Greek Debt Crisis

Former Greek finance minister on his country’s woes

Jeremy Hobson Feb 16, 2012

Jeremy Hobson: Fear is returning in European markets this morning. The concern is that Greece will not be able to get more bailout money and will default on its debt within a month. The Greek government passed steep budget cuts over the weekend to get more cash from the rest of Europe and a decision on that is expected within days.

George Papaconstantinou is a member of the Greek cabinet. He was finance minister until last summer and he joins us now from Athens. Good morning.

George Papaconstantinou: Good morning.

Hobson: What what do you think is going to happen? There are so many moving parts right now.

Papaconstantinou: Well, these are very tough times. We are in the fifth year of a recession. We passed a very difficult vote in parliament last Sunday for the new program, which envisages financial help of 130 billion (euro) loan from the EU and the IMF. And at the same time, a reduction in national debt of 100 billion.

We hope that once this is fully approved by our European partners, this will turn the page for Greece, and we will start — slowly but surely, with a lot of pain — to go back on the path of sustainable growth.

Hobson: Why do you think it would be better for Greece to stay in the euro than to leave the euro at this point? I can see why it’s better for the rest of Europe if you stay in, but why Greece?

Papaconstantinou: Because I think that people who suggest that we step out of the euro — as if this was a simple affair — really do not quite understand the repercussions. Take for example, a situation where rather than voting “yes” last Sunday, the parliament voted no.

This would have meant the EU stopping the current assistance program. It would have meant that there would be queues forming outside banks the next morning — that would have shut down the Greek banking system and have the army and the police to guard the banks. Greece would be an island; it would not be able to buy any imports — medicine or fuel, gas, oil.

And would soon be unable to pay pensions and wages in the public sector and provide essential services, given that we’re still running a primary deficit. So there is no such thing as some kind of an easy exit of the euro that solves the problems. It would be an unmitigated disaster.

Hobson: But if you stay in and you’re locked into the austerity that you have to do to get more bailout money, don’t you have a problem with growth over the coming years? It may be ten years before you have really good growth in Greece.

Papaconstantinou: This isn’t just about austerity; this is a program of significant structural reforms which we have been doing for the last two years. The country doesn’t just have a fiscal problem, it’s also got a competitiveness problem. We’re not producing enough; we’re not exporting enough.

And the kind of structural reforms in liberalizing the environment, making it easier to invest, reforming the state, reforming the tax system — all of these will lead to rebound and growth.

Hobson: Finally, I want to ask you: are you concerned about the rhetoric that’s been going on between Greece, and particularly, Germany? There’s a lot of World War II rhetoric coming up.

Papaconstantinou: Very much so. I’m concerned about the fact that in this country, many people look at our European allies with an increasing hostility. I’m also concerned by the fact that in the rest of Europe, there is a very easy characterization of Greece and the Greeks which borders on the racist sometimes, and which does not recognize all the tremendous effort that has been done in the last two years. I mean, people are hurting at the moment, and this effort needs to be recognized.

Hobson: George Papaconstantinou is the former finance minister of Greece. Thank you so much for joining us.

Papaconstantinou: Thank you.

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