NEWS

Greek economy at a crucial crossroads

The program for the consolidation of the Greek economy is at a crucial crossroads, as a series of fundamental structural changes have to be implemented within the next few months, International Monetary Fund Managing Director Dominique Strauss-Kahn said in an interview with Kathimerini. He estimated that if Greece can maintain the momentum of reform, investor confidence will grow and growth will follow the gradual return of competitiveness. Strauss-Kahn stressed the need for consensus among Greece’s political parties, and in that context introduced the possibility of limited adjustments in the memorandum, saying that «ideas for policy changes should, first and foremost, be discussed with the government.» In the spirit of political consensus, he said that «playing the blame game is not helpful» and called upon political parties to «look forward instead of backward.» What specific moves are needed in the next couple of months so that the fourth installment of the loan to Greece, expected in March, is not endangered? As the recent assessment of the European Commission, the European Central Bank, and IMF made clear, the program is broadly on track. There has been good progress in a number of key areas – notably in reducing the fiscal deficit and in completing a landmark pension reform. Now the program is at an important crossroads. The overriding issue – as I reiterated during my visit to Athens – is to get growth going again; growth, and the jobs that come from it. To achieve this, fundamental structural reforms are needed. For example, opening up services, trade and professions, streamlining state enterprises and improving the climate for business and investment. In short, unlocking the potential of Greek industry and the Greek people. This is not easily done, but if Greece can maintain the momentum of reform, investors will come to realize the country’s commitment to change and confidence will grow. I am optimistic Greece can do it. Solidarity essential The IMF has repeatedly stressed the need for political consensus. Antonis Samaras, the leader of the main opposition New Democracy party, who voted against the program, has said he is willing to show solidarity, provided there are changes made to the program. Is that something you are ready to accept? I met with the leadership of the opposition during my visit to Athens. I think we agreed that Greece is at a defining moment in its history and that the country can only succeed if there is the broadest possible support for the changes that are needed. That said, it is not up to the European partners or the IMF to make decisions on policy changes – that is the government’s prerogative. So, ideas for policy changes should, first and foremost, be discussed with the government. What the IMF does is advise on policy options and their feasibility based on our global experience. Is today’s crisis the sole fault of the previous government, or is there enough blame to go around, given that the spreads skyrocketed during the first six months after George Papandreou came to power? Playing the blame game is not helpful. What matters is how to get out of the crisis. To that end, the government is implementing an ambitious program that aims at restructuring broad parts of the economy to make it more competitive, create jobs and put it on a path of sustainable growth. At the same time, the government is trying to do this in a way that is fair, socially balanced and protects the most vulnerable groups. So let’s look forward instead of backward – that’s what is important now: to support the reform effort and realize the country’s true potential. In that context, did George Papandreou take too long to request assistance from the EU and the IMF last spring? When the crisis deepened last year, the government took the necessary steps to consult its partners and seek help. Don’t forget also that the government had already begun to implement substantial measures to lower the deficit and stabilize the situation long before the Europeans or the IMF came in. When the pressures increased to unsustainable levels, the government did the right thing and sought assistance. Is the fact that the IMF and EU will assist Ireland helpful or detrimental to Greece’s effort, and, if so, how? Should the repayment plans for the two countries be the same? Greece and Ireland are very different cases. While Greece was mainly affected by mounting public debt in an uncompetitive and relatively closed economy, Ireland, which has a very open and dynamic economy, faced mainly a crisis in the banking system that became a heavy burden on state finances. These differences mean that the economic programs supported by the European partners and the Fund need to be tailored to those specific circumstances. Regarding the repayment period for Greece, we are – as you know – advocating an extension and we will work with our European partners on a solution to give Greece some further breathing space. Do you find the idea of issuing Eurobonds helpful, or even necessary at this stage? Could it happen, given Germany’s opposition, which brings to mind its delay in agreeing to the mechanism for Greece last year? The situation in Europe is serious and economic recovery sluggish – and there is no silver bullet to fix it overnight. What the eurozone needs is a comprehensive solution. Just as the resolution of the global financial crisis two years ago required a global approach, a European approach is now needed to resolve the problem of low growth in the eurozone. Fate of the euro What is your view regarding the potential for the members of the eurozone to go back to their national currencies, or the introduction of a two-speed Europe with a stronger euro for the North, and a weaker one for the South? As I said, the situation in Europe is serious, but it is not a threat to the euro. The eurozone’s system and institutions worked well during the «good times» over the past decade. Now they need to be strengthened so as to better deal with crises. I am confident this will happen. Are you worried that the crisis in Southern Europe could spread to the whole continent and negatively affect growth? Clearly, the plight of some European countries affects growth in neighboring countries and across the region. All countries in Europe should be concerned about the slow pace of growth. Looking at the bigger picture, Europe risks falling behind other regions of the world and needs to become more innovative and competitive. Europe has done this before, and it can do it again. A growing and dynamic Europe, of course, is also good for the rest of the world. At a press conference during the Annual Meetings, I asked you about the difficulty Greece faces in achieving growth in the present global economic environment. Where can growth come from in the case of Greece? Well, I pointed to some of the potential areas for growth in my previous answer. Among the sectors that offer strong potential growth are tourism and the energy and transport sectors, and I am also convinced that liberalization and opening up closed professions will spur the retail and service sector. The key is for Greece to restore its competitiveness in Europe and beyond. If Greece can implement the reforms in the program, we project growth returning in the latter half of next year or early in 2012. This depends, of course, on there being a positive economic environment in the rest of Europe and in the global economy – because we are all connected now. That is as true for Greece as it is for every other country. How would you describe your personal relationship with Prime Minister George Papandreou and Finance Minister Giorgos Papaconstantinou? Excellent. PM Papandreou and FM Papaconstantinou, as well as other government officials, are showing great resolve in getting the country back on track under very difficult circumstances. Political will and leadership are essential for any economic program to succeed. How do you assess the lack of coordination among ministers, and is the personal involvement of the PM necessary? The government is committed and fully engaged. Otherwise an ambitious reform program such as this wouldn’t go anywhere. Finally, may I ask you for your reaction, both on a personal level as well as head of the IMF, to the demonstrations against your visit to Greece? Demonstrations are part of any healthy democracy. It is only natural that some people are unhappy about the changes that need to be made. I understand that. This is a very difficult situation for the Greek people and I do not underestimate the efforts they are making. In fact, I commend them for those efforts – as I believe the rest of the world also is beginning to do. I would only emphasize this point again: When you have to make tough decisions and take difficult measures, it must be done in a socially just manner. From the beginning, we – and the government – have stressed the issue of fairness. Ordinary workers and pensioners have done their part. Now others in Greek society – including the high-income earners – must do their part too. That is why, for example, strengthening tax administration and coming down hard on tax evasion is so important. Yes, this will help increase needed revenues but, more than this, it will help enhance fairness. I believe that, ultimately, people will support reforms – even very difficult reforms – if they feel they are in the best interests of their country and if everyone is contributing their fair share.