Athens, 3 December 2009
Interview with Prime Minister George A. Papandreou on CNN
By John Defterios
Adrian Finighan: “We won't default.” The Prime Minister of Greece tells CNN in an exclusive interview they don’t need an EU bailout. Getting America back to work: US President Barack Obama turns his attention to the US economy. And bank bonus battle: The UK government finds itself caught between a rock and a hard place. Hello. I’m Adrian Finighan, in for Richard Quest. This is Quest Means Business. A very good evening to you. Greece is at the center of speculation over its solvency. Some fear it could become the Dubai of the Aegean. Like Dubai, there are fears that the nation could have trouble repaying its debts. Well, the Greek budget deficit is expected to swell to some 12.7% this year. That’s way above European Union guidelines of 3%. The government, newly elected in October, needs to implement major structural reforms and reduce public spending. Now, in January Greece will put forward a plan to shrink the budget gap to 9.1% next year. Policymakers plan to achieve this by widening the tax base and making spending cuts. According to Reuters.com, eurozone ministers will then set a deadline for Greece to bring the deficit below the EU ceiling of 3% of GDP. Now, it’s been a pretty rocky year for investors in Greece. Come over here. I want to show you something. Here’s how the benchmark Greek index has been performing over the past 12 months. The Athens composite has gained 33% since January. Now, you can see how stock rallied in October, following the election of a new government, and then towards the end of November there was a sharp fall, when Dubai World announced that it wanted to delay repaying its debts. The index dropped more than 6% on the day that Dubai told the world about its problems. Well, the Prime Minister of Greece, George Papandreou, has inherited an economy which is facing its worst recession in 16 years. And CNN’s John Defterios at Marketplace Middle East spoke to him earlier today. He asked whether it’s fair to link Greece with Dubai.
George A. Papandreou: I think not. First of all, there is a jittery situation around the world because of the economic crisis now for a whole year, and obviously when you have something like a Dubai it does create ripples throughout the world.
But Greece is very different than Dubai. We are a sovereign state. We are a member of the European Union. We are a member of the eurozone. And certainly we are determined, as a government, to shore in our deficit and our debt, and we have already made the first steps. We are responsible country.
John Defterios: How would you classify the risk, then, of Greece defaulting on the debt? That’s the big question mark, as you know, right now.
George A. Papandreou: There is zero risk of defaulting, first of all because, as I said, we are a responsible country, a country with great potential. We are taking all measures and are determined to shore up whatever deficit problems we have.
But we also have the backing and the recognition of the European Union, the high officials, only recently, on the program we have on our budget for next year, and our plan to revamp the Greek economy, to make it an economy which is not wasteful but also an economy which is vibrant and moving into a new era of green development.
John Defterios: Would you say that the ECB may need to step in? Would you say that an ECB bailout in fact may be necessary because of the budget you have been left to clean up?
George A. Papandreou: No, we have good cooperation with ECB, as with the European Commission. They have made very important statements recently, saying that there is no possibility of a default of the Greek economy. And they have approved our basic plan, moving forward, and not only for 2009, but we have important changes to make concerning the revamping of the tax system. We have wide tax evasion. We also have a lot of waste, I would say clientelism and corruption.
These were some of the basic platforms on which we came into power, by the will of the Greek people, who want change, want these changes. And so we are determined, and we have the backing of our citizens.
John Defterios: You alluded to your initial budget. Some would say that that budget is too reliant on tax collection, and not enough on budget cuts.
George A. Papandreou: Well, we are doing both. As I said, there is huge tax evasion, and so we can broaden the tax base. That, I think, is very important. We will, at the same time, in 2010 be bringing in a revamping of the whole tax system, making it more just, more transparent. And as you know, when you have lack of credibility in a tax system, that fuels tax evasion.
John Defterios: In fact, you are left with a budget deficit of 12.7%, the highest in the EU by a long shot. You are projecting just over 9% by the end of 2010. Is that realistic, considering what you have been left?
George A. Papandreou: Well, if we could do more, we’d like to even get it lower, but that percentage we can get, and we are determined to make any necessary changes, even during the year, to make sure that we have at least that 3.3-4 points lowering of the budget deficit.
John Defterios: You made a move, a bold move, to freeze public wages during this crisis, but the left wing of your party, the populist end of your party, is rejecting that move. How do you modernize the party, when you have a budget crisis of this magnitude?
George A. Papandreou: I have got the backing of the party, and not only the backing, but that was the mandate which brought me to government, to power. And we have a very substantial majority, both in Parliament but also wide support I would say beyond our party lines, in public opinion, to make these changes and take the necessary measures, sometimes difficult but certainly just, in making sure that the Greek economy is on a viable and productive and competitive path.
John Defterios: As you know, the markets in London and Europe overall got quite excited when they heard that you may raise 40 billion dollars in bonds from Chinese investors to deal with this budget deficit. Can you confirm the reports now?
George A. Papandreou: What I can confirm only is that obviously I think many countries are looking to diversify their debt portfolio. But with whom and how is simply speculation.
Adrian Finighan: George Papandreou, the Prime Minister of Greece there speaking to CNN’s John Defterios. John of course anchors Marketplace Middle East. I know that wasn’t a Middle East story, but it’s been a crazy week for you. You’ve got some good stories on this week, what with Dubai, and now securing an interview with the Greek Prime Minister. 12.7% budget deficit. This man’s got quite a job. And of course this coming weekend marks the anniversary of the nasty riots that they had in Greece last year after the accidental shooting of a 15-year-old protestor. Is the economic crisis adding now to tensions, as we approach that anniversary?
John Defterios: Yes, no doubt about it. In fact I was on the phone with a number of people in Athens who said that the tensions are there. And I addressed that with the Prime Minister at the end of the interview. It’s a delicate balance, because he’s been in office less than two months, and he wants that freedom of speech. But one thing he did say is that we have to have equal rights of “protection” for all citizens. There was scathing criticism of the previous government for letting those riots carry on for a better part of three weeks, right into the Christmas holidays, and the damage to businesses. So he’s basically saying we can have the discussion, we can have the protest, but it has to be civil, and leaving the door open to make sure that all people are protected in that process. It was really out of control, in a sense, for a better part of ten days to two weeks.
Adrian Finighan: And then we see Mr. Papandreou, sleeves rolled up. This is clearly a man who means business. He inherited a lot of these problems. What is it essential now for him to do, going forward?
John Defterios: Well, I like to draw the comparison to Tony Blair, you know, when he came into office in 1997. He had to modernize the party. And that is a big question mark. It’s something I posed to the Prime Minister during the interview. Can he modernize the left half of the party, to go along with real spending cuts? And that’s what the market wants to see. Adrian, he needs to raise about 40-45 billion dollars in new debt. That’s only going to happen when the credibility comes back into the market. So number one, a credible budget. Modernizing the party is number two. Number three is dealing with unemployment. It’s not higher than the EU average that’s around 9%, but the youth unemployment is around 20%. And this is a big problem that he knows he needs to address. And they are trying to first rebuild credibility. I looked at a number at the end of 2008. The European Commission target for the budget deficit at the end of 2008 was 2.5%. So we’ve gone from the 2.5% target to 12.7%, because the books were completely inaccurate.
Adrian Finighan: None of that, of course. I mean all the things that he’s got to do I mean are likely to cause a fair bit of pain to ordinary voters, the very people who brought him to power.
John Defterios: Yes, but as he said during the interview, he came in with a mandate to shore things up. There was a lot of discussion about corruption there during the interview, and tax evasion. Some believe he’s relying too much on tax collection. So he has to get the spending cuts in. He does need to modernize the party. And if he can deliver that, then the fundraising and then no need for ECB intervention, which is the key here, if he can pull it off within the next 2-3 months.
Adrian Finighan: All right, John. Many thanks indeed. John Defterios, host of Marketplace Middle East. You can see John on that very show tomorrow here on CNN at 19:45 hours, right after Quest Means Business.