George A. Papandreou - President of Socialist International - Former Prime Minister
George A. Papandreou - President of Socialist International - Former Prime Minister
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Address at the Foreign Policy Association

The Pierre Hotel, New York, 23 September 2010

Address at the Foreign Policy Association
Address at the Foreign Policy Association
Office of the Prime MinisterPrime Minister’s, George A. Papandreou, address at the Foreign Policy Association

Taking on Global Challenges: Why Europe is More Relevant than Ever

"Your Eminence, ladies and gentlemen, dear friends, Massimo, John,

Thank you very much, Bob, for those gracious comments about learning more from me than from the oracle. Sometimes, of course, I myself feel that I would like to consult the oracle these last few months.

Our recent experience in Greece was not simply a test for the Greeks. It became a test for European and I would say global governance. It showed us once more how one country’s problems – just one country’s problems – can ricochet around the world, but also how nations must work together to resolve common challenges.

Greece is a small or medium-sized country for Europe, of less than 11 million people, that makes up only 2% of Europe’s economy. Yet our nation’s problems became a pretext for commentators to declare that Europe was about to implode.

The reality on the ground is quite different. In response to the recent crisis, both Greece and Europe have confounded our critics and exceeded expectations. Greece has pushed through a wave of reforms that set our country back on track to stability and growth. And actually we have done more than expected by many.

And Europe has emerged stronger and more united, our institutions more robust, our system of governance more transparent. Indeed, as one US commentator, Steven Hill from the New America Foundation, put it: “Greece’s debt crisis may turn out to be one of the best things to have happened to the European Union.”

Now, this might sound counterintuitive, especially to the many Greek citizens now suffering the consequences of tough austerity measures. But I believe that in the long run the short-term pain will be outweighed by long-term gains.

And the Greek word for “crisis” also means “judgment.” Crises are not only a test of mettle; they are also a great opportunity to evaluate the causes of a problem.

Crises can bring out hidden strengths. They can also act as a catalyst to make radical changes, to review governance practices, to break bad habits.

And that is exactly what we are doing, both in Greece and, hopefully, in Europe. Don’t forget our Union itself was born out of a crisis, a partnership for peace and prosperity created in the aftermath of World War II.

The European Union was founded on the principle of solidarity, through good times and bad. European solidarity has been crucial for Greece in overcoming this crisis.

Together with the IMF, the European Union agreed to a USD140 billion support and guarantee package for Greece.

Unlike the bank bailouts in 2008, which had very few strings attached, this is not a handout. It is a loan to be paid back with substantial interest and strict conditionality. The three-year program will be closely monitored through 12 quarterly reviews.

Essentially, the support package buys us the time and the financing to make the fundamental changes that the Greek economy and society badly needed, because the financial markets would not give us the breathing space to do so.

So the support mechanism is not only a contract with Greece, to make the necessary changes. It is also a vote of confidence in Greece’s capabilities to carry them through. And that is exactly what we are doing.

Greece has changed dramatically in the past year. We are delivering on our commitments, on all our commitments, on time and on target. The deficit will be down 40% by the end of the year. Our primary deficit is down 60%, year on year.

We have overhauled our pension system to make it more viable and more just.

We have revamped our tax system to minimize the scope of tax evasion and to ensure that those with the means are paying their fair share.

Now we are opening up markets for goods, services and labor, in order to make our economy more competitive.

Greece also has huge untapped investment potential, from solar power to organic agriculture, green tourism to high-tech infrastructure and shipping. The state alone has assets worth over USD360 billion, roughly equivalent to our public debt, which are largely unexploited.

So Greece is not a poor country, but it was a poorly managed one. Our resources, our environment and our human capacity were not being used prudently, equitably or sustainably.

There was a complete lack of will to tackle a fundamental problem, corruption. When my government took office a year ago, we did not only inherit a major fiscal deficit; we also had to contend with a serious credibility deficit.

To turn this around, our government has pursued a policy of total transparency. Let me give you just a few examples of the reforms we have carried out so far to reduce corruption and increase transparency.

First of all, we have established an independent statistics authority, so that the quickest joke won’t be any more “Greek statistics.”

We have passed a fiscal responsibility bill to ensure accountability in all areas of government spending. All government expenditure, all signatures having to do with money, will be published online.

And we are bringing the shadow economy to book and cracking down hard on tax cheats. We are using every tool at our disposal, from data mining to rumble undeclared assets to even Google Earth, to pinpoint unreported swimming pools.

And we have launched what we call Open Government – Barack Obama talked about this this morning in the United Nations – an e-governance tool to enable greater public participation in policymaking and open recruitment for senior government posts.

So we think that Greece will soon be THE most transparency country in the European Union.
Greek government: We have demonstrated that we mean business. And I am convinced that investor confidence will return, as all these reforms start to bear fruit.

There have been very encouraging signs already that market sentiment is starting to turn. A few weeks ago the National Bank, the largest commercial bank of Greece, went onto the markets for recapitalization, and the response was more than positive.

Norway’s state pension fund recently invested in Greek bonds, an important vote of confidence from the world’s second biggest sovereign wealth fund.

Let me be very clear on this als Default is not an option for Greece. We have had Herculean efforts during the past year, and they have been geared to ensure that Greece does not default.

With the EU/IMF support mechanism, we are completely covered in our borrowing needs until 2012.

Default is not an option for Europe, either. Europe has invested heavily in Greece’s future and Greece’s success. Theories about default, haircuts, exit from the eurozone show a remarkable lack of historical perspective and lack of understanding of the basic rules of European economics and politics.

Europe is much more robust and powerful than some newspaper columnists would have you believe.

But if the last year has been a critical test for Greece, it has also been a major test for Europe, a test of our collective ability to react swiftly and effectively, to find innovative solutions to unprecedented problems, a test of the construct and the architecture of our common currency called the euro.

Has Europe passed the test? I believe we did. Yet we still have challenges ahead. And how we deal with them will be of crucial importance, not only to Europe but for our planet.

So let me say a few words about Europe, moving on from our experience in Greece to what Europe has to face.

What is Europe’s relevance to the world? Europe began, and remains, a peace project, first of all between France and Germany at its initial stages. Later on it became a wider peace project, bringing in and integrating East Europe, Southern Europe, that had gone through brutal dictatorships, former communist regimes, breaking down the Berlin Wall and the Cold War, but also integrating Southeastern Europe, a war-torn and conflict-ridden region, with bringing in countries like Bulgaria, Romania, Cyprus of course, and with the prospect of the Western Balkans becoming members and Turkey becoming a member, creating the process to heal many of the wounds of the past, through the integration process.

What is the relevance of this peace project for the world? I believe that the European Union’s integrative dynamic is a precursor, or if you like an experiment about how we can humanize globalization.

This is the essence of the European Union project: integration. Now, this word, integration, it sounds like Eurospeak, and sounds very neutral. In fact, it’s not. On the ground, integration means integrating into a community of values, integrating into a community of institutions, practices and policies. On the ground, it means that this community takes on responsibilities, common responsibilities, for, as I will support, three key priorities.

These are part of the tradition of the European Union, but they are also becoming a challenge: how we maintain these three priorities in a new and globalizing world.

The first priority, and pillar I would say, is the protection and promotion of democracy, democratic rights, freedoms and the rule of law.

Second, this prosperity that, however, is shared equitably and ensures basic social protection and empowerment of our citizenry.

And thirdly, a new relationship with our environment, which not only protects it but becomes the epicenter of a new, green model of development, a model that invests in innovation, research, high-tech, education of our human capital, so that we maintain competitiveness while transforming our economies, even our habits, into a very different consumer culture.

But let me highlight some of the challenges.

Democracy: How are we to protect our democratic traditions when, for example, they are undermined by huge disparities in wealth and power that lead often to corruption and even the capture of our democratic institutions themselves?

Rightly so, President Obama in going to Africa was quoted saying that, “What is needed is not strong men but strong institutions.” You can have wealth and yet it is usurped by strong men, rather than put to use for the common good by strong and through strong and democratic institutions.

But this is not an African problem. This is a worldwide problem. If you take Europe and America, we may have our differences on how we regulate the financial sector, or on the causes of the great recession, on who is going to pick up the check. However, we need to better coordinate our efforts to advance a more sustainable architecture of economic governance.

Governments and markets have linked their fate so closely together that, when the European Union agreed on the USD1 trillion stabilization fund, which was to include not only Greece but other countries such as Portugal and Spain, it announced the decision before 2am on Sunday, Sunday morning, and there was a rush to make sure that they made the decision just before 2am on Sunday, the ministers of finance, so that they could make sure that they were sending a positive message to the markets in Japan, just as they were opening on Monday.

But does that mean we need to be more authoritarian, as regimes, to be able to so quickly decide, so as to deal with the speeds that the markets work at? I would say not.

When the crisis erupted, there was a lot of grumbling that Europe should have reacted faster. But in a matter of months, the European Union has taken decisive steps to make our system of financial governance safer and sounder. In essence, Europe intervened into the markets to avert a crisis.

We have established tighter oversight of national budgets by the European Union bodies, as well as embracing transparency in our own governance system. Europe is enforcing greater transparency in the financial sector, to safeguard against future shocks.

Under new EU rules, banks will have to store more capital and get lending flowing to the real economy.

Hedge funds, derivatives and credit default swaps will be subject to closer scrutiny, to disincentivize reckless risk taking. Bank levies and tax on financial transactions are currently under consideration.

So I would say we should neither deify markets, nor should we demonize markets. I would say we should democratize our markets so that they work for us. If we want free markets, let us make sure that they work for free people.

The second challenge is to our welfare systems. The sovereign debt crisis in Europe is further proof that our current system of economic governance is not fit for purpose.

We have seen excessive borrowing by governments, but also reckless lending by banks. Anyone who invested with Madoff or Lehman has felt acutely the dangers inherent in pursuing short-term gains without a care for the long-term consequences.

Are our welfare systems the culprit in our sovereign debt crisis? Well, we do need to revamp them, as we have done in Greece – with great pain, but we have done it.

Aging populations, sometimes extravagant benefits for the few, illogical systems such as tying pension benefits to companies that may or may not survive: These are some of the challenges we have.

But we also are competing with other countries that are able to sustain growth without welfare systems, without providing health to their citizens, without the prospect of pensions, without any form of collective bargaining. Is this the model of society we want to emulate?

So rather than lowering standards in the developed world, we must raise standards in the developing world. Instead of a race downwards – cheaper labor, lower production costs, short-term profits – we need to raise standards upwards – more quality jobs, higher wages, greater opportunities and a better quality of life for everyone, particularly in the developing and emerging economies.

If the Greek crisis was a wakeup call for Europe, it should also serve as a wakeup call to the rest of the world. Greece is surely not alone in the challenges we face, nor in the solutions we must seek.

We need to take a longer view of our common challenges, whether in terms of our carbon-intensive economies, capacity to survive climate change or the viability of our pension systems, given our increasing life expectancy.

As we all work to achieve fiscal consolidation, we need to offset austerity with innovative policies that guarantee sustainable and balanced growth, policies that will create jobs and provide social security for the millions of people now out of work, whether in Europe, the US or elsewhere.

And we see that GDP growth does not necessarily translate into jobs. So we need ways to measure GDP, taking employment, social security and quality of life into account. Fiscal efficiency without social equity will have no political future.

So we need also to create tools and optimize the use of our resources, change financial incentives, redistribute some of the wealth around the world. And in the European Union things are being discussed, such as carbon tax or green bonds used to fund education, green infrastructure, new technologies, and also help developing countries.

We will need greater policy coherence, to see how the benefits of globalization can be accrued to all.

Europe’s commitment – and this is the third challenge – to sustainable development is also creating green jobs, from retrofitting buildings to making them more energy efficient to new green appliances and infrastructure for renewable energy.

They are all new areas we are focusing on in Greece, in developing our new strategy, in a country with huge untapped potential for green investment, whether it’s wind, solar or geothermal power.

Far from undercutting competitiveness, going green drives growth and job creation. The global market for environmental products and services is projected to double to USD2740 billion by 2020.

Investments in improved energy efficiency in buildings could generate an additional 2-3.5 million jobs, green jobs, in both Europe and the United States.

However, we cannot afford to be complacent. We need to humanize globalization, if we will not witness a politics of fear. And I’ll come to what Bob mentioned about migrants, such as we are witnessing in parts of Europe.

Today, instead of living up to many of our common challenges, as I have described, some politicians are reverting to populism and scapegoating. And this is why we see the rise of xenophobia, fear of migrants, fear of Muslims, anti-Semitism on the rise in Europe.

We need to deal with our challenges, and not try to find scapegoats in problems that other peoples have.

So from climate change to poverty reduction, Europe can be setting an example for the rest of the world, as long as it builds on the best of its traditions.

For example, as the world’s biggest donor, the European Union provides over half the foreign aid and humanitarian assistance in the world today. Europe is taking the lead in reforming financial architecture to protect the real economy. Europe is also leading the way in reducing its carbon footprint, now half that of the US, although our standard of living is the same. We have pledged to reduce our carbon emissions a further 20% by 2020.

So let me give some Eurosceptics some food for thought. The EU is now the largest, wealthiest economy in the world, almost as large as the US and China combined. Until the great recession hit in 2008, Europe enjoyed higher per capita economic growth than the United States for a decade.

The European Union attracts more than double the foreign direct investment than the US.

And EU exports are much higher than the US, as a percentage of GDP.

Not bad for a continent that is supposed to be dying.

Compared to China’s huge surplus and the US’s huge deficit, the EU looks relatively balanced. Of course, there are disparities within the European Union nations, but a more coordinated and dynamic European Union should even this out.

And despite Europe’s generous social welfare system, we still manage to remain comparatively competitive. There are more European countries in the top ten of global competitiveness rankings than all other regions combined.

In fact, I would argue the opposite is true. Europeans actually pay less for social services they receive than Americans, from child care to health care.

Far from creating inefficiencies, the European social security system is a springboard for growth and development.

So the European experience demonstrates that social justice and economic progress are not mutually exclusive.

One of your Nobel Prizewinners, Paul Krugman, has summed up our strengths neatly, by saying, “Europe is the world leader in figuring out how to harness capitalism so that its prosperity is broadly shared and ecologically sustainable.”

Eurosceptics like to portray our continent as an aging relic. Old Europe is in fact quite young. The European Economic Community was founded in 1957. In its current reincarnation, the EU was only officially ratified in 1993.

Since then we have established a common market, a common currency, and even common borders.

So yes, the European Union is still a work in progress. There is always room for improvement.

But as we continue to move towards closer integration, our institutions are becoming more transparent, our governance structure is becoming more coherent, our commitment to make our partnership for peace and prosperity work for all citizens has never been stronger.
Time and again, Europe has proved its remarkable capacity for renewal. There are compelling reasons to believe that a dynamic, revitalized Europe will be better situated to deal with future challenges and help not only Europe itself but help, with the US and many other regional powers, our planet be a better place.

So those who predict the decline and fall of Europe would be wise to think again. There are useful lessons to be learned from Europe’s successes.

Likewise, I would like to finish by saying that those who hope to make a fortune by betting on a Greek default should be hedging their bets, while those who invest in Greece, in the new Greece, will share in our success. Thank you very much."
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