Prime minister of Greece: 'There is real danger in global austerity'

Athens, Greece

George Papandreou is the prime minister of Greece. He spoke with Global Viewpoint contributing editor Michael Skafidas in Athens last week.

'The Fourth Way'

Michael Skafidas: When we last met 10 years ago, you worried that if globalization was not brought under democratic control, it would spell trouble, especially for small countries like Greece. Your worry seems to have been justified. “Globalization, which promised so much, and opened so many doors,” you said recently, “ has also brought new inequalities and new risks.” Greece especially suffered from financial speculation over its sovereign debt. Can democracy tame the risks being spread by globalization? Is there a “third way,” or are we bound to have a world at risk, divided between winners and losers?

George Papandreou: Globalization is not a neutral thing driven by some higher force. It is a process which we must guide or regulate and put into a framework of values. Why do we want globalization? How does it help humanity? How do we address global challenges like poverty, climate change and energy security not just from a narrow economic viewpoint, but also from a broader perspective?

In other words, can global capitalism be humanized, or will it just be allowed to run rampant, allowing the forces that dominate to further dominate? If the new forces unleashed by globalization — whether the trillions in financial flows or the global reach of the media and technology — are not democratically controlled, we will have greater inequalities, greater concentration of power — and much greater potential for destruction.

If we are unable to manage the complexities of this new interdependence, the whole system of globalization will short-circuit.

There are those who are able to thrive in this globalized world and those who are becoming more marginalized. I believe the benefits of globalization strongly outweigh the risks, but these risks must be carefully managed. It is critical that globalization should not produce a race to the bottom, but a coordinated means of raising everyone’s standards of living and promoting social justice.

Rather than a “third way,” I would say that we need a “fourth way.” In seeking a “third way” in the 1990s, the excessive reliance on markets as a measure of growth and the assumption that markets are always right turned out not to be right at all. What we need now is a “fourth way” — one that makes sure markets have the freedom to innovate and grow, but above all ensures that democracy is never subordinated to markets.

The “fourth way” depends on responsible, democratic institutions that put global solidarity above national interests. We need to get hold of globalization and decide ourselves where we want to take it.

That means a number of things. We need global governance. Multilateral institutions like the G20 and UN must be more inclusive and more representative. We need to decide just how much interdependence we want and how much self-sustainability we want. More autonomy means more control. For example, if a nation is self-sufficient in energy because of wind and solar power generation, it will be less affected by what happens with global oil prices. It will be less dependent on global prices, less dependent on possible wars and conflicts in the oil-producing countries.

There is also the question of cultural globalization. Just because the younger generation has assimilated global culture through the communication of common symbols, popular music and a common grasp of global problems does not mean they are empowered.

Indeed, there is a paradox here which creates deep problems in our political systems. All of us are more and more aware of common problems, which is good, because that means that there is a sense of solidarity, an understanding of the things we need to do. But, at the same time, since these problems are on a global scale beyond the control of our national political systems, we don’t have viable tools to respond effectively. In this sense, more information can mean a result in a sense of powerlessness.

Europe, for example, is trying to move to a supra-national level. But, even as a whole, Europe can’t determine the fate of the planet’s climate. We have no true sovereign control over our financial system in the global credit markets. We don’t have effective governance concerning immigration.

Of course we have bodies which try to deal with all of these issues, but, by and large, they are not effective because the scale of governance is different than the scale of the problem. So we end up fighting over the best way to proceed. Should we be more centralized, or should we create structures of governance which allow for more decentralized control? Can democracy be as effective facing the issues thrown our way by globalization as authoritarian political systems? These are the dilemmas we will have to face as we move into the future.

'Years of mismanagement'

Skafidas: It took 20 years — ironically, the time span Homer assigned to Odysseus to sack Troy and return home — for Greece to undo the confidence of a reunified Europe born in the wake of Communism’s demise.

Papandreou: It is wrong to assume that a small country like Greece — which represents just 2 percent of Europe’s GDP — could be responsible for “undoing the confidence of a unified Europe.” The recent crisis in Greece is part of a broader sovereign debt crisis in Europe that, it is true, also reflects a deeper institutional and identity crisis. Despite its shortcomings, the EU is proof of the positive effects of multilateral cooperation — overcoming centuries of conflict to achieve shared peace and prosperity. That is an example for those parts of the world still mired in the kind of tensions that once divided this continent.

Skafidas: Economist Nouriel Roubini argues that Greece’s sovereign debt crisis is only “the tip of the iceberg.” Do you believe that Greece is a special case, or it is part and parcel of a general Western over-indebtedness — excepting Germany?

Papandreou: Unlike many countries that ran up debts to bail out their banks in 2008, Greece’s debt has come from years of economic mismanagement — wasteful government spending, an inefficient public sector, chronic tax evasion. Many other developed countries have unsustainable levels of debt that will require tough decisions in the short term to guarantee viability in the long term. But cuts alone will not be enough to safeguard the global economy. We also need measures to stimulate growth and create jobs. Instead of collective austerity, we need global responsibility.

Governments and international bodies must protect the real productive economy from excessive risk-taking, speculation, and short-term profiteering in the financial sector. Many of us have said over the years that you can’t just have a monetary union in Europe; you need to have a real political union which will coordinate not only the economic policies but social policies as well. In short, we need the coordination of overall governance. This is just a highlight of what I was saying about the globalized society.

Rather than dis-integrate we need to integrate more. And, indeed, the decisions we have made in Europe over the last few months have, in effect, integrated us more. We have, after all, created a whole new structure to deal with deficits across our national boundaries.

The question of the “tip of the iceberg,” involves issues of psychology and perception in the financial world. We certainly felt that here in Greece. But we also saw psychology and perception at work in the U.S. crisis. During the bubble economy everybody was super-optimistic. Then you had a contraction and everybody went to the other extreme and became super-pessimistic, So the thing with the “tip of the iceberg” is that you can have a climate change and therefore a meltdown, or you can have an iceberg that can go on and on for a while and be quite stabilized. This is partly what we are doing: creating a more stable situation in Europe and in Greece.

EU as a 'peace project'

Skafidas: Jacques Attali, founder of the European Bank for Reconstruction and Development, recently lamented that Europe has grown to be a “strange animal” — a union with a central bank and single currency, but without a ministry of finance to coordinate fiscal and tax policies across independent sovereign states. Ultimately, do you see an EU Finance Ministry coming into being which would coordinate fiscal policies across borders?

Papandreou: Greece strongly supports further European integration and unity. Greater fiscal coordination is an essential part of this process. We must ensure that European institutions serve the interests of Europe’s citizens — not of financial markets.

Our ultimate goal must be a fair, efficient system of economic governance that balances the need for sovereignty with the complex demands of monetary union in a globalized economy. EU-wide tax policies should help to prevent tax havens, tax evasion and create more of a level playing field. But we need to account for the differences in national development and traditions. In Greece, we have taken drastic steps to enforce a fairer tax policy and to reduce tax evasion, with impressive results in just a few months: Net tax revenues are up 8.3 percent and the VAT revenue is up 6 percent.

Indeed, Europe is a strange animal, but I wouldn’t say only a strange animal. It has also been a peace project in which former enemies now join in common purpose. This Europe can become the model for a globalized society where we have different languages, cultures, traditions and political systems but all share basic values such as democracy, human rights, social security, green development. We are at crossroads in Europe, and we must go further if we want to be successful.

Skafidas: What does the evolution of Greece’s debt crisis so far tell you about the future of the European Union?

Papandreou: This crisis has raised important questions about the institutional capacity and political solidarity of the EU. The fiscal crisis was exacerbated by the hostile reaction of the markets, which nobody could have predicted. Markets always move faster than governments, but we are now taking collective action in Europe to develop a strong safety net for the euro zone: establishing a solidarity fund, taking the first steps towards tougher financial regulation and creating a European credit rating agency. We must forge ahead with more coordinated policies to prevent this kind of crisis from recurring. And we must increase Europe’s competitiveness in order to realize the potential of the world’s largest economy.

Skafidas: China has bought Spanish bonds. When do you expect Greece to issue bonds again? And will Greece seek Chinese financing?

Papandreou: Greece has already successfully rolled over its short-term debt in July. Although we are completely covered under the joint IMF-EU support mechanism until 2012, we hope to return to the bond market next year. The specifics will depend on market conditions and domestic progress. Greece welcomes purchases from China, as from any responsible investor.

Skafidas: Nobel laureate Joseph Stiglitz fears that we are on the cusp of a double-dip global recession because global aggregate demand is lacking. Are you with President Obama or Europe on continuing the stimulus versus cutting budgets as a matter of global, and not strictly Greek, policy?

Papandreou: Stiglitz was here in Greece a few weeks ago working with me on both Greek and international issues. Of course we need to balance restraint and stimulus. However, there is a real danger in global austerity, because it could dampen global demand during a very fragile recovery. Our goal should not be to bounce from one bubble to another, but rather to move the global economy towards sustainable and equitable growth. We must ensure that those least responsible for causing this crisis do not pay the highest price.

At the national level, we need to overhaul pension and social security schemes to make them more efficient and viable. At the same time, we must formulate coordinated growth strategies that capitalize on our global interdependence. There is growing global support for new policy tools, such as a financial transaction tax or a carbon tax. This would bring in additional revenues to safeguard social security and fund the transition to a low-carbon economy.

Skafidas: “We need to give this country a dream,” you said recently. “A small revolution.” What do you have in mind?

Papandreou: We are making drastic changes to Greece’s entire governance system. The transition will not be easy, but these changes are long overdue. The vast majority of Greeks recognize that such changes are necessary.

People will have to overcome entrenched attitudes — like mistrust of the state, taking corruption for granted and abdicating collective responsibility. The Greek government must serve as a role model — by meeting our ambitious targets to wipe out corruption and improve public services, but also by engaging citizens in these reforms through public deliberation, open government and empowering communities.

President Kennedy once called upon Americans to ask themselves what they could do for their country. This is the spirit of collective responsibility that will help Greece to overcome this crisis and build a stronger democracy that we can all be proud of. Nobody has said this is going to be easy. But the crisis is an opportunity to make changes. We have already done a great deal. Further, we have passed new laws to encourage green development that will give us a new economic impetus.

We’ve made changes in the labor market where closed professions are opening up, making Greece more competitive while creating opportunities to the younger generation which has felt left out.

We are cutting down the huge public sector, making reforms in education, hitting corruption. These are major changes. So that’s why I speak of a “small revolution.” There is, of course, pain, but at the same time I think people are saying, “Well, we want this change because otherwise we know that this pain will continued and we’ll go through another crisis later on.”

Skafidas: As one of your colleagues said to me, “Greeks will undergo a strong chemotherapy session this year, but the patient will survive.” As we speak, the country is suffering under a wave of strikes by those who are resisting the changes. Apparently, at this point there is no time to think of the political cost and the consequences your policies might have on your popularity?

Papandreou: Let’s put it this way: I’ve always been driven by my belief that this country can be better and that it has great potential. No politician who wants to make changes can be sure that his or her popularity will be constant. My goal is to leave a legacy of important changes. Whether I’m re-elected or not is not my main goal. If I leave that legacy I’d be happy.

Skafidas: Restructuring your father Andreas Papandreou’s Socialist Party (PASOK) and redefining socialism in 2010 is quite a challenging task. How is it possible to pursue a social agenda in the current climate? Must the left first be fiscally responsible before it goes back to a social agenda? Has a bloated state discredited PASOK’s social policies?

Papandreou: We have not abandoned our social agenda. Of course, pay cuts are painful; but the situation we inherited was so dire that the only alternative was bankruptcy — which would have hurt even more. It is true that the Greek public sector was often inefficient and corrupt. So we have undertaken bold reforms, as I said, to streamline bureaucracy, crack down on corruption, and modernize our health care, education and pension systems.

Change is always challenging, but ultimately these reforms will benefit all Greeks. Our policies are all geared to the same goal: to create a dynamic, sustainable economy based on transparency, equal opportunity and meritocracy. The government must lead by example. So we have slashed state spending, starting with my salary; drastically reduced the number of government bodies; and started publishing all government spending online so people can see how their taxes are spent and hold politicians to account.

So, yes, it is challenging to redefine socialism today. We need to go back to some of the basics, even though this may sound a bit peculiar in the new context. We socialists have always fought for democracy, both against the communists and the colonels. And democracy is as big an issue today as ever. Today we are fighting against a politics that has been captured by the organized special interests of Wall Street and the global financial powers who, lacking transparency and accountability, have protected themselves from any kind of control or regulation.

Corruption is an issue that comes up more and more in today’s politics because the power of money has undermined our democratic institutions. That is why we need to strengthen these institutions.

Defining a just social agenda today implies the question of what democracy means in a global sense. What does it mean in a national level when you have a globalized society? How do you empower the citizens? If they don’t have a voice, then they can’t protect their social rights.

I’ll give you an example of what I mean. Many people on the right are saying “The cause of the deficit is the social welfare system.” But that is the wrong way to frame the issue. The problem with the deficit is how competitive our economies under globalization are vis-à-vis other economies. Some countries don’t have a social welfare system. They may not be very democratic countries so they can impose conditions which would not be able to imposed in a more developed country. They can degrade the environment but we can’t. Certainly, that gives a number of countries a temporary competitive advantage. But is that the model?

No. On the contrary, we need to strengthen democratic institutions globally, strengthen social welfare, make sure that people are empowered and feel secure in their lives. Then you’d have a more equal playing field.

So, rather than lowering the standards in the developed world, we have to raise the standards in a developing world. That does not mean they must simply mimic us entirely. In many ways we are a bad model. We cannot continue this consumer society as it is today. We have to move toward clean energy, to consumption patterns which are more sustainable.

As we discussed earlier on, that means a new model of a green economy that binds emerging and developed nations. A carbon tax or a financial transaction tax could be one way to fund this type of growth and development in emerging markets — but also helping us convert industrialized economies into greener ones. Such policies reflect the basic principles of socialism, social justice and values of democracy — and additionally a new relationship with our environment, which was not part of the agenda in our industrialized age.

Skafidas: Greece is one of the top countries in the world in terms of life expectancy. Ironically, longevity has become the enemy of the state in Europe and particularly in Greece: An ever-growing portion of an older, healthier population is receiving benefits for longer periods from the struggling stage. Is there a contradiction here between the Mediterranean good life and the chronic economic tribulations of the state?

Papandreou: One of the reasons we had to go through quite radical and very painful change in the pension system was to make sure it is viable, to ensure that everybody can get a pension even if it’s not as high as he or she had expected. We can say now that the younger generation will have the guarantee of a basic pension, depending, of course, on how much they’ve worked.

There are a number of issues here: First of all, there is the question of who pays into the system. If you have an economy with fewer young people and more unemployed in a less competitive economy, then of course an aging population will create a problem for the pension system. That’s why we do want to have a more competitive economy — in Greece and in Europe — and therefore more growth and employment.

Let’s put it this way: If countries like India and China develop their social welfare systems — which I believe they will do more and more as they grow wealthier — that would mean that the cost of labor will go up and we would become more competitive. That would help our social welfare systems.

Second, there is the issue of scapegoating immigrants, blaming the loss of Europe’s generous welfare benefits on the new arrivals. We have to be very bold about migration policies. Europe of late has become quite xenophobic because many think they are losing much of what they had because of “bad foreigners.” On the contrary, we should see migrants as part of the solution of our future growth and financing of our pension systems. One of the major changes we’ve made in Greece during the last few months was to change the citizenship rules in order to bring more migrants that have been here working here for many years into the system. In part this is because we believe that these are creative and productive people in our societies who can also contribute to the social welfare system.

Skafidas: Finally, there is a misconception in the U.S. that everybody is suffering in Greece because of the crisis. But here, in the heart of the Greek summer, one gets a different perspective. Yes, there are strikes and discontent, but the good life doesn’t seem to be entirely a thing of the past. With or without strikes, life goes on as ever, and that perhaps has something to say about the determination of the Greeks to defy all adversities.

Papandreou: Go tell this to the international media! The sensationalism is part of the need to attract viewers. If you talk about the other side of the coin — things going on normally, even if there’s pain — this is not perhaps the most thrilling story. It’s also easy to take a snapshot of a strike or a demonstration and take the most violent scene, which may not be representative of the actual demonstration and of the general mood of the people. But then that becomes emblematic.

People in Greece have realized that we are not a poor country but a mismanaged country. By cutting the deficit close to 45 percent already, we are on track. We are creating a new credibility — both in the minds of Greeks and the rest of the world.

© 2010 Global Viewpoint Network/Tribune Media Services. Hosted online by The Christian Science Monitor.