I stood for election last fall before a country that was demanding deep changes. During the preceding five years, our public had grown increasingly alienated as Greece’s national deficit ballooned, wasteful expenditure mushroomed, and our GDP shrank.
During our election campaign, we promised to tackle head-on the chronic problems at the heart of Greece’s economic woes—structural problems that Greek politicians had avoided addressing for far too long.
Our goal was – and remains – to transform Greece into a thriving economy driven by green technology and investment in our natural and human resources.
So when my party won a resounding electoral majority, we knew our mandate—like the mandate of your own new President—was to bring deep changes, even at a time of great economic challenge.
Now, I am used to change. I was born in Minnesota and raised in California, before eventually moving to Athens.
And then, when my family was forced to flee Greece during the dictatorship, we lived in exile in Canada, and then Sweden.
And throughout my political career, I have often taken office during times of crisis. I became Education Minister during a teachers’ strike. I became Foreign Minister just as Greece was entering one of its most fraught stand-offs with Turkey. I took over as leader of my party in 2004, just a few weeks before an election that we were certain to lose. And now I have become Prime Minister during the gravest economic crisis Greece has faced since the Second World War.
So confronting upheaval and the need for big changes has been an integral part of my life. Even so, that does not make change any easier.
Yet the enormity of Greece’s deficit made the imperative of deep changes absolute.
And now the changes are under way.
To restore confidence in our country and stability to our economy, we pledged to bring the 12.7% deficit down to 8% this year, and to EU-mandated levels of 3% by 2012.
To meet those targets, the Parliament has adopted the toughest austerity measures in Greece’s modern history. The third round of those measures passed just last week.
We know Greece faced not only a fiscal deficit, but also a credibility deficit, as a result of the fabricated budget figures our predecessors had published.
The EU was understandably skeptical about our promises to rein in the deficit and crack down on corruption.
But we are demonstrating Greece’s decisiveness.
Public sector salaries have been cut, retirement ages raised and taxes have increased.
These are painful choices that come with high political and social costs.
We take them not only to rescue our own economy and prove our own credibility. We do so also because we are part of a genuine community, the European Union.
All of these measures reflect our commitment to protect the stability of our common currency. This medicine may be bitter, but it is only an immediate remedy. We must also cure the core problems that have prevented Greece from reaching its great economic potential for far too long.
So I have told the people of Greece that 2010 must be and will be a year of drastic reforms across all levels of government: changes to our tax system, our social security system, our public administration, our education system, and our development model.
At the top of the list is tax evasion.
To give you just one measure of the scope of that problem: Fewer than 5,000 Greeks declare incomes of 100,000 euro or more. That pattern ends now. We will be prosecuting offenders—no matter how rich or powerful—to show that we mean business. The rule of law means that the law applies to all. Such changes will bring in billions in unpaid taxes, and help underpin our return to fiscal health.
We are also tacking the challenge of corruption head on. Within the first weeks of my administration, I dismissed a deputy minister and friend who was trading in minor favors for voters.
Corruption is hardly unique to Greece.
But it is a problem we are determined to address as part of our broader reforms.
To usher in a new norm of transparency, we are televising our cabinet meetings; we have launched an open, online application process for public-sector jobs, and passed a law so that every government expense will be published online—a first in Europe.
We post all our proposals on the web to allow for deliberation and participation – in a Web 2.0 application – which empowers our citizens, puts a check on lawmakers, and strengthens the quality of our policies.
Building consensus for long-term change
These are among the changes my government has made and will pursue in response to this crisis. I am confident that Greece will very soon be a paradigm for open government, a leader in green development – as Greece has great, untapped potential for renewable energy – and a real magnet for new business investment.
But there are two other seminal points I want to stress today—ones that touch on our longer-term challenges, and our shared responsibilities for building a stronger global economy.
The first point is that while we must all respond with urgency today, we must also plan for the long term. The architects of the post-war recovery of Europe and the trans-Atlantic community—leaders like Adenauer, Schuman, and Truman—had an eye on what made sense, not only for next week, but for next year, and the next generation.
So it must be today. The crises the world has faced over the past few years should alert us to the fact that we need more cooperation, regulation and foresight.
My own people understand this. The majority of Greeks recognize that the very difficult changes I have enacted are in their own long-term interest.
This is why Greek public support for my government’s reforms is higher than many observers expected. I see this every day. People stop me on the street to say they are willing to make sacrifices if it can help our country. Others have volunteered to give their pension back to the state. One of them is the well-known singer Nana Mouskouri – who spoke about the Greek ‘filotimo’ – a word that is difficult to translate – but means a sense of pride in giving to the common good.
Europe needs to recognise that the measures we have put in place, and those still to come, need time to take effect.
Countries are not like financial markets. Social change cannot be executed as swiftly as credit default swaps.
You cannot sell short on social commitments and political responsibilities. Although there are great risks in the current crisis, there are equally real risks in unrealistic expectations and inflammatory impatience. It is dangerous to push people too hard, too fast.
Greece already has some of the lowest wages in Europe. The average wage in Greece is just under $24,000, compared to just over $40,000 in the US.
We intend to reform our economy with the help of our citizens, not in spite of them.
Europe needs to join us in taking a longer view. Savage budget cuts will not necessarily lead to sustainable economic growth.
If we’re not careful, higher taxes coupled with lower revenue could actually slow down our recovery.
And that would be unjust. It could also trigger severe social unrest.
Deflation is a genuine risk, too, if we don’t take parallel measures to kick-start productivity and create jobs.
This is not about asking Europe to rush to the aid of a reckless country. On the contrary, standing by Greece, as it makes deep and responsible reforms, is in the interests of Europe as a whole. The price of not acting together will be higher taxes, higher unemployment, and a slower economic recovery for all of Europe.
Addressing the threat of speculation—for Greece, Europe, and America
Greece may be doing all the right things to revive our economy. But not everyone may want us to succeed.
This brings me to my second point: the need to address the threat of speculation and ill-regulated financial markets—a threat that imperils not only Greece, but the entire global economy.
I see that threat every day as we manage this crisis, for the immediate problem we face is not dealing with the recession, but in servicing our debt. Despite the deep reforms we are making, traders and speculators have forced interest rates on Greek bonds to record highs.
Many believe there have been malicious rumours, endlessly repeated and tactically amplified, that have been used to manipulate normal market terms for our bonds.
Partly as a result, Greece currently has to borrow at rates almost twice as high as other EU countries. So when we borrow 5 billion euros for five years, we must pay about 725 million euros more in interest than Germany does.
We will have a very hard time implementing our reform program if the gains from our austerity measures are swallowed up by prohibitive interest rates.
This whole affair has a horrible sense of déjà vu. The same financial institutions that were bailed out with taxpayers’ money are now making a fortune from Greece’s misfortune—while those same taxpayers are paying the price in deep cuts to their salaries and social services.
Unprincipled speculators are making billions every day by betting on a Greek default. All this may sound a bit familiar to American ears. Yet unlike the bankers, Greece isn’t asking for a bailout—let alone a bonus. Indeed, we have slashed the salaries of every single government official. I myself have taken a significant pay cut.
And we have slashed bonuses in Greek banks by up to 90%.
The global economy is interdependent. We all suffer or advance depending on how well we deal with these risks. There are both immediate and long-term steps we can all take to counteract the forces that are profiting off self-fulfilling bets on failure.
In our modern global economy, and particularly in crises, expectations play a powerful role. Many real numbers are shaped by what happens in people’s minds—or ‘Animal Spirits,’ as Keynes called it.
This is why friends can and should help in a crisis.
To me this is a challenge to our democratic institutions.
An elected government, making huge changes with the consent of its people, is being undermined by concentrated powers in an unregulated market – powers which go beyond those of any individual government….
…. Europe and America must say “enough is enough” to those speculators who only place value on immediate returns, with utter disregard for the consequences on the larger economic system—not to mention the human consequences of lost jobs, foreclosed homes, and decimated pensions.
These market manipulations—which were at the heart of the banking system’s collapse—are still legal practice. It is hard to fathom that we have allowed this to happen.
It is common sense, enforced by insurance regulators, that a person is not allowed to buy fire insurance on his neighbor’s house—and then burn it down to collect on that insurance.
Yet that is exactly what is done in the market for credit default swaps. It is the scourge that has led banks to foreclose on the homes of millions of Americans.
It is the scourge that haunts Greece and all of us.
But if Europe and America jointly step in to shore up global financial regulation—and to finally ensure enforcement of regulations—we can curtail such activities.
It is an encouraging sign that the American authorities have ordered some speculators not to destroy records of their trading in euros.
I would encourage US authorities to continue these investigations.
Since the 1980s, we have witnessed a succession of global financial crises—the Third World debt collapse, the US Savings and Loan debacle, the Asian financial crisis, the high-tech and housing bubbles, and now the worst global recession since the 1930s.
Globalization—which promised so much, and opened so many doors to those of us with the good fortune of advanced educations and careers—has also brought new inequalities and new risks.
This crisis is an opportunity to correct many of the excesses of globalization.
It calls for deep structural changes to our global institutions and our system of global governance.
At the G20 and in Copenhagen, we fell short of our citizens’ expectations. We fell short of our own rhetoric.
We cannot afford to squander another opportunity to make the critical changes that our current reality demands.
Decisive and collective action and regulation is urgently required if global economic growth is to be sustainable. We need global coordination of monetary policies.
If we let market forces alone dictate the terms, our economic recovery will almost