Greek loans will be paid back but reforms should have moved faster, says EU’s Barroso
Brussels – Greece and the rest of the eurozone member states under adjustment programs allowed so many problems to build up that it was virtually impossible to avoid asking for financial assistance attached to strict conditionality, says the president of the European Commission, Jose Manuel Barroso, in an interview with Kathimerini on the occasion of the three-year anniversary since Greece asked for emergency loans from its troika partners. These loans allowed member states to reduce “debts at a slower pace than would have been the case,” but they will “be paid back,” he said. The Greek government hopes that once it achieves primary fiscal surplus, then the eurozone will agree to further debt relief measures, this time in the loans owed not to the private sector but to member states. Although Barroso “pays tribute” to the “resilience” and “sacrifices” of the Greek people, he criticizes previous governments, since their delays in the implementation of structural reforms exacerbated the situation.
Could Greece and the eurozone have avoided the MoU deals?
The roots of the crisis are well known: irresponsible practices in the financial sector, a loss of competitiveness in certain economies and governments that sometimes lived beyond their means. In Greece, for instance, the debt was so high that financial markets were no longer willing to lend to the government and it was forced to seek international assistance. Since that time, an unprecedented sum – more than 400 billion euros – has been mobilized in support of Greece, Ireland, Portugal and Cyprus, and for the banking sector in Spain.
If member states had not allowed these problems to build up before the crisis, then they could have avoided seeking assistance. These problems would exist whether or not the programs were in place. The programs, agreed with the governments concerned, exist precisely to help correct economic imbalances and return their economies to a sustainable course.
Now, instead of looking to the past we must now focus on the reforms for the future that can bring back competitiveness, growth and job creation. The EU is here to offer its support to member states during this difficult time.
So was there not another way for taxpayers and governments to deal with the debt crisis in April 2010?
We are addressing the debt crisis by allowing member states to reduce their debts at a slower pace than would have already been the case. This is done by providing loans to those member states in difficulty – loans which will be paid back.
When Greece first requested assistance in 2010, the EU – and especially the euro area – did not have the structures in place to deal with the crisis in a coordinated way. We are working on creating a new system of governance to avoid these kinds of crises in future: For example, we have created a financial firewall worth a total of 700 billion euros; we have reinforced our rules to ensure more responsible budgeting and economic policy-making; and we have agreed on a single supervisory mechanism for banks, to name just a few examples. These are major steps forward that would have been unthinkable even a few months ago, let alone a few years. Our work is not finished: The Commission has published a blueprint for further integration in the economic and monetary union, to build on these important achievements, drawing all the lessons we have had to learn the hard way.
Had these structures been in place before 2010, I believe the crisis would indeed not have been as serious as it was. Now we are working with the Greek authorities to bring Greece back on to a sustainable track, which the program has been designed to do.
With the benefit of hindsight, what were the major mistakes in the architecture of the MoU agreements? What could have been done differently?
I think we owe it to our citizens to learn from these experiences and build a sustainable future, rather than writing unfulfilled scenarios in the past tense.
The financial assistance programs have been carefully designed in order to restore growth and jobs. Structural reforms to restore competitiveness are crucial in this respect, and one lesson to draw from the Greek experience is that delaying the implementation of these reforms only exacerbates the situation.
It is true that we have sometimes not managed to explain properly why such radical adjustments and the resulting sacrifices were necessary. But it is also true that initially implementation was not satisfactory. Furthermore, the external economic environment was less supportive than we expected.
But we shouldn’t underestimate the achievements made so far. For example, in the last four years Greece has significantly recouped the competitiveness it lost in the previous decade. And the fiscal adjustment has been enormous.
And we are acting decisively on the lessons learnt from the debt crisis in the euro area as a whole, for example, with the banking union. The crisis has thrown into sharp relief the extent of the link between banks and sovereigns.
This is why we need to press ahead now with financial sector reform, to create a banking sector that is more dynamic, responsible and willing to lend to people and businesses to restart the economy.
What were the major achievements of the rescue mechanisms for troubled eurozone members and Greece? What is the way forward from now on?
The aim of the programs is to support countries through difficult reforms, to lay the foundations for sustainable growth and to ease their way back to the markets. I think we can see signs of success already: Take Ireland, which is on track to exit its program at the end of this year.
For Greece, the way forward is to keep up the good record of policy implementation that has been built over the past months. The Greek authorities have made important progress on improving public finances, including on tax and debt collection, and the recapitalization of the banking sector is almost finished.
Through the Task Force for Greece, which I launched in 2011, and money from the EU’s structural funds, we are supporting 181 projects with a budget of around 11 billion.
However, much more remains to be done to bring down the very high level of unemployment, including through EU initiatives such as the recently agreed Youth Employment Initiative that the Commission pushed for in the context of the negotiations on the EU’s future multi-annual budget. I do not underestimate the hardships that this necessary transformation means for so many Greek citizens. Their support is fundamental to keep the momentum for reform and they will reap the rewards of their efforts in terms of new growth and jobs. I pay tribute to their resilience and their sacrifices they are making in the interest of a better future.
