Papandreou’s Odyssey

Since taking office in October of last year, Greek Prime Minister George Papandreou has already faced a decade’s worth of troubles: near bankruptcy, a hard-won bailout, and anger over pension reform and an austerity program that has resulted in mass strikes, violent riots, and even domestic terrorism. But, he says, the trials of his grandfather and father — both former prime ministers — have prepared him for this moment in history. And, it could have been worse.

FP senior editor Benjamin Pauker caught up with the prime minister for a wide-ranging conversation on the severity of Greece’s troubles, the future of Europe, and the dangers of treating global markets as gods. Excerpts:

Foreign Policy: You have said that your country was "in a battle for survival." And violent protests in the streets of Athens seemed to bear that out for a time. But things have quieted down somewhat, even with the passage of the controversial pension reform. Where does Greece stand now?

George Papandreou: Well, yes, there was at times some violence, and though it gets a lot of media attention, I would say that it was the exception. But, obviously there’s pain, and people are unhappy. But I would say the wide majority of the people realize that we needed to make changes that were long overdue in our country — to make governance much more responsible, and the running of the country much more transparent. We all have to live up to our own personal responsibilities to this country.

I think that’s a feeling that’s quite pervasive, even though it’s very understandable that there were demonstrations. A large number of citizens have to bear the burden, even though they were least responsible for the crisis. It was a crisis born of bad management and governance over the last six years: a lack of transparency, patronage and clientelism, even corruption. This, of course, was highlighted by the international financial crisis.

FP: You were born and educated, in large part, in the United States. And many of your closest advisers are American. Do you think the U.S. model of capitalism was in some way to blame for the crisis that Europe and Greece face today?

GP: Obviously, the problems began in the financial sector, with commercial paper being put on the market — structured bonds and special vehicles, which were very simply fraudulent, even though they did have a triple-A rating. I think we see that markets are fallible, and we should not worship them as gods. Now, we have to see how to put them to best use to help our economies and our societies. But this is a question of, again, bad governance. Why wasn’t this regulated? Why wasn’t there transparency?

But this was not simply within U.S. borders but around the world. Europe too was hit, having bought up so much of these toxic bonds. The developing world was hit; emerging markets less so. But this shows we need much more coordinated action in the world, and more world governance. The G-20 may not be the best of institutions, but the fact that there is an attempt now to coordinate action is, I think, important — as long as we move to implementation and not simply pronouncements.

FP: A number of analysts, Nouriel Roubini among them, have argued that Greece still faces an unsustainable public debt-to-GDP ratio, and that emergency loans and austerity measures are just prolonging an inevitable debt restructuring — bankruptcy, in a word. Why not liquidate the debt burden, punish the institutional investors who played down concerns for so long and who profited, and force financial rigor on the state sector?

GP: There were two options — one was to default, the other was not to default and take a different path. The latter is what we have decided — not only Greece but also the European Union. There are many negatives in a default situation. Our banks would have been hit; not only ours, but also in Europe. This could also have been a self-fulfilling prophecy of a contagion to other countries. And that would be a much worse situation.

We have this big support mechanism of loans, which we have to pay back, but loans at a better interest rate than we could have got at that time on the market. That has allowed us the time to make the necessary reforms. Secondly, we have the problem of a large shadow economy, or underground economy if you like — tax evasion, corruption, and so on — which I believe could also alter the outlook for Greece’s future. This will take some time to fix but we’re committed to this. My government, for example, has now brought in laws such as total transparency in all signatures in the public sector, putting more and more tax reform resources and contracts online. This will make things much more transparent, and I believe this will help bring the shadow economy out into the open. That will bring an important sense of confidence that we can deal with this long-term debt.

FP: On a personal level, what has it been like to lead this nation in a time of crisis? I imagine you could not have anticipated the severity the problems when you entered office.

GP: First of all, we knew there were problems, chronic problems, and we had actually pinpointed their basic nature even before the elections. We said that our country was not well-run: There was a lack of transparency; there was a lot of money that was lost, wasted, through huge bureaucracy, a clientelistic system, patronage, money put to the wrong purposes, and then of course the problem of graft. We knew these things would have to change, and changing them would make our economy much more efficient and competitive, particularly in the public sector.

I don’t think anyone anticipated the almost violent reaction of the markets as time went on. If the markets were not as violent in the reaction [to the level of Greek debt], I think we would have had more time to make these changes with less pain, if you like, less drastic measures. And these have obviously hit some of the richer in society, but also some of the middle class and the poor, which we have to compensate for in many ways.

One other lesson here is that we’re a small country — and markets, particularly the derivative markets, can play around with countries and governments and with every policy we take. Even though there was an initial positive reaction by the markets, a few days later, one analyst, one statement, one banker, or somebody playing around in derivative markets, changed that opinion, turned it around. You can get a psychology in the markets that is not rational, and that can become a mob psychology, which can go in a positive direction, creating bubbles, or in a negative direction, creating catastrophes in countries.

FP: You studied sociology as an undergraduate at Amherst College and as a masters’ candidate at the London School of Economics. How has this background, your intellectual training in sociology, helped you deal with this crisis?

GP: Well, I see a lot of discussion now amongst economists and it’s in some sense, for me, peculiar — even in the United States, which is so cross-pollinated in liberal education. What I’ve appreciated in the United States is the fact that you can have a liberal education, a wide-ranging approach to different things, and learn from different scientific fields. Economists are now discovering "animal spirits," they’re discovering psychology, they’re discovering sociology as interpretations for behavior which is not this sort of atomized, self-centered, self-interested, rational, market kind of psychology. That’s not what human beings are. We’re not that simple-minded, nor are we computers to be able to understand these mathematical models as they are running our lives.

FP: Your father was imprisoned twice and your grandfather six times. They were exiled. How have their struggles informed your fight for Greece’s future?

GP: My experience is actually a Greek experience: living abroad, diaspora, possibly exile, refugee, migrants, going through dictatorships, jails, persecution — these are things which pretty much every Greek family has had some relative go through. One thing you hear in Greece is, "Yes, this is a crisis, but we have gone through difficult times before. Let’s huddle together and work it out."

FP: Do you think the Greek populace, though, feels that this is somehow out of their control? You mention these larger forces at work.

GP: I think this is a paradox we’re all living through around the world. Of course, what we’ve been doing, as systematically as possible, is give citizens exactly this sense of being in control, of dealing with the crisis.

There was a moment of almost terror, being terrorized by the markets every day, being told by the Greek and international press, and all kinds of gurus on the economy, that you will lose your money, your euro, your savings, there will be catastrophe, and so on. So we had to steer through this psychology. It was very difficult, of course, but this is where people expected us — both me and my government, and leaders in the country — to chart a stable course.

But because these problems are global, because they’re interconnected, because they’re interdependent, people feel disempowered, and that’s a problem around the world. And that sense of disempowerment is going to create more insecurity, more mistrust in political institutions — and that could range from apathy to violence, from fundamentalism to populism. This is a deeply democratic question: How do we make sure our democratic structures function in a world so interconnected? Yet as far as governance is concerned, we are still national and not international. How do we deal with these issues? That will be a crux of the problems of our planet over the coming months and years.

When the banking crisis hit, we all heard numbers that we had never ever dreamt of before — trillions and billions. You have tax havens, the movement of capital which can be very quick and uncontrolled, and countries can be exposed. But this is also true for the environment, for pandemics, for refugees, for communications — these are things that have great capabilities but also great potential to be uncontrolled and dangerous in a way you don’t want.

We need to find global governance and we need to find it based on some common values on which we can agree — democratic values. And I think that’s going to be a big challenge.

FP: Do you think multilateral, international institutions are the answer? Or do strong nations still need to lead?

GP: I think we need countries that will lead, but lead in establishing a more multilateral system. This is where the United States and the European Union can be useful in order to engage countries like China or other emerging countries into multilateral institutions. But sometimes leading nations, large nations like the U.S., want to lead, but don’t necessarily want to be restrained by these multilateral institutions. So there’s a dilemma there.

Strengthening regional cooperation is very important because that is a way to get representation of different parts of the world in an organized fashion. And the EU is, I think, one of these models, a model of peace. It could also become a model for a globalized society — that is, we are sovereign nations, but we’ve given up some of our sovereignty to a higher body, and we’ve done so peacefully. We are different countries with different languages, with different cultures, and yet we’ve found a way to work with each other.

FP: What would you say to the citizens of Germany, France, and other EU nations that have griped that they are going to face an increased tax burden due to Greece’s problems?

GP: I would say that if there is going to be a tax burden, it’s not going to be because of Greece. We will be paying back these loans with a high interest rate, so these countries are going to gain money from us, if all goes well, and we hope all goes well.

But I would say that in Europe, we don’t need "austerity" — it’s not the right word. We need more responsibility in governance. That is why we want to make our governments and our pension systems more efficient. We also need growth, investment in education, innovation, and green energy, and we also need to capture some taxes which are being evaded — not only by citizens but by the financial sector. I don’t think that is sustainable in a democracy. That money could go to the European budget, to infrastructure development, to the greening of our economy, and so on.

FP: One of your campaign slogans was "roll up your sleeves." With six general strikes in the past few weeks, air traffic controllers shutting down airports, and farmers blocking the border, how do you intend to get the Greek public to roll up their sleeves?

GP: These are big challenges and obviously they’re not easy. First of all, I think we need to show that the government is acting responsibly. And I think that will resonate positively. As people start seeing more and more that everybody is paying their dues, they’ll feel that there is a collective responsibility. That sense was lost.

One of the things that has been discussed is how lazy Greek workers are. I actually went into the statistics of the OECD, and among the European countries, we have the highest number of working hours — number one — in Europe. Not number two, number one. The highest number of working hours in Europe. Number two is Hungary, number three is the Czech Republic. France and Germany are way down there. So we’re a productive nation despite all the stereotyping.

FP: What do you see, looking down the road five or 10 years, for Europe? Will the Eurozone continue to grow? Will the EU bring in new members? Five years ago, we thought that Turkey would already be a member of the EU.

GP: What we’ve seen in this crisis is that we need more Europe, not less. I also see that the more we’re coordinated, the more we work together to solve these problems, the quicker we can deal with crises. We were pretty quick by European standards — but not so quick by market standards — and the crisis almost became a contagion.

But when we did intervene into the markets with this rescue package — not only the Greek package but the wider package, too — then that immediately calmed things. Not completely, but it was effective. That’s why we need more coordination on governance and growth strategies. That will, I think, stabilize the Eurozone in a way that will make it more attractive. And there are countries that still want to become part of the Eurozone. We only recently brought in Estonia, so this is important. But we have to move down a path of deepening our integration. Otherwise, we risk the prospect of moving back to more nationalistic, more self-centered policies — greater insecurity, easier stereotyping, and scapegoating amongst ourselves. And that, I think, would be very sad after what we’ve been able to achieve in Europe over these last decades.