Athens, 11 July 2011
Letter from the Prime Minister George A. Papandreou to the head of the Eurogroup and Prime Minister of Luxembourg Jean Claude Juncker
Dear Jean Claude,
Let me again express my appreciation for your continued engagement and help in dealing with our crisis. You have stood by Greece in these difficult moments.
At the same time we have all become aware that this crisis has become a crisis of our shared European home.
It has highlighted deep problems in the architecture of our currency, our governance structures, and our financial system.
And no one member state can alone effectively deal with these questions.
Again in seeking to solve problems in the Eurozone, you have tabled important and visionary proposals on behalf of Europe. Such as for example the idea of the eurobond.
Fourteen months after commencing our reform program, Greece has achieved an impressive fiscal consolidation and launched numerous far-reaching structural reforms.
In recent months, our government and the members of the Troika have worked tirelessly to produce a credible medium-term fiscal strategy, including an ambitious privatization plan, that will continue to drive our reform process and stimulate growth.
We have also pinpointed key impediments to reform, particularly our difficulties in stopping tax evasion and in building the capacity of our civil service to implement change. We have initiated a process whereby implementation deficits of the past are being remedied.
Furthermore the President of the Commission, Jose Manuel Baroso has strongly supported a program that will insure transfer of know-how and technical assistance for best practices from other member states to assist us in the implementation of major reforms in our country. This we welcome as this is our government's basic agenda.
Had major reforms been implemented years ago we would have avoided the current crisis.
The Commission has also been forthcoming on proposals and help to stimulate growth and job creation through community funds.
These remain priorities for our government and preconditions to reach a viable economy.
From our side, as you know, the Greek Parliament has approved the country's promised medium-term financial strategy and implementing legislation-approvals that were required for release of the fifth disbursement of the initial program and for approval of additional funding until 2014.
Our recent Parliamentary votes signal a renewed bold effort and strong political will to reach our goals.
Yet in no sense is our crisis over. Indeed, we together stand today at a fateful juncture in Greece's and Europe's ongoing economic adjustment program.
The markets and rating agencies have not responded as we had all expected. They continue to doubt (and therefore punish) our shared Greek and European reform program, and in so doing, are threatening Greece's and Europe's common recovery from the recession that began three years ago.
I am now convinced, after fourteen months, that no matter what Greece does- and we have proven ready to live up to our responsibilities- if Europe does not make the right, collective, forceful decisions now, we risk new, and possibly global, market calamities due to a contagion of doubt that will engulf our common union. Strong and visionary European leadership is needed.
I say this to you because now there is a greater need to avoid mistakes of the past. "Crunch time" has arrived and there is no room for indecisiveness and errors such as:
- taking decisions that in the end prove 'too little, too late' to convince the markets we are serious;
- making compromises that satisfy our internal political 'red lines' that in the end substitute tactical politics for sound management of the crisis (although I do recognize the problems some governments have and the democratic demand for a greater say of Parliaments in trying to deal with this crisis);
- failing to use in-depth technical analysis and consultation before decisions are made;
- allowing a cacophony of voices and views to substitute for a shared agenda, thereby creating more panic than security;
- and I would add more global issues such as doing nothing substantive about the destabilizing role of the rating agencies, credit default swaps, tax havens or about plausible new revenues such as a financial transaction tax.
The above have in one way or another had profound effects on my country and others facing similar challenges.
As for Greece specifically, the attempt over the past ten days to structure private participation in our recovery program, for example, has led to public warnings that the rating agencies would declare a selective default.
While we are not against PSI in principle the proposal that was tabled seems to be flawed. It could prove to be too expensive, too little and too dangerous.
Too expensive for Greece and too little or inadequate to effectively deal with the management of Greek debt. And with these meager results one may still not avoid a selective default.
We all also know that, because there is still a deep distrust about the financial health of the banking system in Europe, that the new "stress test" results to be announced in a few days may fuel yet more market insecurity.
All these debates-around the new Greek program, private sector involvement, the amount of funding necessary, the talk of 'selective default'-- and the continued cacophony in the media only make the problems in front of us more difficult to solve.
Going from crisis to crisis at such a weak stage of recovery, with such a cacophonous press and frightened public, is not any longer an option Greece can sustain.
Greece is responsible for her past inaction. However over the past year Greece has taken the pain, made unprecedented decisions, and yet we have paid for too much experimentation and confusion.
The climate of uncertainty and distrust from markets and analysts is a climate that has undermined and will continue to block the efforts and sacrifices of the greek people towards a sustainable economy.
Concerning Greece, it is necessary that this time we reach an effective solution to ensure three basic goals:
debt sustainability, access to markets and means to restart growth of the Greek economy.
Liquidity provided by the new program is essential but it may only serve as relief and not as a cure.
I thus believe it is time now to address our fundamental problems head-on—and produce a comprehensive package of solutions that clearly signals our determination not to see the European project further damaged or destroyed.
I believe that we must begin, as soon as possible, convening a series of closed working meetings—of leaders, advisors, and technical experts—that can offer up effective, possibly even far-reaching solutions in place of one-off and ad hoc responses.
The purpose of this letter is not to get into details of possible solutions as many ideas have already been put on the table: rollovers, reprofiling, buybacks, bond exchanges, eurobonds, extension of maturities, lower interest rates, EFSF flexibility, etc.
What I do believe is that we need a comprehensive and new assessment of both the problems ahead of us, and careful weighing—first and foremost, on a sophisticated technical level—of our options.
This technical assessment will in turn be the basis on which we will all have a better, solid understanding of the impact of the political decisions we collectively and soon must take.
At the same time today's Eurogroup meeting needs to send a strong message that there is a strong political will to support Greece's ambitious program of change, provide the necessary liquidity for the new program, and decisively deal with the issue of debt sustainability in a manner that does not negatively affect the greek economy, banking system and future access to markets.
Dear Jean Claude,
Europe's and the world's economies are fragile at best, and could quite easily now begin the sort of "second recession" that would add years to our recovery.
The developments ahead will also be crucial for the fate of our nation and the greek people.
Whatever decisions are made need to be taken in close cooperation which I look forward to.
My Finance Minister Vangelis Venizelos and I will be in close contact with you to help ensure our common success.
George A. Papandreou