Interview of former Greek Prime Minister George A. Papandreou by Jean-Christophe Nothias, Editor in Chief of The Global Journal.

At what point did you realize that your European counterparts would take no further measures other than giving Greece money to pay back its debt to them?

The Deauville summit between Merkel and Sarkozy was a clear turning point. 

Their decision concerning the future European Stability Mechanism (ESM) spooked the markets and the creditors. It created a self-fulfilling prophecy as the new ESM would basically punish creditors in the future if they invested in high-risk countries. This simply pushed them to stop investment or hike the risk premium for these countries in the present.

This created fear and it hit Greece first. While we were expecting to access the market in 2012, by May 2011 we all realized the markets were too afraid to invest in countries like Greece. And this had little to do with Greece’s performance. The markets simply did not trust the new system that was set up for the euro.

In fact, what happened after Deauville is that we created a rift in the eurozone between low and higher risk countries.  This divide has been growing ever since and is threatening to tear Europe apart. Up until then, Greece - at least until March 2011 - was the 'poster boy': the positive example of our efforts. In fact, Greece had been hailed in Brussels as a model to follow in terms of putting our house in order and making deep structural reforms. Up until then, there had been diligent preparation on behalf of all parties: the Greek government, the Greek people and the Troika. In Greece, the tide was turning in favor of complex issues such as tax collection and the reform agenda for our civil service.

But Deauville created fear. Confidence in the market was consistently being eroded, pushed by a populist press full of doomsayers and fear mongers. This wasn’t just happening in Greece, but in Europe and around the world: Greece was the news every night on every major channel.

The morale of the markets as well as the morale of the Greek people was undermined. There was a sense of inevitable failure: our difficult Odyssey suddenly seemed to become a Sisyphean task. But if we look at the facts, Greece had made major changes and improvements in very short time - to say nothing of the unprecedented reduction of the deficit by 5 percent in one fiscal year. 

It was, however, quite convenient for some EU members and the Troika to attribute this impasse in the markets solely to a lack of effort on Greece's part: Greece soon became the easy scapegoat.

This further de-legitimized the program in the European public and in the eyes of the Greek public. Not only were Greeks already feeling the pain - now they were also being told that they were failing.

The markets, analysts, politicians, then began to predict a default or an exit from the euro. Uncertainty is corrosive -  more so than austerity.  Uncertainty further undermined our efforts. This had profound effects on the economy.  Lending, borrowing, consuming, investing - simply slowed down almost to a halt. At the same time, people started to worry about their savings in euros and began pulling them out of the banks. This situation continues to the present day. Therefore, a program and a mechanism set up to protect Greece while it was reforming ended up not protecting Greece at all. 

While we began the program in a climate of optimism -  even dynamism - in a Greek society longing for change, we were overtaken by events beyond our control. A proud people making important sacrifices, we were now portrayed as lazy, incompetent and profligate:  stereotypes and prejudice reigned rather than cool-headed analysis. 

This became offensive to the Greek people. It not only harmed the economy, it deepened the recession, and also undercut the acceptance of major reforms such as fighting against tax evasion.   All the efforts we had put in place in the preceding fourteen months were eroded.

At this point, there was little understanding from a number of governments in the Union of the complexity and difficulties of the situation. Instead of solidarity - a word to be avoided - there was a greater push for more discipline. 

This was compounded by a new style of decision-making by France and Germany, that avoided in-depth deliberation or technocratic examination, while sidelining the Commission.

Once again, in unchartered waters, it was politically easy to put the onus on Greece: as I was battling for consensus between domestic and international political forces on reform intensity and the impact of austerity, I clearly understood and stated from the very beginning that Greece had a problem but was not the problem.

What is clear, more than two years after the crisis began, is that Greece is a victim of failings in the design and implementation of the common currency.  Over the past two years, the eurozone has made significant progress in fixing some of structural flaws. Sadly, it has always been too little, too late.  We have reached a make-or-break moment for the eurozone. We must stop applying patchwork fixes and take immediate steps towards a deeper, more integrated union. We must stop avoiding the real issue, which is not simply to monitor our individual behavior, but to pool our resources as a community and to deal with the crisis at hand.

European Commission President Barroso said that the EU had given more money to Greece than the Marshall Plan brought to the whole of Europe. Would you say that this was a responsible statement from a European statesman?

The Marshall Plan was about investment in growth and infrastructure. Our bailout plan is keeping us alive by paying our creditors and financing our deficits until they are down to the Maastricht criteria. But this is not a strategy for competitive growth.

And while the Commission has been instrumental in releasing cohesion funds, the paucity of economic activity and the lack of private investment cannot be under-estimated.

The EU needs to develop a growth pact - in fact, a green growth pact - besides its fiscal pact, in order to stimulate the European economy, bring jobs to the unemployed, and create the infrastructure and human resources to allow it to become competitive in the world once again. 

You've been pushing hard for strong reforms and changes in Greece. Which one of these reforms would be your priority at this time?

Clientelism and corruption are my first targets. To fight them, we need to continue the reforms I enacted such as full transparency, and computerization of all public services from medical prescriptions to tax collection.  But we also need to  re-organize the judiciary, the electoral system (which favors clientelism), and the relationships between government and media. The fact that we still have weak governance institutions is a challenge to our democratic tradition. 

Greece is not poor: it is poorly managed and that is the democratic challenge we have. If we were to operate at levels of transparency such as in the Netherlands or Sweden, we could save up to 8 percent of GDP in revenue, according to the Brookings Institute in Washington. 

Public sector reform, an overhaul of the tax collection system and re-distribution of wealth to support middle and lower income groups are also paramount, not only to deal with deficits but to restore a sense of justice and equity in our society. That is why I proposed prioritizing structural change over austerity. But what was demanded of us was to cut deficits in record time. The two are politically incompatible. 

Nevertheless, it is absolutely critical that Greece’s next government continue the process of deep structural reforms that my administration maintained during our time in office.

It is often said that Greece hasn’t reformed itself, but nothing could be further from the truth. Here’s a small list of some of the many things we accomplished since the crisis began:

• We cut our fiscal deficit by 6.5 percentage points of GDP between 2009 and 2011, the largest fiscal consolidation in the history of the eurozone

• We cut our primary deficit from 10.4 percent of GDP in 2009 to just 2.2 percent in 2011 - lower than in several eurozone members including France, the Netherlands and Spain

• We have achieved a positive trade balance of goods and services (excluding oil and shipping) in 2011 for the first time since Greece’s eurozone entry

• We vastly consolidated the public sector, cutting the number of employees by more than 130,000, including halving the number of paid elected officials

• We removed restrictions to competition in over 150 regulated professions (as defined in the EU Services Directive)

• We digitized the prescription system for pharmaceuticals, reducing costs by 30 percent within two years

• We enacted deep structural reforms to the pension system, making it one of the most viable in the EU through 2060 according to peer reviews by EU Member States

• We significantly increased public sector transparency with the mandatory publication of all spending and recruitment decisions online.

Of course, there is still much work to be done. However, in order to continue this process and win the confidence of our lenders and of the markets, Greece needs time and space to reform. We need a period of calm without the corrosive uncertainty that has paralyzed our country in recent months. 

Greece, Spain, Ireland…many Europeans countries need a little help from the European umbrella. Why did Greece - with a very small debt relative to the whole European landscape - take all the pressure?

After winning the elections in October 2009, my government inherited a deficit from our conservative predecessors that was more than double what had been officially reported before the election. When we exposed this, the markets - which were still highly risk-averse after the 2008 financial crisis and more recent crises in Iceland and Dubai - simply panicked. 

But make no mistake: Greece is a symptom of the European crisis, not the cause. Greece simply highlighted the vulnerabilities of the eurozone and EU institutions, the weak oversight of national budgets in Brussels, and an unchecked and under-regulated global financial sector. 

As I said, since we were the first country to come under pressure, it was convenient for many politicians to focus attention on the ‘feckless’ Greeks as the sole cause of the European crisis. This is  not true. But this is blinding us to the real issues in Europe. This is also linked to - and compounding the rise in - nationalism and populism across Europe, as blame is levied from one country to another. This, in turn, has made finding a comprehensive European solution that much more difficult. This will undermine the very values on which Europe is founded: going beyond our narrow national viewpoint and pooling our strengths for mutual benefit.

As you correctly note, with pressure mounting on other European nations, it is abundantly clear that what we’re seeing is a European-wide crisis - one that won’t stop until we take further steps towards integration. This is something I told European leaders in Brussels in early 2010, when Greece first came under pressure. Thankfully, there now seems to be a global consensus across the political spectrum that ‘more Europe’ is the answer to this crisis. However, we have precious little time to make this transition.

The governance of Europe is one of your great concerns. When Europe was discussing its future constitution after Laken, you and Michel Barnier proposed the introduction of an elected President for Europe. What would be your first action today if you had a chance to change something in European governance?

My strong commitment and belief in direct participatory democracy is unwavering. 

It is absolutely imperative that we deepen the European project. In simple terms, this means  transferring more sovereignty and power to Brussels. But we cannot do so if we do not democratize our decision-making. Europe cannot survive as a political project if it remains a project of the political and financial elites. 

Through forms of democratic participation and accountability, Europe must become a project that belongs to its citizens.  We must give our citizens a direct say in their shared European future. As I’ve said for years, one of the best ways to do this is to have Europeans directly elect a President of Europe. But this must be complemented with citizens’ initiatives, participation and Europe-wide education programs such as Erasmus for the unemployed and our younger citizens. It also must include a comprehensive policy of integrating migrants to become European citizens.

Citizens around the world are demanding a greater say in the political process that affects their lives - occupying public spaces and even risking their lives. As we are seeing more inequality and concentration of money and political power in the hands of fewer in this global economy, we must respond by democratizing and humanizing globalization. Let's begin in Europe, embracing the calls of the younger generation to have a voice in building their future. Let us create a new consensus or pact of progressive policies that lead towards an equitable, fair share of wealth and voice in the world.

(Photo © DR)