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Greek PM George Papandreou Discusses Plan to Save Greece from Debt

Aired February 15, 2010 - 15:00:00   ET



CHRISTIANE AMANPOUR, CNN ANCHOR: Tonight, Europe's popular epithet, lies, damn lies, and Greek statistics. Could the financial crisis in Greece bring down the euro?

Good evening, everyone. I'm Christiane Amanpour, and welcome to our program.

Greece tonight must be hoping that it won't be like Icarus, the mythological figure who flew, despite warnings, too close to the sun and who crashed into the sea when his wings melted.

Greek Prime Minister George Papandreou today is trying to prevent a financial crash, after years of flying high on debt and deficits. So should the European Union bail out Greece? It's really up to Germany, Europe's economic powerhouse, and German Chancellor Angela Merkel is reportedly demanding big budget cuts, much bigger than the Greek government wants.

It's all in the spotlight today in Brussels, where Germany and other Eurozone countries are meeting. The crisis has sparked protests back in Greece and threatens to spread to other countries.

Joining me now to discuss all of this, the Greek prime minister, George Papandreou.

Mr. Prime Minister, thank you very much for joining us from Moscow, where you find yourself. Mr. Prime Minister? Can you hear me, Mr. Prime Minister, Christiane Amanpour in New York?

We are going to be trying to get this audio situation solved, and we obviously will be talking to the Greek prime minister. We also have very, very eminent analysts on all of this issue, and we're going to take an opportunity to talk to some of them in a moment, because what's happened now is that there is this meeting going on in Brussels amongst finance ministers who are trying to figure out what to do. Is the euro too big to fail? And if it, what are they going to do to prevent that?

As I say, we are still trying to reach the Greek prime minister. We're having some audio difficulties. As soon as we have those fixed, we will continue the program.



AMANPOUR: So welcome back. Our focus today is the financial crisis in Greece. We're trying to reach the Greek prime minister, who's standing by in Moscow, where he's on separate business, but meantime, here in the studio, one of the world's leading economists, Nouriel Roubini joins me.

Thank you so much for being here.


AMANPOUR: What do you think is going on at those meetings in Brussels? How is Greece going to be saved from failure, and how is the euro going to be saved?

ROUBINI: Well, on one side, Greece has to do a massive fiscal adjustment, because they're running an unsustainable budget deficit. Last year, it was 12.7 percent of GDP, and their public debt is very large.

On the other side, Greece also needs money, because they've lost somehow credibility in the hands of the investors. There's a large amount of public debt coming to maturity. Because there's not the large package on the table to help them, there's a risk that even if (inaudible) there's going to be a refinancing crisis.


AMANPOUR: Although explain this to me. How is it possible -- apparently, all of this is because of shenanigans with the statistics, that the statistics said that there was going to be a certain budget deficit, something like 3.7 percent, and the reality is something like 12.7 percent, and overnight created this crisis, it seems. How is that possible, that this amount of manipulating of statistics can happen?

ROUBINI: For a number of reasons. First of all, last year, there was a severe economic and financial crisis. All countries had larger budget deficits, in Germany, Italy, and the rest of the Eurozone, but then Greece was already having large deficit to begin with, and they were using creative accounting, including, also, swap arrangements with a number of financial institutions to reduce the official number about their budget deficit. So there was a lot of financial accounting and chicanery going on, as well.

AMANPOUR: They're saying, of course, they were using all legal means to do it, and as soon as it moved into the illegal, they stopped it. Is that true?

ROUBINI: Well, we don't know yet. I mean, supposedly, they were doing things that were technically legal, but they were essentially using financial engineering as a way of reducing the official size of their budget deficits.

AMANPOUR: So we've talked a little bit about potential solutions. On the one hand, you say Greece has to undertake structural changes in its budget deficits, in its spending, in its buying habits. On the other hand, the E.U. should also put some kind of package to bail it out.

ROUBINI: Yeah, I would not call it a bailout package, because it could be loans that Greece needs to avoid a refinancing crisis, a bit like when a country's in trouble and goes to the IMF. Those are loans; they're not really a financial aid.

So if it's support that is given to a country while it's doing the adjustment, that money can be paid back with interest over time, because over -- of course, the reason the country goes off track altogether, and then they get in trouble in spite to that support.

AMANPOUR: All right. Joining us now is the former chief economist of the European Central Bank, Otmar Issing. Mr. Issing, thank you very much, indeed, for joining us.

Talking here with Nouriel Roubini, obviously, about this crisis. Many people are saying that the entire system was one which put its foot too far forward of the other and the whole euro experiment happened before Europe was ready.

Do you hear me, Mr. Issing? And do you agree with that? Well, guess what? He doesn't hear that. We're having a lot of technical problems today, but I'm going to ask you, Mr. Roubini: Was the euro created before Europe could deal with it? Was it just a step too far, too soon?

ROUBINI: No, it was not, but some countries that joined the Eurozone, like Greece, at some point probably were not yet ready to join it. The whole point about the Eurozone is that you have no independent monetary policy, you have no independent fiscal policy, you have even no independent exchange rate policy, so you have to do the structural reform to allow your economic growth to converse with the rest of the Eurozone.

The trouble was the number of countries, not just Greece, went off track in terms of their fiscal policy, large budget deficit, accumulation of public debt, that is not sustainable with remaining in a monetary union.


ROUBINI: And the other problem that Greece is facing is also a problem of competitiveness. It's not just a problem of budget deficits. You know, their wages were growing more than productivity. Therefore, their costs were rising, and they lost market shares towards China, Asia, rest of the world, and now (inaudible) external debt problem.

AMANPOUR: Right. In sort of layman's language, they don't have a very strong economy to begin with, correct?

ROUBINI: Absolutely. They've had the severe recession. And while the recession now in the rest of eurozone is over, there is still a recession in Greece, so that can be a vicious circle. They're trying to adjust on the fiscal side. The economy is still contracting. And that can exacerbate the problems.

AMANPOUR: Right. As you know, obviously, there are different views on how to solve these issues. You've just mentioned sort of a restructuring, a re-looking at their budget deficit, a re-look at spending and buying. Others are saying that's just typical speak from deficit hawks and that one has to look at the whole sort of unemployment, the whole sort of fundamental issue of what's happening in their economies.

Do you think just looking at it as a deficit hawk is sufficient for a country like Greece?

ROUBINI: Well, it's not sufficient. It's correct they have a competitiveness problem and a growth problem, in addition to a fiscal problem. And there is also a risk that, if they do much of a fiscal adjustment in the short run, raising taxes, cutting spending, the economy might contract even further, even if, over time, the fiscal adjustment is necessary to avoid a default.

So you have to do also the structural reforms that can (ph) lead to restoration of economic growth, but those reforms take time to implement.

AMANPOUR: OK. Let's look at this graphic that we have in our Vista wall here just to show you and show our viewers the budget deficits of various countries. Well, in Greece, we've been talking about 12.7 percent of GDP, Ireland 12.5 percent, in Spain, it's 11.2 percent, and then in the economic powerhouse of Germany, it's 3.4 percent.


A lot of people are looking at Greece and saying, "Hey, you want us to bail you out?" let's say voters and taxpayers in Germany, "and yet, when we're asking you to take some measures of responsibility, out come your unions and your protestors on the street. You can't have it both ways."

I mean, how can Greece really do some responsible belt-tightening or whatever's required when its unions and others are out on the streets protesting?

ROUBINI: Well, there will be political protest against this adjustment, because it's painful. The question is whether the government has the political support to do those tough policy changes (inaudible)

AMANPOUR: Or whether it's willing to lead.

ROUBINI: Yeah, absolutely. They have to do it. They have to lead. And they have to reduce the budget deficit all the way to 3 percent of GDP by 2012. If they're credibly able to do that, then they're going to avoid the crisis. But, of course, there will be strikes. There will be demonstrations in the streets. Those thing happen all the time.

AMANPOUR: And can a government get over that?

ROUBINI: If the government is robust enough and strong enough and if the leader is committed to do it -- now they have a majority in their own parliament -- they should be able to do it. Other country who have even bigger fiscal problem, like Latvia or Hungary, been able to do a massive fiscal adjustment, cutting spending, raising taxes, and avoided a financial crisis. So the question is, politically, can they do it?

AMANPOUR: So Ireland had a similar crisis a few years ago, and it took drastic measures, correct?

ROUBINI: Yeah. And even this year, Ireland has had a very large budget deficit, have now announced a large number of fiscal adjustment programs, raising taxes, cutting spending. So this is not just a problem of Greece. It's faced by Greece, by Portugal, by Spain, by Italy, by Belgium, by Ireland. A number of these European Eurozone countries have a fiscal problem, and they also have this competitiveness problem. They have to do both. They have to grow their economy while they're doing the fiscal adjustment.

AMANPOUR: OK, we're going to play a little bit of an interview from Herman van Rompuy, the president of the European Union, about what he said a few days ago on this issue.


HERMAN VAN ROMPUY, EUROPEAN UNION PRESIDENT: Your area members states will take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole.


AMANPOUR: So we will, if necessary and if required, do something to safeguard financial stability. What do you think that means? And how do you see this playing out? There's this meeting going on right now. How is this going to play out?

ROUBINI: Well, the Europeans know that Greece is either too big to fail or too interconnected to fail. About two-thirds of the Greek public debt is held by non-residents, German banks, Italian banks, other financial institutions throughout Europe. So if there is not a financial support given to Greece, there has already been contagion. The spreads on the government debt of Portugal and Spain have gone up, and there is a risk of the collapse of Greece is going to lead to a destruction of the (inaudible)

So whether they want it or not, they'll have to provide that financial support to Greece.

AMANPOUR: OK. And now we're going to go to Moscow where we have re- established audio contact.

And hopefully, Mr. Prime Minister, George Papandreou, you can hear me now.

GEORGE PAPANDREOU, PRIME MINISTER OF GREECE: Yes, Christiane. And thank you very much for hosting me on your show. I think the last time you interviewed me was in Sharm el-Sheikh just before the Iraq war.

AMANPOUR: On a very different subject, exactly. And we'll get to that in a second.

PAPANDREOU: Quite a different crisis.

AMANPOUR: We'll get to the idea of you being prime minister and foreign minister at the same time in a second. But let me first ask you this. You are in a major crisis at home in Greece. Many are saying, "If you want our help, you're going to have to take some very painful measures," which it seems your country is not prepared to do and your government is not prepared to do, am I correct? Big budget cuts, rethink spending, rethink buying?

PAPANDREOU: Well, we're ready to take any measures necessary to -- to move out of this crisis and -- and -- and also create the credibility both with our partners in the European Union, but also within the markets. And I would like to see this as -- this crisis as an opportunity to make some major changes, to really turn the page in the Greek economy, but not only the Greek economy, but also change some of the bad practices that unlikely we have had in the past, for example, corruption and lack of transparency, clientelistic politics.

We, with the measures we're taking now, will become, I believe, one of a -- a model country in transparency. We have -- for example, we'll be putting up signatures of all expenditures on the Web. So these are things we will be making. So I see this crisis as an opportunity.

AMANPOUR: Well, I admire your optimism. And I admire the way you're talking about it. But exactly what -- since the German chancellor, Angela Merkel, is saying, you know, the price for us to help you now is much bigger budget cuts, what are you exactly going to do? And how are you going to convince the people who are already pushing back and who are in the streets back at home in Athens?


PAPANDREOU: Well, we have an agreement that we will need to cut our budget by 4 percent -- now, that's a big number -- in 2010 and then another 3 percent and another 3 percent in the next two years to get down under the 3 percent master criteria so that we have this -- this reduction of deficit and reduction of debt.

So 4 percent this year, and we will do whatever necessary. We already have moved ahead in specific measures such as a tax on gas, wage freeze, the cutting of (inaudible) and civil servant wages. We're moving for pension reform. We just tabled a tax reform.

These are very, very important and big and major changes, and they are cutting down a lot of the waste, but also, as I said, we have some endemic problems, such as tax evasion and corruption. There was a lot of waste there, and hitting that, which may take some time, but we're doing it in a very, very systematic way--

AMANPOUR: All right.

PAPANDREOU: And that, I think is going to be -- create a sustainable thing. So from our side, from our part of the deal, we're ready to do what is necessary.

AMANPOUR: All right.

PAPANDREOU: And I think the European Union now has decided that they also want to make -- to make sure that this is -- this is a -- a positive thing for the Eurozone.

AMANPOUR: Well, what have they said to you? Do you know what's coming out of those meetings? Is Germany going to bail you out? Is there -- is there that kind of help on the horizon, do you think?

PAPANDREOU: Well, first of all, what we -- we have not asked for financial help. What we have asked for is to -- the support enact -- in fact, to have the necessary time and political support to implement our program and, whenever necessary, measures we need to take.

That is the so-called stability and growth plan, which is, according to the Maastricht Treaty, each country has to table. We have tabled it. If necessary, we will take new measures, also, if we're seeing that we're not reaching the 4 percent deficit reduction.

We have said that what we are asking for, basically, is the support of the Eurozone so that we can borrow as -- on the markets, as every other country, basically with the same rates that other countries are borrowing. And that's not a bailout; that's basically simply help.


PAPANDREOU: Which is saying, if push comes to shove, if push comes to shove, yes, European Union will stand by Greece.

AMANPOUR: Let me ask you this. You mentioned attacking transparency or the lack of transparency. One of the reasons for this crisis that you're facing is the creative, some might say the chicanery, the manipulation of the financial statistics, and the Greek statistics man, Manolis Kontopirakis, has been accused of being the source of this crisis, of providing faulty figures that more than tripled your country's budget deficit overnight.

I mean, you know, how is that possible, really, in a European country, that this is -- that this kind of thing can go on, the manipulation of such figures that caused this huge crisis?

PAPANDREOU: Well, that's a good question, Christiane. And we have -- as you know, we are a new government. We took over only a few months ago and inherited this crisis, have been very critical about these kinds of practices. And I wouldn't put the onus only on that one person who is head of the statistical bureau, but on the previous government.

But that's a squabble we have to deal with inside Greece. What we have said -- we have said, first of all, we're making an investigation to make sure that, you know, whoever is responsible will have to pay for this -- for this -- for this problem. But, secondly, we're now creating a completely independent statistical bureau, a new body within the parliament so that there's a check and balance on the budget, and this is just one more measure of how we're saying that we want full transparency, because we're going to be going by the book.

AMANPOUR: Mr. Prime Minister, stand by for one second. I want to bring in our experts. Joining me now is the former chief economist of the European Central Bank, Otmar Issing, and also we're here in the studio with Nouriel Roubini.

Mr. Issing, can you tell me -- you just heard the Greek prime minister talk about pledges to look at the structure of how they spend, the budget deficit, new measures to combat transparency, et cetera. Are these -- are these sufficient measures, do you think?

OTMAR ISSING, FORMER CHIEF ECONOMIST, EUROPEAN CENTRAL BANK: I would not like to comment on individual measures. The new Greek government certainly has to tackle this tremendous challenge, and I think what the prime minister said goes in the right direction.

If it's enough, I think this judgment will be made by financial markets. And if Greece can really present a credible commitment to break with bad policies of the past and to embark on good policies in the future, and then I think the solidity, the trust in public finances in Greece will come back.

AMANPOUR: OK, Mr. Issing, you know, a lot of people talk now and focus on Greece, but there are equal numbers of economists -- let's take the Nobel Prize-winning Paul Krugman -- who said the basic problem is the fact that the euro was an idea ahead of its time and that the continent simply was not ready for this single currency.


Do you believe that, all these years after?

ISSING: It was a courageous step to start with the euro in 1999. That is true. To start with a large number of countries, which did not form what we call an optimal currency area, but no doubt, after 11 years, the euro is a big success, one of the biggest success of monetary form in the history of mankind. One should not forget that.

AMANPOUR: So is it about to fail?

ISSING: The euro has emerged as a state--

AMANPOUR: Is it about to fail? That's what everybody's looking at.

ISSING: Certainly not.


ISSING: But this is an--

AMANPOUR: Go ahead, Mr. Issing.

ISSING: This is not about the euro to fail.


ISSING: Euro -- European monetary union is at the crossroads, this is true. And I think the case of Greece is a test case. It depends how the union deals with that, and what is especially important is that the no bailout clause is not violated. This clause does not allow for any compromise. Once it is violated, then it's broken. You cannot deny such financial aid to other countries once you have given it to one country, in this case, to Greece.

AMANPOUR: OK. We're going to go back to the Greek prime minister, while we're just getting him back from Moscow. Let me ask you, Mr. Roubini, the no bailout clause, how vital is that?

ROUBINI: Well, it's vital, but what Greece is asking, essentially, is not a bailout, but essentially financial support and being able to borrow at interest rates that are not very high (inaudible) in the market as a way of avoiding the refinancing crisis while they're doing the adjustments that are being undertaken.

AMANPOUR: Mr. Prime Minister, I know you want to jump in again. Do you think the Greek -- the Greek economy is about to go off the rails?

PAPANDREOU: Not at all. And I think -- I would just put in my two cents, also, about Mr. Issing said. First of all, he mentioned the question of credibility, and this -- I think, why I've said this again and again, our deficit is more a credibility deficit than a financial deficit, and we need to bring back the sense of credibility. And this is my purpose as prime minister of Greece, to bring back the credibility we did have in 2004. You remember the Olympic Games, Greece being a very -- a very important power of stabilization in Southeastern Europe. So this is absolutely a priority, and we will take whatever measures necessary.

Secondly, let Greece be also an opportunity for the euro, in the sense that, yes, the euro was a very unique and historically very important decision by the European Union, by the countries who'd actually joined the Eurozone, Greece one of them. It has helped Greece immensely. I think that this -- this needs to be continued.

Obviously, there are areas of the Eurozone and the euro that hadn't been -- hadn't been foreseen. And we are now talking about the possibility of more coordinated economic governance. We talked about it on Thursday in Brussels.


PAPANDREOU: And I think the decision -- the decision that we did take in the European Union was a very important decision, a watershed to say that we are standing by the eurozone--


PAPANDREOU: -- we are standing by Greece, and we will not let the euro fail.

AMANPOUR: Can I ask you something? While everybody's looking at this and looking at the -- the challenge ahead, people are also asking about you and why one man holds two important portfolios, prime minister and foreign minister, and they're saying, "Hang on a second. You know, you need to be at home dealing with this financial crisis." Why -- why do you not have a foreign minister?

PAPANDREOU: Well, actually, I do have an alternate foreign minister, so there is a lot of work that's being done. But actually, this is not -- it so happens that being -- being around in different capitals around the world and talking with people is important right now, because this is not only an internal issue, and we have respective ministers working on this to make the changes in Greece and make Greece, again, credible, but I think there's great opportunity for Greece.

We're talking about a green economy. We're talking about a sustainable economy. These are major changes we are making, a more transparent economy, a more -- cutting down bureaucracy. And at the same time, we need to bring a face to Greece which is credible around the world, and that's what I'm doing. I'm here in Moscow today and tomorrow doing that exactly.

AMANPOUR: All right. Mr. Prime Minister, everybody is certainly looking at this, because everybody around Europe and perhaps even in the United States is concerned about the fallout of this financial crisis in your country.

Prime Minister George Papandreou, Mr. Otmar Issing, and Nouriel Roubini, thank you so much for joining us.

And next, we have a very different take on this financial crisis. We will tell you why some are drawing unflattering parallels between a number of E.U. countries and a certain farmyard animal when we return.




AMANPOUR: And now our "Post-Script." The Greek financial crisis has many people asking, which country will next face the wrath of the markets? Financial traders think they already know, and they're making an unseemly comparison with a certain porcine creature, much to the annoyance of these Greek protestors who are fighting to stop deep budget cuts, as we've been discussing.

Despite how it looks, the acronym PIGS actually stands for Portugal, Italy, Greece and Spain. But the market's black humor doesn't stop there. Now there's another acronym, STUPID, which includes even more countries, Spain, Turkey, the United Kingdom, Portugal, Italy and Dubai. All of these countries are struggling with massive debts. And so no sympathy right now from the trading floors for the profligate.

And that's it for now. We'll be back tomorrow with an exclusive interview with the head of Iran's high council for human rights, Mohammad Javad Larijani. In the meantime, you can catch us on our podcast.

For all of us here, goodbye from New York.