Greece has ‘no alternative’

There are few people in the world more qualified than financier George Soros to comment on Greece’s economic crisis. The Hungarian-born businessman spoke to Kathimerini’s editor-in-chief Alexis Papachelas about Greece’s problems for the «New Folders» program aired on Skai TV last night. Do you think that Greece’s current crisis is a result of its own fiscal shortcomings or the product of a huge speculative attack? I think that the problems of Greece are very real but, of course, there is a speculative element to it, particularly the fact that you can buy credit default swaps on Greek debt may have aggravated the crisis, because it has made speculation on the default relatively easy. So that’s an issue that needs to be investigated but that is not the main issue because Greece is in a real crisis and it has to take very real steps to correct the imbalances. A question facing the government is whether it should seek financial help from the European Union and the International Monetary Fund. What is your opinion? Greece has actually asked for the EU-IMF mechanism to be applied and I think it is necessary because the market interest rate is really far too high to make it possible for Greece to meet the conditions that are required of it. It is regrettable in my view that Germany has insisted that the interest rate on the rescue package should be as high as 5 percent. There are reasons for that, as you know; the German constitutional requirements etc. Nevertheless it makes the rescue plan less effective than it would be if the interest rate were significantly lower. Because there is a real danger that if Greece has to pay high interest, it will never be able to get out of trouble because then you have to cut budgetary expenses even further, which then reduces the economic activity, which then reduces government revenues and it then becomes a vicious cycle. I would call it a death cycle. That’s really the danger. There is a lot of talk here in Europe, as you know, about the fact that the IMF has for the first time become involved with a member of the eurozone. What do you think of this? Actually I think the IMF involvement is very helpful. I think that the IMF will be quite satisfied with the program that the Greek government has undertaken and, generally speaking, the conditions that the IMF is going to set are probably less onerous that those the EU is insisting on and the most important thing is that the support of the IMF could come at a lower interest rate than from the EU. You have criticized the role of Germany. Some European commentators have said that Germany is being schizophrenic. What is your opinion on Germany’s stance during the crisis? I think that while I have been critical of Germany, I am also understanding of the problems that the German government faces, which are partly constitutional and partly public opinion. So it puts the German government in a really difficult position and really endangers the future of the euro currency, because if the members of the eurozone are not prepared to allow the countries that have fallen into difficulties to benefit from the lower interest rates that prevail in the eurozone – naturally subject to the countries fulfilling the conditions that will keep them out of difficulties – then being a member of the eurozone becomes very very difficult. How far is Germany prepared to push this? Could it go as far as to leave the eurozone? That is a possibility but I think that when the public reflects on the consequences of such an action, they will change their mind. Because basically the disintegration of the euro would probably involve the disintegration of the EU, and that I think would do so much damage both to the German economy and to the economy of the other countries that they will then be willing to find a way to reform the euro. Because the euro as a currency is incomplete. It has a common central bank, but it doesn’t have a common fiscal policy, and it doesn’t have a common treasury – a deficiency that was there from the beginning. The architects of the EU knew that you can only build a union step by step, and you take one step to gather the political will, and then you take the next step. And this is where we are now with the euro and you need to take the next step. The question is: Is there political will to do it and when you look at the alternative, that is, the disintegration of the euro and the EU, then I think and I hope that the political will can be marshaled. Countries like Spain and Portugal also face deficit problems. Do you see them coming under speculative attacks? The problem of Spain is quite different from Greece because Spain has had a very responsible fiscal policy. It has a relatively low national debt. However, it has been hit by a collapse of the real estate market and more than 20 percent of the economy depends on housing construction and you now have very high unemployment. So, in those circumstances, to then cut government expenditures reinforces the recession. It is contrary to what we have learned from [economist John Maynard] Keynes on how to deal with recession. Nevertheless, because of market pressures, the Spanish government has undertaken an austerity program and that will make the recession both in Spain and Europe and indirectly in the whole world more severe than it should be. So this is exactly why you need to develop some mechanism for the eurozone to provide assistance in borrowing money provided it is used responsibly. In the case of Greece, the budget was really out of control and it was also very badly abused by basically special interests, political interests benefiting from the state budget. The task that confronts the Greek government is to cut out that waste and that abuse and I think that the success of the Greek program depends on that because if the government is successful in doing that, then I think the people of Greece will also be more willing to accept the pain and reduction in living standards that is involved and that is the way out for Greece. Some people think that the only way that Greece can save itself is by renegotiating its debt, which is tough of course, or to reschedule debt repayments. Do you think these are viable solutions? If it can be done without severe consequences, it will be, of course, a desirable way to go but I doubt that this will be possible because a lot of the Greek debt is actually owned by the Greek banks so if you had a default or rescheduling you may have a banking crisis. So it seems to me that there is actually no practical alternative to what the government is currently doing. You remain in contact with Prime Minister George Papandreou and you have consulted him on the crisis. What is your advice now? I think he is actually doing what is the only practical course. I am rather unhappy with the inability of the EU, particularly of Germany, to do more in return because I think the future depends very much on the success of this government in cutting out the waste and the abuse in the use of public funds. If they do that, I think that then I would like to see Europe actually do more in providing the ability for Greece to borrow at reasonable interest rates.

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