Greek’s Venizelos Text: ‘Breaking the Vicious Circle
WASHINGTON (MNI) – Below is the text of the speech delivered Sunday
by Deputy Prime Minister and Finance Minister of Greece Evangelos
Venizelos at the closing lunch of the Annual Membership Meeting of the
International Institute of Finance:
Since 2008, we have been experiencing different phases of the
international financial and fiscal crisis. In the case of the Euro Area
it is now obvious that the crisis is more than a financial or a fiscal
It is a political and institutional crisis.
The point is whether the Euro Area, which has one of the world’s
most powerful currencies, has those institutional structures and the
political capacity that can provide swift and decisive responses, and
make decisions that convince the markets.
In other words, the question is whether the common European
monetary policy – as exercised by the ECB – can be efficient and
effective without the necessary support from fiscal, tax and growth
Within the current international and European context, the Greek
problem is undoubtedly significant, most of all for us the Greeks.
However, Greece is not the Euro Area’s central problem nor it can be the
catalyst for a new phase of the global financial crisis. The size of the
Greek economy does not allow for such a role.
The problem of sovereign debt in the Euro Area is of vital
importance, and the fact that three of the 17 member-states have joined
the support mechanisms, provided by the Euro Area itself and the IMF,
shows that Europe has made very important steps towards dealing with the
However, these three countries (Greece, Ireland, and Portugal)
account for merely 6% of the Euro Area’s total debt. Greece alone
accounts for about 3% of the Euro Area’s total public debt. While such a
debt is very high for Greece, it may not still be capable of causing a
domino effect of pan-European dimensions.
Those who do know Greece not just as macro-economic and fiscal
figures, know that Greece is charming not only because of its history
but also because of its contradictions. Despite the crisis and the three
successive years of recession, Greece remains one of the 30 largest
global economies with a population of only 11 million. Greek tourism and
its shipping sector are always two strong brand names. This year, while
in full recession, we saw a fast increase in exports albeit starting
from a relatively small basis.
However, Greece at the same time has a large-scale grey economy,
extended tax-evasion, a large current account deficit and a similarly
large deficit in competitiveness.
Greece joined the original support mechanism provided by the Euro
Area’s member states and the IMF in May 2010. That was before the
European institutions such as the EFSF were created. A basic assumption
of the original program was that a very steep fiscal adjustment effort
until mid-2013 would be possible and that could make Greece return to
the markets already from mid-2012.
Almost a year later, in March 2011, there was a realization that
the programme parameters were too strict and the European Council
decided that the original terms of the loan to Greece had to be
significantly improved both in terms of the repayment period and in
terms of the interest rate. The IMF is also expected to extend the
maturities of the Greek loan to allow for a longer time for the reforms
being implemented to have an impact on competitiveness. Ireland and
Portugal also benefited from these changes and had a smoother start in
It is already questionable whether the original program could
provide for a credible answer to Greece’s sovereign debt sustainability.
With the exception of the first programme review, in all subsequent
reviews the question was constantly arising of whether Greece has the
national capacity to implement such a fast radical reform and steep
fiscal adjustment program that would change the country’s basic
structures and practices.
We did many difficult things in these last 15 months of the
programme implementation. First, a fast decline in the fiscal deficit by
5 percentage points of GDP in the first year of the programme
application. Very significant reforms like the pension reform that
reduced the actuarial deficit by about ten percentage points of GDP, a
labour market reform that increased significantly allowed dismissals,
reduced severance payments to half, increased three times the probation
period for new recruitments, made plant level agreements to prevail over
those at sectoral level. A large number of closed professions opened.
Many other important changes took place.
More than anyone else, we believe that these changes are absolutely
necessary for our nation’s future.
Greece also agreed to promote a very ambitious privatizations
program, aiming at collecting 28 billion euro in revenues before the end
of 2014 at a time that the capitalization of the Greek stock exchange
has been greatly reduced.
The June/July 2011 review was not an easy task, as this was linked
to the decision of our institutional partners to double their support,
by adding another additional 109 billion euro and extend the duration of
the program to 2014.
But the most important element of the July 21 decision was the
participation of the private sector. This was a result of a
comprehensive and complex negotiation between the Euro Working Group and
the IIF, with the important contribution of IIF’s Chairman, Mr. Joseph
Ackermann and its Managing Director, Mr. Charles Dallara, both of whom I
wish to thank personally for their truly decisive, contribution.
The PSI became an important pillar of the July 21 decisions,
equally important to that of the official sector participation.
However, the July decisions provided also for an expanded role for
the EFSF, a prelude to the permanent ESM mechanism from 2013. This is a
fundamental decision of the Euro Area, not only for the protection and
facilitation of Greece, but also for the decongestion of the pressure
applied on the Euro’s hard core.
From July 21 to the start of the fifth revision of the program that
started at the end of August there was a time gap of less than thirty
days during which Greece was trying, with its existing structural
problems and weak public administration to articulate and implement the
Medium Term Fiscal Adjustment programme that had been decided.
Therefore, there were no new problems. What we had here were the already
known difficulties including the peculiarities of the Greek political
system, the absence of wider political consensus towards the need for a
full and rapid implementation of the program, contrary to what takes
place in Portugal and Ireland.
But despite all that some positive signs of political consensus do
exist in the case of privatisations and the EFSF’s new institutional
framework, which were voted with a majority of more than two thirds by
the Greek Parliament.
In the meantime, during a limited timeframe following the July 21
decisions, the PSI was set up in close cooperation with the Euro Working
Group and the private sector. The framework that is being described in
the Letter of Inquiry was shaped, and all indications point towards the
direction that we can achieve the targets set in July, thus completing a
major international financial scheme with many innovative elements. It
is a scheme that supports the viability of Greek sovereign debt,
according to the study that was made public on September 22nd by the
The deficiencies of the public administration mechanism, combined
with the much deeper recession in 2011 and the tight liquidity
conditions in the economy, made additional measures a necessity in order
to meet the fiscal target for 2011 and to formulate the State Budget of
2012 in a way that produces primary surpluses in the first half of 2012.
In less than 2 years, we decrease the primary deficits from 24
billion euro to approximately 2 billion euro, when we meet the 2011
fiscal targets. The primary balance adjustment from 2009 to 2011 is 10%
of GDP when at the same time there is cumulative recession that exceeds
12% of GDP.
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** Market News International Washington Bureau: 202-371-2121 **