Together, we will make it, Rehn tells Kathimerini after Greek debt deal

In an interview with Kathimerini a few hours after the eurozone and the International Monetary Fund agreed on 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.

Q. Îœr Vice President, I would like to start with an assessment of Tuesday’s Eurogroup decisions. I read two kinds of criticism today in the international press. One line of the criticism is that the decisions, the conditionality of the decisions, are too harsh: there are too many ifs in the deal. The second criticism is that yesterday’s decision doesn’t address the fundamental debt problem of Greece. Hence, it will not restore confidence. So what’s your response to these criticisms?

A. 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 it goes these points of criticism to which you referred to, the decision is very clearly formulated so that in the immediate phase there is a very clear commitment of the euro area member states for debt reduction along those lines I described and moreover there is also a further commitment of further measures in case Greece will meet all its targets and will meet its commitments with regards to reforms and consolidation, then the euro area member states are ready to consider further measures of debt reduction to get public debt substance re- lowered than 110% of GDP.

These are very important decisions and they are as clear as they can be from the eurozone point of view.

Q. Let me focus a bit on conditionality. One of the big ifs is that IMF’s continuing participation in the program is dependent among other things on the success of the debt buyback program. So is there a plan B, if the debt buyback program doesn’t work out well? Can you offer a commitment that no matter what, the next tranche from the bailout money will be released to Greece on the December 13th?

A. First, the delays were caused mainly because of lack of implementation and political turmoil in Greece, which in the first place created the delays. Now, once Greece has done the necessary reforms and legislated on those, now the euro zone 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 euro zone is committed to those actions that are very clearly defined in yesterday’s decision.

Q. You mentioned political turmoil in Greece. The program has so far faced lots of ups and downs and many hurdles. Do you think it would be in a better place, if it wasn’t for the successive election cycles? Or has something else caused these ups and downs in the program?

A. There is a saying in English: “don’t cry over spilt milk”. I think that’s a good saying in this context. I’m saying that 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 now 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 has delivered, the eurozone has delivered and now it’s time for the implementation of all the decisions, so that the public debt of Greece can be on a more sustainable path and that the Greek economy can start growing again and creating jobs for Greeks.

Q. You mentioned the mistakes and the debt reduction. Many people, not only in Greece but also many international analysts say that the program would have worked much better if a haircut had been designed from the very beginning. And, since you mentioned further measures to reduce debt in the future, there is a line in yesterday’s decision referring to substantial debt reduction, well below 110% GDP threshold after 2022, so is that an implicit reference to perhaps an OSI in the future?

A. 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 2 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 it shows that Greece is able to take even 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, say, amplified, because of both political turmoil and because of worse economic growth prospects than expected originally. And therefore, the emphasis on the current program is very much on reforms that will help to restore the competence of the Greek economy and thus help Greece to be in economic terms, on a sustainable footing.

Q. So you haven’t accepted that the program has been ill designed. I remember the projections of the Troika regarding recession, unemployment in Greece, all of these projections were basically dead wrong. What makes you think that this time the projections regarding the sustainability and growth in 2020 will at least be right or more accurate?

A. It is correct that compared to the program of, for instance Ireland or Latvia, the program of Greece has been less well on track, concerning many of the reforms. We see the turn around more clearly now, in Ireland, and we’ve seen it already for sometime in Latvia. While the turn around is still to be seen in Greece.

I believe that yesterday’s decision is a major milestone and it will enable Greece to turn the 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 of it. And secondly, less overall economic prospects than expected in both Europe and in the Global Economy. That’s why there was a need to have a new program earlier this year and that why now we have taken these decisions in order to reduce the debt of Greece.

Q. Many people in Greece have demonized the troika and have been arguing that the route of all evils today in Greece, of high unemployment, of poverty, of severe recession, is the program. So what would be your response to these people and to this argument, which has been heard not only in the media but also by the opposition in Greece?

A. I think that it is worth recalling that when the EU-IMF program of Economic Adjustment was constructed for Greece, that 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. And, 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, the fiscal deficit being at 16 percent in 2009.

In that situation, the Greek government took the decision to request conditional financial assistance and the eurozone responded positively. To my mind it was the right choice because it enabled Greece to continue in the euro and it avoided an outright default in Greece, which would have been indeed detrimental for the ordinary Greek people. I know that the present situation has been very difficult for many Greeks, but the other scenario would have been even worse. And now it is important that the program is implemented, that the reforms are implemented, not for the sake of any Brussels bureaucrats, but for the sake of Greek people and returning to the economic growth, better welfare and improve employment in Greece, itself.

Q. Before finishing with Greece, I want to ask you a broader question about the eurozone. The EU Commission’s autumn economic forecast projects that unemployment in Greece will remain well above 20% even in 2014, the same is for Spain, and the recession continues throughout the periphery of the eurozone and it really touches the core of the euro. So do you think that the situation is socially sustainable? The commission has talked about growth friendly consolidation lots of times but the plan doesn’t seem to be working so far.

A. If you look at the EU economy for the moment, it is true that we are still in the period of stagnation or recession and we see that next year we will return to recovery and 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 the period of stagnation.

In this context it is important that we will do everything we can in order to boost public and private investment. We continue with the reforms that will make our product markets and labor markets more conducive for better employment. And we also continue with smart consolidation, which means that it is necessary to avoid 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, to balance. 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.

Q. So, we are optimistic that jobs will come sometime in the near future, and that unemployment will start falling sometime in the near future. The people in the eurozone need hope, especially the unemployed ones.

A. That’s correct and concerning the near future of the eurozone economy, we have a perspective of returning into recovery from the early part of next year onwards. The precondition that is that we can clean the air from the uncertainty that has been hanging over Greece, on Spain, on the rest of the eurozone, so that we restore confidence of consumers and investors, we reinforce credibility of investment and consumption and thus we facilitate better prospects also for employment. In the economy it is always so, that there is a certain time lack between growth and employment, and now it is very important that we can fast 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.

Q. Mr Vice President, two years ago you wished Greece “kalo kouragio” before we singed the MOU with the troika. Following yesterday’s decisions is there something more optimistic to say to the Greek people?

A. 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 words game 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).