Tel Aviv-Israel, 31 January 2012
Speech by George A. Papandreou President of PASOK at the 12th Annual Herzliya Conference - 2012
"I would have had a lot to say also on some of the questions, but on the issue of ownership I would very much agree with what you said, and I’ll conclude with that.
But let me begin by saying it’s an honor to be with you, with such a distinguished audience. And Greece of course has been squarely in the eye of the storm for the last two years. And I found myself at the helm, guiding my country through uncharted waters, at high seas, with no GPS system.
That’s why I call this journey an Odyssey, keeping a good tradition with our Homeric heritage.
So I hope to give you some vignettes of the Cyclopes and the Laestrygones which I have met on this journey.
But before I show you some of these glimpses of the eye in the storm, let me take you out of the storm for a moment and take Greece out of the storm for a moment. Imagine what Greece could be like.
Greece is a country with unimaginable and unrealized potential: huge potential for growth, a tourist industry that has potential to move into so many new areas, from eco to cultural, to religious, to sport and wellness tourism. And of course the Israeli tourists, partly because of our warm relations over the past years, have been able to see this potential.
Renewable energy from our wind, sun, geothermal sources are bountiful. Our agriculture can become high-quality, based on the Mediterranean or Cretan diet. Our agriculture is the biggest in Europe, while our merchant fleet is the biggest in the world.
At the same time, the ports of Piraeus and Thessaloniki, a city of martyrdom for the Jews, are becoming hubs between China, India and the Gulf States and the European market, while our program of privatization and public asset development bodes well for foreign direct investment and sustainable, competitive growth.
At the same time, we have a younger generation well-educated, many abroad, very innovative and motivated. They are the potential engine of growth in our country.
But why aren’t we there? Greece is not a poor country. Greece is not a country without potential. Greece was a mismanaged country, by the previous government. Not a bloated welfare state, but a badly mismanaged state, clientelistic, as you mentioned earlier.
That is what I inherited, and this is what I and we are changing. This, in fact, has been my promise and program for my country, a vision of the great potential of Hellenism, a vision I believe in and I had been fighting for before I became prime minister and still am fighting for today.
But beyond this vision, we had to deal with the crisis at hand: a debt that was almost doubled by the previous government, to be a matter of fact from EUR180 billion to EUR320 billion in five and half years; a deficit that had ballooned to 16%.
We were able to borrow easily, but not spend in the wisest of ways. And we were then found with jittery global markets that soon were to decide to exclude us. In fact, they virtually did because of spiraling costs of borrowing, the so-called spreads in our borrowing costs.
I fought for Europe to respond, and it did – yes, with solidarity towards Greece, with the biggest bailout program in mankind’s history.
But the storm grew in intensity. Why? Markets, rather than being calm, became more skeptical, more aggressive, more speculative.
So let me take you back to the eye of the storm.
The first problem was that many in Europe made, I believe, a wrong diagnosis. Many believed that this was a Greek problem. Even more so, some were very prejudicial. Many believed that the Greeks were the problem.
This led to simplistic solutions. You put your house in order, you do your homework. A slap on the hand, or even more brutal punishment: All will be well.
From the very beginning of this crisis I said yes, we Greeks have to take on full responsibility for our failures. However, I also said there is a deeper problem.
What is the problem? Well, the debt and deficits in the developed world I believe are the tip of the iceberg. I believe that the developed world, albeit with exceptions, is facing a major competitiveness problem with emerging markets.
Economic activity is fleeing to Asia, Latin America, Africa, parts of the world with obvious advantages: lower wages, abundant cheap labor, lack of collective bargaining sometimes, lack or even meager social welfare systems, the capability to easily denigrate the environment. All these factors combined with state support, in some of the cases, have given a strong comparative advantage to these regions and brought wealth to many of the people there, of course, but have also undermined the social compact that we had in western societies.
And this has created a populist, even sometimes a racist, backlash in many of our societies.
At the same time, capital is fleeing from the developed world not only to emerging markets but to tax heavens, to financial rather than the real economy, robbing nations of their tax revenues and creating deep inequalities in our societies.
I have heard that the figure of about USD600 billion is in the market of credit default swaps. But who knows? And the lack of transparency and democratic oversight in our financial system is part of the problem.
Many economists and Nobel Laureates have pointed to the question of inequality. Whether it’s Krugman, Stiglitz, Galbraith or Bob Reich, inequality is one of the main causes of the global crisis.
But it’s a crisis which also has often captured our democratic institutions, by special interests, which then further their privileges. Our democracies cannot deal with the fact that they can only make decisions within national borders, in a global economy.
So what is our dilemma for the developed countries? Can we compete on these terms? Can we, in fact, create sustainable economies on these terms? Can our democratic institutions survive on these terms?
I believe not. But I also believe that even the emerging economies, sooner or later, cannot continue sustainable growth on these terms. Our planet cannot provide, cannot sustain this model of growth.
So we need to develop a new and different approach to our model of sustainable and competitive growth. I say we need to create competitive economies based on quality, not inequality.
And this is no utopia. If you look at the Nordic countries, they are the most competitive in the world, most transparent, most equal, even with the highest taxation. Highest in social cohesion, highest in education and innovation.
But let’s look at Germany. Certainly wages play a role, and they have kept them under control for years. But if it had not been for their skills, their skilled labor force, their training and quality products, they could not compete and become an innovation nation.
Investing in our human capacity, brains, education, research, innovation, and in the necessary infrastructure for the realization of our human potential, is paramount.
And for Europe, I see the potential of competing, if we do invest in the above, and do so to transit to a sustainable model of growth, that which is green growth, investment in energy grids, green technologies, broadband, green transportation grids, connecting north and south, east and west, but also Europe with the Mediterranean, Northern Africa and the Middle East.
However, it’s very difficult to talk about investment in the austerity mode we have in Europe. And I deeply believe that the austerity hysteria is a dead end.
We certainly need to be fiscally responsible, which many of us weren’t. We certainly need to monitor each other, although I don’t believe in some super-bureaucrat coming from Europe to monitor our democracies, as this goes to the question of ownership. I have said very many times to some of the leaders in Europe: Well, if you want to own the program, we can monitor you. But I think if we want to have ownership for our programs, even the major reforms, we need to strengthen our democracies rather than undermine them.
So many in Europe, including myself, have suggested that we could look at both budget consolidation but also other alternatives. Beyond fiscal responsibility, Europe does have capabilities. And we can do so, if we pool our strengths.
We need deeper integration. And as a matter of fact, I believe we are at a crossroads in Europe, where either we go into deeper integration or we will go into a disintegration. I believe in deeper integration.
And we have things we can do; we have tools: Eurobonds, where we can deal with the markets in a collective way, but also leverage private investment in major projects around Europe, bring investment into some of our new-found funding, like the EFSF and the ESM.
Also we are talking now about a financial transaction tax, that could produce revenues up to EUR400 billion, a CO2 tax. These ideals, two years ago, were pie in the sky. Today we are seriously discussing them in the Union.
And they could help ignite growth, and of course help fight the recession worldwide.
But while we are facing wider global issues, we also have our hybrid eurozone growing pains. In the common currency, as I said, we have privileges in good times of borrowing at the rates pretty much near to what Germany borrows. And of course in bad times the rates are diverging wildly.
So in a common market with a common currency, one company today will get a loan at very good rates, and another company competing in the same sector will get money which costs much more.
This is unsustainable. That’s just one of the flaws of this incomplete monetary union.
I say this because in Greece we have been asked to reduce our debt in record time, debt and deficit in record time. Last year we reduced our deficit by 5%.
Obviously, the pain is excruciating. And we have had wage cuts, falling living standards, a deepening recession.
And I believe that it would be much easier for the Greek people to take the pain, first of all if the process was more gradual, but secondly if everyone felt that the burden was shared and justice was done.
This is the other issue you mentioned, Bob, of respect and dignity and social accountability.
But this is why I have been fighting for transparency, justice in the tax system, but also more transparency even in our banking system in Europe, fighting tax havens, more transparency in the CDS markets, and of course more democratic oversight of what the rating agencies are doing. They may be right at times, but they have so much power, they can reverse a positive trend in one moment.
Reorganizing, therefore, the financial system is of great importance. But here again, we in Europe took a wrong turn. As we wanted to penalize the financial system after the 2008 crisis for its profligacy, the Germans and the French at some point decided to announce that in the future any banks that invest in sovereign bonds of a country that defaults would be the first to take the hit.
This was the famous Deauville decision, almost a year ago from now.
In fact, what the French and German proposal created was a split in Europe, between those that were high-risk and those that were low-risk.
Immediately after this announcement, Ireland and Portugal, seen by the markets as higher-risk, were trapped into an adjustment program, and Italy and Spain become victims of this same market psychology.
So rather than regulate the financial system, we became a target of wild speculation. For Greece this was very bad. We were on track; we had even become a model of what one should do in this case, about a year ago. Strong will for change and reform – we made major reforms and still are doing so, of course.
But once this decision was made in Deauville, markets started to prophesy defaults, a euro exit of Greece, and all kinds of horror stories.
Investment stopped. Consumption stopped. People withdrew their Euros from the banks. The banks stopped lending. Foreign investment was put on hold until the crisis was over. However, the crisis is still not over in Europe.
So that’s, in my mind, why Greece went off track, the basic reason. And we are now faced with further difficult decisions in negotiating a new and painful program.
Nevertheless, this new program is unprecedented in scope, and will be giving Greece a new start: security, liquidity, debt sustainability, and time to continue deep reforms and consolidate what we have done.
But also not only Greece but Europe will make the necessary changes collectively, so that we further integrate and also allow it to stimulate our economy, helping the world economy also.
But let me come to my final conclusion. We are not only interconnected, but as Thomas Friedman writes, we are hyper-connected. A statement alone by a leader can change the market psychology.
Greece, only 3% of the GDP of Europe, has become the testing ground for the viability of the European project, as we know it.
But it has also been a time of testing our democracies. Our citizens feel more and more disempowered, as markets or decisions beyond their reach or control determine their fate on a daily basis, at a time when everybody knows we have great capacities.
I began with the problem of governance in Greece, but in our hyper-connected world the question is governance of the globe. And many have called G20 G-Zero, because of the lack of governance. And this is a challenge for our world economy.
Is there a solution? Could Europe, in fact, from a crisis become a model of governance?
Well, Europe is a peace project; Europe is a democratic project, a social project, a growth project, a security project. In the end, or in the beginning, Europe is a family of values: democracy, peaceful resolution of conflict, tolerance, human rights, rule of law, open but social markets, transparency, diversity with respect for all.
Let us step back for a moment to the origins of our Union. It grew out of the horror of World War II. It grew out of the horrific experience of the Holocaust.
Today it is challenged to retain this memory, but extend it to our globalized world.
It’s a project where we, different cultures, different people, different languages, different religions, different traditions and histories, come together under one roof, pooling our strengths, pooling our sovereignties, pooling our decision-making in order to be stronger, more effective, more capable, in dealing with the global challenges, whether they be financial, climate change, poverty, conflict, migration, authoritarianisms, terrorism, proliferation of weapons of mass destruction. We are pooling our capacities.
In this recent crisis, we haven’t done so well. But for all the criticism that Europe has been slow to act, we have taken important steps to build a stronger, more united eurozone in the recent months.
Much is still yet to be done: a common European treasury, a bigger role for European Central Bank, as a lender of last resort, a need to introduce Eurobonds as a firewall against speculative attacks.
And it is encouraging that at yesterday’s summit in Europe for the first time we really had a debate on the issue of promoting growth, fighting recession and dealing with the rising unemployment in the European Union.
Europe has the capacity to move from crisis to opportunity. But this also goes for our region, here in the Mediterranean and in the Middle East. The radical changes, with the advent of the Arab Spring, have created prospects, on the one hand for possible instability, but also for new opportunities.
And this is where Europe should not be absent. Solving our internal financial crisis, dealing effectively with the problems of so many countries, particularly in southern Europe, which are just facing on the other side of the Mediterranean the Arab Spring: this will be crucial for the direction the Arab Spring will take.
In Central and Eastern Europe and South Eastern Europe, we integrated societies into a family of common democratic values.
Can we do so in the Mediterranean, or will there be Nasserite or fundamentalist models prevailing? And again, as, Bob, you said, we look for models, and Europe should and could be.
We mustn’t lose the opportunity to provide help in institution-building in these emerging democracies, but also in our common efforts for sustainable economic growth.
To do so, we need to unite our efforts in Europe, but also in the region. This is why I personally engaged myself when I became prime minister in an effort to establish an entirely new level of relationship between Israel and Greece.
I believe that the Eastern Mediterranean is the key to geostrategic stability. If we are bold and imaginative, this relationship can be a hinge around which new solutions for our region will emerge.
It’s not about an exclusive bilateral relationship, though that is a foundation upon our trust, which has been built over the last two years. I want to thank both President Peres and Prime Minister Netanyahu for our close cooperation in building this new relationship.
But this is also about forging a new path together, which others will tread or follow, because they see the benefits. So it’s up to both of us to take the lead.
Considering the question of oil and gas in the Eastern Mediterranean, it would seem that the reserves that exist can alter all our long-term economic forecasts. And this changes the incentives in our political and economic system.
We can, working with Cyprus, create an entirely new paradigm of wealth and cooperation in a region otherwise known for its tensions. If we lead, I am convinced others will join in. We can together create a more stable region.
I will add to this, of course, and I believe many agree with me, that a viable solution to the Palestinian problem is a key strategic issue for Israel’s security, I would say even more so now, after the Arab Spring, and of course for stability in the wider region.
Dear friends, in traveling in today’s uncharted waters and new frontiers, I often ask myself: Can we succeed to reach calmer waters or our own Ithacas? I usually answer yes, we can.
But I will qualify this. We need to go beyond the dogmas we knew, about markets and states, beyond prejudices, beyond the easy, simple black-and-white solutions. We need to understand that there are no easy scapegoats.
The world is and will continue to be more and more complex, oftentimes messy and chaotic.
In building the necessary global governance structures, we need to do, though, two things that seemingly may be contradictory: on the one hand, strengthen global governance, but on the other hand, strengthen our citizens and our communities. This is the ownership issue: make our people feel that they own this whole process of change, of development, of dealing with challenges, new challenges, complex challenges, where no one politician has the solution.
Empowering our citizens is absolutely necessary, not only to release the capacities and potential that they have, but also to make them feel that they are part of the solution, and not part of the problem.
I would like to put this maybe in one phrase. If we could do that, it would be to reinvent our democracy, in the context of a globalizing economy.
Getting back to the basics, if you like, of our values, which means that whatever solutions we come up with, the litmus test must be to live up to the democratic values of serving our citizens, through fairness, through participation, through protection of human rights, women obviously in equal positions, but also through empowerment and liberation of human potential.
And I believe these values of course are core to our European family. I think right now we are on a course where we are looking for mechanistic solutions and machinations, and often have avoided or forgotten the man or woman in the street, and the capacities that we have.
But I do believe that soon we will be back on track, back to these core values, and Europe again will be relevant and will be effective, as partners in this region and around the world.
Thank you very much."