The European Commission had repeatedly warned the administration of Costas Karamanlis, including the prime minister himself, that Greece faced the risk of fiscal derailment Commission Vice President Joaquin Almunia told Kathimerini in a recent interview, adding that the Eurogroup was also aware of the situation.
The Greek administration however remained “completely passive,” according to the Spanish politician.
Almunia, who is the EC’s competition commissioner, denies allegations that the Commission was in any way involved in Gazprom’s pullout from the sale of Greek state gas distributor DEPA. At the same time, he confirms that four state enterprises slated for privatization – OSE-TrainOSE, the Larco mining company, Hellenic Defense Systems (EAS) and DEPA-DESFA – are being scrutinized over possible violation of European Union rules on state aid.
One of the main obstacles in Greece’s privatizations process is that potential investors are worried that there are unresolved governmental aid issues regarding Greek state monopolies. Are these fears justified? Which are the main outstanding cases involving state aid in Greece?
There are a few important cases but, in my view, the majority of companies that are on the list to be privatized have no problems in terms of state aid. We do have problems with the railways [OSE and TrainOSE], Hellenic Defense Systems, the DEPA state gas company, a container terminal at the port of Piraeus and the Larco mining company. We have asked the Greek authorities to solve these problems.
What happened in the case of DEPA? The Greek government suggested that the Russians didn’t bid for the company because there were unresolved state aid issues.
We don’t have any kind of information about the reasons why Gazprom withdrew. They cited competition issues but not state aid issues. In February this year we adopted a decision authorizing emergency liquidity support to DEPA so we are now assessing the liquidity support from the state aid point of view and we are also looking at several investment projects from DESFA. We have no changes regarding the link between these state aid issues and Gazprom.
Similar concerns on illegal state aid have been raised in Cyprus, where privatizations are also considered key to the success of the adjustment program. Are there particular cases the Commission is looking at in Cyprus?
I held discussions with the previous government regarding Cyprus Airways. Cyprus Airways has received support from the state. There is a problem there because when you want to restructure a company using public money you are faced with the “one time, last time” principle: You cannot receive public aid for a restructuring twice in 10 years. In the case of Cyprus Airways this principle creates difficulties. So we are in discussions with Cypriot authorities regarding how to deal with this case. We cannot ignore the “one time, last time” principle.
We have heard – especially from Germany – that the rules of competition should somehow show more flexibility, particularly for countries under an adjustment program. Is this feasible?
Some German officials, such as Finance Minister Wolfgang Schaeuble, asked me, “Why don’t you use the same fast-track procedures that were used for privatizations after the reunification of Germany for countries under adjustment programs?” My answer was very simple. We try to use the quickest procedures possible, particularly in countries suffering economic difficulties, but the example of Germany is not useful in these cases. Because in Greece, for example, we are dealing basically with four banks and four or five big companies; in Portugal we are dealing with four banks and a reduced number of companies; in Ireland we are dealing with three banks and no companies; in Spain we dealt with eight banks that represented 20 percent of the Spanish banking system. In the case of Germany in the early 1990s, on the other hand, we were dealing with more than 1,000 companies. So we are always ready to cooperate with the authorities, to accelerate procedures, to eliminate obstacles and to adopt decisions as quickly as possible, but these cases are not comparable with Germany. And I am sure that Germany in particular would not agree to simply adopt quicker decisions.
The common perception in Europe is that bank losses were socialized. European banks have received hundreds of billions of euros in state aid. What’s the Commission’s response to allegations that public intervention was unfair and failed to fix our banking systems?
It is absolutely true that huge amounts of taxpayers’ money has been used in Europe to repair the banking system and to rescue or restructure banks since the beginning of the crisis. Why has this happened in the banking system and not in other sectors? The only answer is because of financial stability concerns. Because if one industrial company disappears because of economic difficulties, they will certainly face serious employment problems, social problems and regional development problems, but their competitors will occupy this gap in the market. In the case of the financial system, however, there is the concept of systemic risk. If one bank fails, all the other banks suffer because of financial instability. As a result, everybody is interested in not creating additional problems on top of the problems created by the crisis itself. Hence the the use of money to support the restructuring of banks was necessary at that time.
Particularly from the Cyprus case onward – and although the discussion had started earlier with the Spanish memorandum – taxpayers have been forced to take too much of the burden. Let’s see how we can organize a different burden-sharing, how shareholders should contribute – as happened in Greece for example – how junior bondholders should contribute, how senior bondholders and even uncovered depositors should contribute. This a discussion that has already started. Nobody wants a repeat of the Cyprus bail-in. This was not a benchmark. This was a way to avoid adopting decisions. Before the taxpayers’ money or risks come to the fore to rescue or restructure a bank, let’s ask how much the shareholders and bondholders should contribute and let’s distribute the risk. If we can restructure a bank without taxpayers’ money, that would be better. And of course we shall never cross the line of covered depositors. Guaranteed deposits are guaranteed. It is not possible to discuss whether guaranteed depositors should contribute.
Many politicians in Greece have suggested that while you were responsible for the economics portfolio, you were too lenient, if not complacent, with the mismanagement of public finances by the Karamanlis government. Some say you failed to warn in time that Greece was heading for the rocks. How do you respond to this criticism?
I don’t agree, so let me explain what I remember from that period. I took over in April 2004 and one of the first cases that arrived on my desk was the need to revise the public deficit and public debt figures in Greece. There was a big discussion because the Karamanlis government said the previous government had not properly notified it. We organized the drafting of a report and I asked the Ecofin council to grant me specific powers to audit the Greek public account. I didn’t get what I wanted. It was not the Greek government that objected to this but France, Germany and the UK. At that time and until the decision was made to give Eurostat auditing powers in 2010, the Commission was not equipped with the tools to study the accuracy of the public account. So, year after year, we were obliged to revise the figures ex post. This was only solved after the public debt crisis. And now, fortunately, it is solved.
In 2009 the situation worsened seriously, but not only because of the statistical discrepancies that continued to exist at that time; it was an electoral year and the government was completely passive. Having started the initial budget for 2009 with a deficit proposed by the Karmanlis government of 1.8 percent of GDP during autumn 2008, in January of 2009 – the first month of the implementation of the budget – the deficit went up above 3 percent; in April the estimated deficit was above 5 percent. I presented to the Eurogroup a list of very tough recommendations for the immediate adjustment of the public accounts. The Eurogroup endorsed and supported my proposals but the Greek government didn’t react. They said the situation wasn’t that serious and were, of course, thinking of the next elections.
At the beginning of July 2009 I presented a report to the Eurogroup that was later sent to the Greek Parliament and I told the Eurogroup ministers, including the Greek minister at the time, “Unless you immediately implement the recommendations we adopted in April, your deficit will go above 10 percent.” There was no reaction. The summer holidays and the electoral campaign came to the fore and in October, immediately after the PASOK victory and at our very first meeting, Finance Minister Giorgos Papaconstantinou told me, “Joaquin, the deficit is above 12 percent.”
There was a disaster in terms of public finances in Greece during 2009 because of the inability of that government and because of electoral concerns. The Eurogroup was aware because I made them aware; the Greek government – I remember many meetings with the finance minister and some conversations with the prime minister – was fully aware of our concerns, but it didn’t react. At that time, the Eurogroup was not equipped with the present tools of economic governance in the EMU and was not ready to put the required pressure on the Greek government of the time.
Do you feel you have done your duty as a commissioner? The member states were somewhat complacent.
Yes, to some extent. Before the debt crisis, when a government was facing an electoral campaign, their colleagues would say, “We will wait until after the elections.” But after the elections came the debt crisis, and this has changed the rules of the game – for everybody, unfortunately.
Are you optimistic? Can you see any light at the end of the tunnel?
I am seriously worried by the social consequences of the crisis, by the political tensions originating from the way the challenges and difficulties of the crisis are being dealt with. Economic policy has not yet found a way to accelerate the arrival of the recovery. Are we are doing what is needed? To some extent we are. We have reinforced the governance of the EMU, we are equipping the EMU with instruments that were not available when the crisis broke out, many member states have implemented reforms.
It is true that at the beginning of the public debt crisis in 2010 there was excessive confidence in the capacity of fiscal policy decisions to solve all the problems. Now we are much more aware that this is necessary but not enough. What is missing? On one hand, the political accountability of the troika; this is a real issue that we need to solve. A second thing that is missing is the transmission of monetary policy to restore credit flows to the economy. Also missing is an adequate policy mix at the euro-area level. So we have a very strong institution deciding monetary policy in an independent way but we do not yet have the adequate counterbalance or interlocutor for this monetary policy institution from the fiscal policy point of view. And we have included in our blueprint for the future of the EMU what in my view are very important initiatives regarding the steps toward the creation of a fiscal capacity at the EMU level. I think this is a key issue to be decided in the coming months or years.