – I know that they are difficult decisions and they are painful for many Greeks because of the burden of the past, which now has to be cleared, but these decisions have now been taken, the eurozone has taken its decisions so both Greece and the eurozone have delivered, and now it’s time for the implementation of all the decisions, so that Greece’s public debt can be on a more sustainable path and the Greek economy can start growing again and creating jobs for Greeks.
Many analysts argue that the program would have worked much better if a haircut on state-owned Greek debt (OSI) had been designed from the very beginning. Tuesday’s decision refers to substantial debt reduction, well below the 110 percent GDP threshold after 2022. Is that perhaps an implicit reference to a future haircut?
Let’s first take the issue of program implementation, because you have both major achievements and certain disappointments in this regard. The achievement is that while Greece started with a very high level of fiscal deficit, 16 percent, that was of course not sustainable because Greece was living beyond its means, in the first two years Greece has taken measures of fiscal consolidation of around 10 percent of its gross national product and that is substantial by any standard and shows that Greece is able to take difficult decisions to avoid an economic catastrophe.
On the other hand, the structural reforms that are needed to boost and kick-start economic growth have not done as well as fiscal consolidation and this has been amplified because of both political turmoil and worse economic growth prospects than expected originally. Therefore, the emphasis on the current program is very much on reforms that will help restore the competence of the Greek economy and help Greece to be, in economic terms, on a sustainable footing.
You don’t accept that the program has been ill-designed, yet the troika’s projections regarding recession and unemployment in Greece were dead wrong. What makes you think that this time the projections regarding the sustainability and growth in 2020 will be right or more accurate?
Compared to the programs of, for instance, Ireland or Latvia, the program of Greece has been comparatively off track in terms of many of the reforms. We see the turnaround more clearly now in Ireland, and we’ve seen it already for some time in Latvia, while the turnaround is still to be seen in Greece.
I believe that Tuesday’s decision is a major milestone that will enable Greece to turn a corner and restore its economic competitiveness and sustainable public finances. The main reasons are probably the lack of national unity which hampered the program implementation in the first two years and, secondly, poorer economic prospects in Europe and the global economy. That’s why there was a need to have a new program earlier this year and why we have now taken these decisions in order to reduce the Greek debt.
Many in Greece have demonized the troika and believe the program to be at the root of all evil in Greece today: high unemployment, poverty and severe recession. What would your response be to this argument, which has been heard not only in the media but also by the opposition in Greece?
It’s worth recalling that when the EU-IMF program of economic adjustment was constructed for Greece, it was not precisely a voluntary choice for the eurozone partners of Greece, nor for the Commission, ECB or for the IMF – it was a necessity. It is also worth recalling that Greece had already suffered around 18 months of economic recession by the end of 2009 and the country’s public finances were on a completely unsustainable footing.
Given the situation, the Greek government decided to request conditional financial assistance and the eurozone responded positively. I think it was the right choice because it enabled Greece to stay in the euro and avoid an outright default, which would have been very detrimental indeed to ordinary Greeks. I know the present situation has been very difficult for many Greeks, but the other scenario would have been even worse. Now it is important the program is implemented, that the reforms are implemented, not for the sake of any Brussels bureaucrats, but for the Greek people.
The Commission’s autumn economic forecast projects that unemployment in Greece will remain well above 20 percent even in 2014, as in Spain, and that the recession will continue throughout the periphery of the eurozone, touching the core of the euro. Is such a situation socially sustainable? The Commission has talked about growth-friendly consolidation often enough but the plan doesn’t seem to be working.
If you look at the EU economy at the moment, it is true that we are still in a period of stagnation or recession, but we expect that 2014 will be the year of stronger economic growth.
However there is quite a lot of economic diversity inside Europe, as you described, so that Central Europe and parts of Northern Europe are growing rather well, while the southern parts of Europe are still in a period of stagnation.
In this context it is important that we do everything we can in order to boost public and private investment. We must continue with the reforms that will make our product markets and labor markets more conducive for better employment. And we must also continue with smart consolidation, which means avoiding excessive indebtedness because we have already overstepped in Europe at a level of around 90 percent, which has a very negative impact on economic activity. So we have a very difficult dilemma. It is important, on the one hand, to enhance growth through investment and reforms, and at the same time continue with a reasonable pace of fiscal consolidation.
So, we are optimistic that unemployment will start falling sometime in the near future. The people in the eurozone need hope, especially the unemployed.
That’s correct, and concerning the near future of the eurozone economy, we see return to recovery from the early part of next year. The precondition is that we can clear the air of uncertainty that has been hanging over Greece, Spain, the rest of the eurozone, so that we restore the confidence of consumers and investors, reinforce credibility in investment and consumption and thus facilitate better prospects also for employment. In the economy it is always so, that there is a certain time lag between growth and employment, and now it is very important that we can rapidly return to growth and thus see also a return of better job creation both in Greece and in Europe, and that requires both reforms and investment.
Two years ago you wished Greece “kalo kouragio” before we signed the MoU with the troika. Following Tuesday’s decisions, do you have anything more optimistic to say to the Greek people?
I recall that, and I know that it has raised mixed feelings among the Greeks, I understand that. However I will not go into any word games but I am trying something which illustrates the attitude of Europe and at least all the European Commission in relation to Greece, because Europe stands by Greece. So let me try: “Mazi tha ta kataferoume” (Together, we will make it).