Jean-Claude Juncker on the Greek rescue

In an interview with Kathimerini, Jean-Claude Juncker, prime minister of Luxembourg and chairman of the Eurogroup, has revealed what went on behind the scenes in the months leading up to the European Union and the International Monetary Fund putting together a support package for Greece in 2009.

Juncker admits that there was a point when he was very concerned regarding Greece?s future in the eurozone, when the reactions of the markets became so irrational that it appeared that a political solution could not be found to the problem.

He describes having to defend Greece?s place in eurozone to skeptics within the Eurogroup as one of the hardest moments as Eurogroup chief, and criticizes certain populist elements in the German press and politics for their stance toward Greece.

Juncker admits that the first bailout deal for Greece failed to place enough emphasis on growth. He expressed regret for the difficulties that Greeks are facing. He also admits that in retrospect he was too patient with Greece at the beginning of the crisis, but also with those politicians who failed to express European solidarity.

When did you start becoming seriously concerned about the Greek deficit and debt?

In 2006 or 2007 we used to discuss, month after month, the situation in Greece. Before we were highly concerned, we were pushing our successive Greek colleagues to tell us exactly the truth because we considered that the numbers given and the figures forecast by the Greek government were not in line with what we thought. Then in 2009 the situation became obvious when the [George] Papandreou government took over. And since then it?s not a monthly discussion, it is a daily one.

Why didn?t you put more public pressure on Greece before the 2009 election?

The fact is that the Eurogroup is an informal group and not a decision-making body. As our Greek colleagues did not acknowledge what was becoming more and more obvious, and as I didn?t want to increase the nervousness of the markets, and as we didn?t have a response to what we thought would be the Greek situation, which was not acknowledged by the Greek authorities, it would have been very difficult to jump into that mess by giving out information. The Greek government would not have accepted it.

Kathimerini has learned that Former Finance Minister Giorgos Alogoskoufis had promised you and the Eurogroup measures in January 2009, and his successor Yiannis Papathanasiou told us he had committed to measures in October of 2009. Did you have concrete commitments that were not realized?

We insisted with both colleagues on the need, the necessity, to take effective action. We didn?t tell them what to do exactly, but we asked them to get back on track.

I remember you being very angry when the initial deficit figure of 12.7 percent was released. Can you describe your feelings back then?

I don?t remember in detail what I thought that very day, and it was not the only day that I was angry. It was no surprise that the deficit was higher than previously described, but it was hugely higher and that was that day I think I said the game is over, because we were always given figures which did not correspond to the reality.

Was it a mistake that the Papandreou government didn?t take immediate measures to cut the deficit even for 2009?

I think that the Papandreou government slowly discovered the real situation, so I didn?t have the impression that it was acting too slowly but it had to give an assessment of the situation the government itself discovered. But I have to say that when the analysis and the assessment was there, at that moment, the government, the Papandreou government really took effective action but not sufficient action.

There was a time when Papandreou was traveling to various European capitals talking about how corrupt and problematic Greece was. Do you think that helped or that it highlighted the problem a bit too much?

I don?t know if the problem was highlighted too much but I have to say that corruption was a phenomenon in Greece and it was honest of George Papandreou to acknowledge that. In all segments of Greek society there are phenomena of corruption. I think he was right and since then, all kinds of initiatives have been taken to fight corruption, which have to be welcomed of course.

In the critical months before Greece ended up signing the first memorandum with the European Commission, European Central Bank and International Monetary Fund, did you ever think then that there was a slight chance Greece could survive without the program and be able to finance itself?

I don?t remember when I first thought that Greece should try to become a program country. We urged Greece to ask for support. Initially Greece was not willing to become a program country; as later on Ireland did not want to ask for European support and later still Portugal did not want to ask for support. But all the others were of the opinion that the time had come to ask for structured support for Greece from the Eurogroup.

For quite some time the Eurogroup, the ECB and everybody else in Europe did not want the IMF involved in a European country. Why did that change?

I was among those who did not want the presence of the IMF because I thought back in February and March 2010 that being a euro group and having one single currency we would be able to overcome the problem without the support of the IMF. I remember saying that if California has a problem, the US doesn?t ask for help from the IMF, giving a collective national response to this regional problem. But then it appeared that it would be better for credibility reasons to have the IMF on board — this was mainly a German and Dutch position and finally all of us joined the position that it was necessary to have the IMF on board, because in the Netherlands and in Germany, parliaments would have been very reluctant if the IMF have not been on board.

Was there some debate at the beginning of the program with the IMF saying that Greece should go for a big restructuring and a haircut from the onset?

Yes.

Why didn?t that happen? Was it the Germans and others trying to punish Greece or was it a policy decision?

I didn?t think that this would have been the right thing to do, because we didn?t know what the overall consequences would have been.

Regarding the policy prescription for Greece, there are some who say that it has caused so much recession and so on that it?s very hard for the country to get out of this vicious cycle. What went wrong: the policy or the implementation?

I think that we didn?t adequately highlight the growth dimension of the whole Greek problem, we were very much insisting on fiscal consolidation. Without any doubt, with no alternative and no other option, Greece underwent the test to consolidate its public finances. If year after year you are adding deficit to deficit and public debt to public debt, you are worsening the overall situation of your country. But it would have been wise and reasonable to focus immediately on the growth dimension. If you want to bring the country back on track you have to invent an intelligent mix of fiscal consolidation and growth impulses. We were very strong when it came to fiscal consolidation and very weak when it came to the other, equally essential dimension, the one of growth. I am unhappy with the deterioration of the living conditions of the Greeks. They don?t have a positive perspective. Nothing is happening apart from cuts and the lowering of social benefits. In order to revive Greek society we have to have something more than repeating the same message day after day.

Can you explain the very harsh criticism leveled against Greece by some of the German press and politicians?

I think that this is due to their domestic agenda. Some politicians in Germany and the larger part of the German public opinion were and still are considering that they have to pay the price for the mistakes and the faults and the failures of Greece, as though it was in Germany or in the Netherlands and elsewhere. In a growing misunderstanding of the policy we were trying to put into place, they reacted in a populist way. I never liked that because Greece is a great nation and the Greek people are a very noble people and we are partners, not enemies. When Greece started to acknowledge the problem it was going through, and when Greece started to take effective action, and Greece became more and more concerned by the situation, and when Greece and others were noting the danger of contagion to other countries, and when Greece took measures of solidity, it was quite a normal reaction for me to invest in European solidarity.

Was there any point at which you got really worried that there was a possibility of Greece exiting the euro?

Yes.

When was that?

When the market reactions became irrational in a way that it seemed more and more difficult to give a political answer to the problem we were facing. I was always opposed to those who tried to push Greece out of the euro area, who had political designs, leaving no other chance to Greece than to leave the euro area. It was the most difficult moment I had in my presidency of the Eurogroup.

Was that in November 2011, when Papandreou announced that he would call a referendum?

No, that was even before. But the referendum issue was a disturbing one because it came by surprise. I had this debate with George Papandreou months before, when he was reflecting on the possibility of having a referendum in order to make the support of the Greek people evident not only in Greece but also in the eyes of the others. But the very day he decided on the referendum was a few days after a European Council on October 26, 2011. I was surprised and I immediately thought that this shouldn?t take place, although I am in support sometimes of direct democracy. I am not among those who lecture Greece from the morning until the evening. But the problem was not the referendum — the problem was the surprise announcement of the referendum after we had a full-fledged decision-making process concluded a few days earlier.

The way we stand now, after the PSI and the reform agreement, is the issue of Greece remaining in the euro settled for good?

I never put into question the membership of Greece and I will never do so. Greece is an old European democracy, Greece is facing enormous problems, Greece is taking the actions we requested, and I don?t see any reason for pursuing this stupid debate. We are feeding the financial markets with our own speculation. I will never be a part of that.

Do you think there will be another package and another restructuring? Because that is the big debate the markets are having right now.

It depends on the way the so-called second program is going to be implemented. If Greece is adding effective action to effective action, if Greece is reducing the fiscal gap, if the program is implemented, I don?t see the need for a third package of the same amount.

How about the debate about issuing a Eurobond? Do you think that will ever happen?

I did propose that, together with my then-colleague Giulio Tremonti in the Italian Finance Ministry in December of 2010, but the Germans, the Dutch and others rejected this idea from the very beginning, without having assessed the merits of that idea. It will come some day.

Looking back on the Greek crisis, what was the most dramatic moment for you?

There were so many moments that I cannot distinguish one which would have been the most dramatic.

Did you feel overwhelmed by the markets at any point?

Yes, and that was our mistake. We were always giving the impression of being behind the curve and we never gave the impression we were out of the curve. Now we are at some extent out of the curve.

Looking back, we wonder in Greece whether Papandreou could have taken certain measures immediately and avoided this whole crisis? Or was it an accident waiting to happen?

Looking back, it seems appropriate to consider that some actions could have been taken immediately and earlier on. But that would not be sufficient. What has been decided now seems to me sufficient. But we had no chance and Papandreou had no chance to introduce a range of measures of the kind and nature of those which have been taken in recent months. So I think he could have reacted earlier but never could have reacted in the way Greece is reacting now.

We have heard that at first you pushed for a longer-term program, five or six years of adjustment and lower interest rates, but that the Germans opposed this. Is this the case?

Exactly.

Just to insist on this point: Are the Germans taking a punishing attitude toward Greece?

I don?t know if the Germans were taking a punishing attitude toward Greece, I don?t like that expression, but whenever I tried to be more accommodating, whenever I tried to be, let?s say, less severe, I had to face strong reactions from several countries.

What mistakes do you feel you made? Do you think you should have been more vocal earlier on toward the Greeks?

I think that I?m not free from mistakes because I was too patient, too patient toward Greece and too patient with those who were reluctant when it came to implementing real European solidarity.