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European Commissioner for Economic and Monetary Affairs
Greece makes major achievements in response to the crisis?
Athens, 9 December 2010
[Honourable Members of Parliament, Ladies and Gentlemen (in Greek: AGAPITI ELLINES VOULEFTES)]
I am very honoured for the invitation to speak in the Greek Parliament.
On the 1st of January, Greece will have been a Member of the European Community for 30 years. When the accession treaty was signed on 28 May 1979, the French President Valéry Giscard d'Estaing, who was also President of the Council at the time, said (in Greek!):
"Europe without Greece is simply not Europe. The European venture is not only about economics and social progress; it is also, and perhaps above all, about the spirit and culture of our continent."
Giscard continued: "It was here in Greece that the culture of Europe achieved its most vigorous expression, its admirable feeling for proportion and beauty. Our languages and our patterns of thought were all born in the culture of Greece."
These days, one may get the impression that the European venture is all about economics. And some observers like to believe that the economics now put the European venture in question.
I can, for the time being at least, agree with the first observation: fundamental changes will be ahead of us. But I strongly disagree with thte claim that the current economic situation inevitably puts the European venture in question.
The Cassandras are misguided, which I'll prove in a moment.
Let me turn to the economics first. During last decade, economic divergences were built up among EU member states. Some countries, Greece among them, have persistently been importing more than they were exporting. This may be regarded as a feature of an economy that is catching up.
However, at the same time, Greece’s competitiveness deteriorated by around 20%. Relative to its trading partners, production costs in Greece are thus now 20% higher than ten years ago. This made the export of Greek products and services increasingly difficult.
The euro allowed Greece to get better access to international capital markets. But already in 1992, when the EU created the monetary union with the Maastricht Treaty, it was a conscious decision to ease the burden of adjustment for catching-up countries, and hence the Cohesion Fund was created for the Union's redistributive policies, precisely to help with structural adjustment.
However, the economic divergences were at a peak when the financial shock came in 2008. Although governments across Europe reacted swiftly with counter-measures, the deep financial and economic crisis exposed – and is still exposing – our failures of the past.
We are taking fundamental measures for reform and we are making good progress. But it is clear that European politicians, central bankers and national politicians must prove common and decisive leadership.
If the 1990s was the decade of constructing the Economic and Monetary Union and the 2000s the decade of turning it into reality, we are now at the beginning of the decade of its fundamental reform. And this fundamental reform has to take place both at European and at national level.
At the European level, we have collectively not been alert enough when economic imbalances were building up, and we had no tools to recommend corrective measures. Moreover, the Stability and Growth Pact, which should be the European anchor to sound national fiscal policies, did not perform as it should have. Mutual review processes among Member States, based on Commission analysis and recommendations, proved not strong enough.
There is no other way than to make the Pact stronger and stricter, with wider surveillance and rules-based enforcement.
With this in mind, in September the Commission proposed the economic governance reform package. There are three core elements:
At the level of financial markets, we need to address the fact that the banking system in the EU has become so closely interconnected that distress in one country can have serious repercussions in others. From my discussions with bankers, I know that even the financial community itself is recognising the need for reform. Together with its global partners, the EU is drafting a comprehensive reform programme, both on tougher regulatory standards and on the European architecture for supervision.
Ladies and Gentlemen,
Greece is obviously part of this fundamental reform programme. It is today well on track.
Sometimes, events leave little time for action. As we know now, for a long time, neither markets nor politics reacted to the growing indebtedness. But in spring this year, the Greek people faced the gravity of the situation, as lenders rapidly started losing confidence in your country, asking for higher and higher interest rates.
In order to continue servicing its debt at sustainable rates, Greece turned to seek European and international financial assistance. The assistance provided by euro area countries and the IMF in May includes a loan of up to 110 bn euro, to be disbursed over three years, effectively taking Greece out of the capital markets over this period.
After the funding from this loan ends, Greece will need to return to financial markets. You have gained three years to win again the trust of private investors.
The government, in cooperation with the European Commission, the European Central Bank and the IMF, drew up a comprehensive reform programme geared towards rebuilding Greece’s credibility.
This is built on the three pillars of the programme:
1. The fiscal policies pillar,
2. The financial sector pillar,
3. The structural reform pillar.
Since May, you have achieved a lot. We have just concluded our second review, and the international community has recognised that you have made much progress and that you are broadly on track with the reform programme. I congratulate you for your resolution and determination.
Let me now elaborate on the developments on the three pillars of the programme.
The objective of the fiscal pillar is to bring the deficit below 3 percent of GDP and set debt dynamics on a downward path by 2014. The public deficit for 2010 will be missed, though close to the target. But the 2011 budget in meeting the deficit target next year. To achieve this, the budget contains additional measures of 2½ % of GDP, on top of these agreed in May.
I welcome the fact that the consolidation is especially strong in the beginning of the programme, because this will convince the international lenders of your determination. The recent decision by the Eurogroup to distribute the loan repayment over a longer period is an important factor in enhancing the credibility of the programme.
In this regard, I would like to point out that on 15 November, Eurostat presented revised deficit and debt figures for Greece for the period 2006-2009 - and for the first time it did so without any reservation. This is a major achievement and I congratulate the Greek authorities, the Greek statistical office ELSTAT and Eurostat.
Cooperation has improved enormously, thanks to the new statistical law that ensures professional independence of ELSTAT. Reliable and accurate statistics are a pillar for rebuilding confidence in Greek economy and at the same time they are the basis for informed decision-making by the Parliament.
As to the second pillar, overall the stability of the financial sector has been ensured, in particular through the actions by the Bank of Greece, the ECB and the Hellenic Financial Stability Fund. Very often we hear criticism on the support provided to banks in Greece under the financial sector pillar, the guarantee scheme and the Financial Stability Fund.
But how else could we ensure that the banks are able to provide their financial services to businesses? We need private investments. Without them, structural reforms alone cannot create the jobs that your citizens need.
This brings me to the third pillar. The objective of structural reforms is to generate growth and to make Greece more competitive on international markets.
This is the part that is most fundamental for the medium to longer term, and I also know that this is the most controversial part. The gains from structural reforms are felt often only in the medium-to-long term, while sometimes they pose an immediate challenge. They can create anxiousness among citizens about their future, as they force to change habits.
Whether we like it or not, structural change is an inevitable part of our modern world. Technical progress already has changed our lives.
At the same time when we enjoy our smartphones and benefit from modern medicine, we might also feel threatened, because we know that innovation requires change. If we don't change and adjust, we will be left behind. There is no steady state.
Therefore, it is important that your labour market reforms are moving forward, and that you take initiatives to improve the business environment and facilitate access to regulated professions, services and trades.
I also commend you for the reform of the pension system, knowing that this has not been easy. As such, it is a good fact of life that we can expect to have longer and healthier lives. But this means, like elsewhere in Europe, that the workers can expect their working lives to become longer, not only for sustainable but also for adequate pensions. The Greek landmark pension reform will significantly improve the longer-term sustainability of your public finances.
Indeed, we will only be able to finance our social models if we create sustainable growth. This means we must improve our productivity, which will not be possible without innovation, private initiative and entrepreneurship.
The overall conclusion is that significant progress has been made in many areas. But major challenges remain. Tax compliance, for example, is important not only for public finances but also for social fairness. Further liberalisation of services and professions should open up new chances especially for younger people.
This spring, the European leaders did not only react to the emergency situation of Greece, but took a substantive perspective by establishing new financial backstops. These financial backstops are temporary. On Sunday, 28 November, the Eurogroup agreed on the principles and features of the European Stability Mechanism (ESM), based on a proposal made by the Commission in close cooperation with President Herman van Rompuy. The Eurogroup confirmed clearly once again that private sector involvement in the resolution of sovereign debt problems will not apply before the new system will be in place as of mid-2013.
On 22 November, Ireland requested assistance from the backstops. At the same time, Ireland also designed, in collaboration again with us, the ECB and the IMF, a thorough programme.
Greece is not alone with its reform efforts. Fundamental reforms are done in many member states.
Times of accelerated change often go together with uncertainty. But they can also act as a catalyst for something new.
You are a people of merchants and have a history of sailing the seas for thousands of years in search for new opportunities. I am sure that you will find them and build on them!
I started with a quote by President Giscard d'Estaing, so let me conclude my intervention with the finale of his quote: "I am convinced that Greece will find here [in the European Community] a source of progress and prosperity; it can count on the active solidarity of its fellow members."
You are not alone in this effort. Europe stands by you!
Thank you for your attention [and good luck (in Greek: KALI SYNECHIA)].