Budapest: Corvinus University | Prime Minister’s speech

March 16, 2010

Forum’s subject: «THE ECONOMIC CRISIS»

MR. G. PAPANDREOU: Ladies and gentlemen, dear Gordon, Prime Minister of Hungary, Mr. President of the University,

It is a pleasure to be here with you today and share experiences, even if difficult experiences, between Hungary and Greece, our two governments but also our two peoples.

I’d like to thank the Prime Minister of Hungary, Gordon Bajnai, for his strong support and solidarity and understanding of what Greece today is going through, and also the difficult measures we are taking.

I would like to say a few words, but to complement what your Prime Minister has said, to talk about not only Greece but also about some of the conclusions or ramifications or costs  a crisis like the one we have faced in Greece also means for Europe, and also means for the world.

But I’d particularly like to speak to some of the challenges that the younger generation faces, and particularly you here in Hungary, the Hungarian youth, which are not different, of course, from the challenges that the Greek youth faces or the European youth faces, I would say youth around the world.

You are a generation that faces the most daunting challenges that humankind has ever faced. The human race has never faced a global challenge such as the one of the climate change. Nor have we ever faced or lived in a time when our economies were so interdependent, when our lives were so connected, so closely linked in a globalising society.

Nor have we had, at the same time, so much power as human beings collectively, in our hands, financial power, technological power, media power, communication and networking power, power of knowledge and of collective experience.

So our challenge, your challenge, and our collective challenge is how we can actually manage this power we have in our hands as humankind, so that we can guarantee prosperity and sustainability, of our planet, our world, our societies, our economies and our families.

And this, I would say, goes to the heart of what our democracies are facing today, a deeply democratic question.

And I could put it differently: Who controls the immense powers we have? Who makes the decisions in our global society? Who has access to knowledge, or access to finances, or makes decisions on how finances will be placed productively in our economies?

How much of a voice do we have in all these decisions? And how much of a voice do our younger generation have in these decisions? How can you be heard?

How do our democratic institutions deal with the need to coordinate policies, beyond national borders, in Europe for example but also in the world?

And what values do we want to serve, in the end? What are our final goals, in the way we manage these powers and these economies?

Now, these questions, of course, become much more real and down to earth, when we talk about our two countries, Hungary and Greece. We are still recovering; you are, I would say, beyond the crisis. We are just in the beginning of this crisis. But we are recovering also from a global financial crisis that erupted on Wall Street two years ago, a crisis which we were not to blame for, but which at the same time highlighted some of our structural problems, problems we had in our economies and our administration.

But this has also highlighted, I would say, a larger issue, because your generation and those in the university today have come into this world and have come of age when two walls fell. One was of course the Berlin wall, and the second one, just recently, was Wall Street.

But both walls were hiding a mythology, if you like. On the one side it was the state that was worshipped as God. On the other side it was the market that was worshipped as God. And you don’t play around with gods.

This is why, I think, also looking behind these walls we in fact saw that there was something else that was being disguised: a huge concentration of power in the hands of the few. On the one side it was the state bureaucracy; on the other side it was in the area of finance and the financial market.

So I think that our challenge today is definitely a democratic challenge, to put our people first, our citizens first. And I know that your Prime Minister some years ago was head of the student union and very active in fighting then for change in this country, change brought about throughout Europe, of course, and the former Soviet Union.

When I was a student, I was also active, at a different time. It was the early ‘70s-late ‘60s, and the slogan then was “Power to the People.”

This translates today, I think, in the need for more democratic control, proper regulation, more empowerment of our citizens, greater participation, greater transparency in decision-making, whether it’s budgets or banks, whether it’s in our society or it’s in governance.

I would like to see that we move into – and this is, I think, one of the challenges that the crisis has brought out – a different type of governance, which is more responsible and can make both the state and the market work for our citizens, rather than the opposite.

And I think this is where we are making some very difficult but important decisions, in changing the way the public sector is working, but also in harnessing the market forces for growth and for prosperity.

So I would like to commend and congratulate your Prime Minister and his government for the difficult but very important work that he has been doing, the courageous and difficult decisions. Both our governments have made very difficult and painful decisions, ones which one may not be happy with, but we know we are doing this in a spirit of justice, burden-sharing. As your Prime Minister said, we are also taking measures which, for example, will change the tax law, so that yes, the rich will have to carry their share of the burden.

When we ask pensioners and we ask civil servants and workers to get a cut in their pension or their pay, we must then ask those who have more, are more prosperous, to do something which is analogous, which is, in relationship to the others, equal in sharing the burden, and in that way create a sense of social justice, even in these difficult times, so that we can redistribute our wealth but also redistribute the burden.

And these decisions we have made certainly have been made with a sense of responsibility, responsibility to our countries, responsibility to our economies, responsibility to our citizens and responsibility to the future generations.

So in this time of crisis, a crisis that was created by those who believed that the market would regulate itself, it is we that are challenged to bring real solutions for a real economy and for our citizens.

But as I said, this is not only a national crisis in Hungary or in Greece. The crisis we face today is also a crisis in democratic global governance. And the end of the Cold War did not bring the end of history, nor did it end world problems.

And living with that myth that history had ended also made the international community often appear impotent to deal with the complexities of a globalised world and a very interdependent market. For the lack of global governance institutions or weak global governance institutions, efficient mechanisms, regulation not only allowed speculators to exploit this void but also was to the detriment of many citizens and societies.

This also undermined our democratic institutions. It created a sense of insecurity around the world that we may not have the capacity to deal, at the global level, with problems such as climate change – and we just had the recent meeting in Copenhagen – dealing with major challenges. And if we let that continue, this will create greater unrest; it will create polarisation, insecurity, fundamentalisms, populism, extremism.

So I think that if we are talking about the global crisis, the financial crisis, it is very important that we have global reform of financial markets as a way to limit the re-emergence of systemic risk, excessive risk-taking, excessive leverage in the banking and shadow banking sectors.

But also the excessive concentration of power, and I’ll just give you an example. Congressman in the US Ted Kaufman has revealed that the banks that are too big to fail – I would call them too powerful to touch – 15 years ago the six major banks in the US were equal to 17%, seventeen per cent, of GDP of the United States. Today the six biggest banks in the US are equal to 63% of the GDP of the US.

So size, structure, concentration are issues of greatest importance for democratic governance.

I also wear another hat. I happen to be the head of Socialist International. We are a group of about 160 parties around the world, all the social democratic parties in Europe, but also in Latin America, Africa, some in North America and Asia. and after the global financial crisis, I asked Joe Stiglitz, the Nobel Laureate, to head a commission on the financial problems. And this commission came up with a number of proposals, such as the need for universal regulation, which would cover all financial sectors, products and transactions; the possibility of a global transaction tax; and also transparent and coordinated action – and this is something which we need in the European level but also in the international level.

The case of my country, of Greece, shows the need for more Europe, for more institutions, if you like, or for the deepening of our European institutions and capabilities to coordinate rather than less. And I say that because we, Greece, has done its share. We have taken the necessary measures. We have taken the difficult decisions.

But we need also the EU, the European Union mechanisms to intervene in the market, if necessary.

So a major challenge is to restructure European, and with European also international, financial architecture, to be more responsive to the problems of today, to be more responsive to possible future crises. And we must do so in a spirit of political and fiscal solidarity.

For example, in the eurozone we recently witnessed many pressures on specific member states that require a clear and coordinated response.

So a consistent framework must be defined, to ensure that the eurozone has the internal means to avoid any risk of financial instability.

This could be achieved by combining national fiscal discipline with a last-resort mechanism of financial support, possibly coupling lending by private banks, with a guarantee to be provided by eurozone members, under specific conditions.

Others have proposed the idea of Eurobonds; others have proposed the idea of a European Monetary Fund. The European socialists have developed the idea of a European mechanism for financial stability, to protect the eurozone against speculative attacks.

These, I think, are very important, because what the Greek case has highlighted, has outlined, is also not only a crisis but also an opportunity, an opportunity for Europe to make important next moves for reforms, so that we can become more integrated, more effective, if you like, in a globalising economy.

And this is not only a European solution, but it also needs to be a Europe that takes this to the global level for the necessary regulatory changes.

I just want to say one more word of comparison, because I think it’s important. Hungary, as Gordon was saying previously, needed a breathing space. You had taken your reforms, you had taken these difficult measures, but you needed a breathing space in order to be able to borrow on the markets, in a way which was viable for you.

Because the markets in Hungary had, as they had with Greece, become very uneasy, but also could easily become, both our countries, targets for speculation.

So here is where the IMF intervened, with the help of the European Union, for Hungary. But Greece is a different case, institutionally, because we are a part of the eurozone.

So on the one hand we have taken measures which, if we had gone to the IMF, would have been the same, basically the same. And we have discussed this with the IMF, and they have said, “Had you come to us, we would have not asked for any different measures. These would be fine for us, as far as fiscal stability, stabilisation and dealing with the immediate crisis.”

However, being in the eurozone, we don’t have the intervention of the IMF in the market, the possible need for the intervention, if we go to borrow the borrowing is too costly.

So this is the challenge for Europe, and we will in the next few days be making important decisions, decisions which need to be made now. The other decisions of deeper structural changes, whether they are called European Monetary Fund or Eurobonds and so on, are very important decisions but they will take time.

But now we need to have an immediate response, a response not that Greece is asking for money. We are not asking for money; we are not asking for a bailout. What we are saying, very simply – and I say this because press around Europe and many countries, particularly in Germany, have said that we are asking for their money.

We have said no. We need the support to implement our programme in the best of ways. And that kind of support is simply that we can be allowed to borrow at rates which are similar to other countries in the eurozone or the European Union, and are not too costly.

And this may means that we have, as a European Union, we create an instrument, if necessary, to intervene in the markets, so that Greece can do so.

I’d like to conclude by saying that in my recent discussions with several European leaders – France, Germany and Luxembourg – we took an initiative, and I communicated this initiative to the President of the US, Barack Obama, when I recently saw him last week. And we agreed to take coordinated action to strengthen financial regulation, especially concerning speculation on sovereign debt.

I’m glad that President Obama was welcoming this initiative, and this will be on the table in the forthcoming G20 summit.

So I am hopeful that the G20 will be moving forward on the necessary regulation, which is more than due to come, because we have now lived through this crisis for more than a year and a half.

Now, Hungary and Greece are not on the G20, although we are represented through the European Union, but I think this just shows how countries of our size can and should work together in a more coordinated way, both within the European Union but also on the international level. Because we have much to say, much to contribute, but also many things to learn from each other.

So this crisis can and must be an opportunity both for Greece, for Hungary, but also for the world to correct excesses, the excesses of globalisation, globalisation which has promised much but also has created very new and difficult problems and new risks. Particularly one of the biggest risks now, which the younger generation is facing – and it’s not a risk, it’s a reality – is the fact of unemployment, which has been rising and which may reach about 30 million in Europe this year.

So as well as European mechanism of fiscal solidarity, we need a European strategy for entry into the labour market, an entry strategy that promotes employment through implementation of, for example, a low-carbon economy, investing in new and innovative sectors, investing and engaging in active labour market policies, investing in education and training.

And underlying all these problems, we face another collective challenge, and that is the challenge to restore trust in our institutions, in our politics, in our democracies. And I think this is what we have been trying to do, if anything, more than anything else. And I have said this, and I am sure this is what Gordon is doing and what I am doing also in Greece.

I say that first of all our deficit is not financial. It is a deficit in our credibility. And the decisions we have made are in fact to restore our credibility, to our people, and of course to the world community and to our partners in the European Union.

Restoring confidence, in my mind, also means that it’s not simply restoring confidence in the economic/financial area or the stabilising of our fiscal policies, our fiscal situation. It is, at the same time, to restore confidence that we, as peoples, as citizens, can make an impact on our societies, through our participation, through our democratic institutions.

We can change our future, we can take our future into our own hands. We do have that power.

In creating a society which is more democratic, more participative, particularly for the younger generation, which is also more just, fair, making sure that all have equal opportunities, fair distribution of wealth, fighting inequalities and creating social cohesion, both in our societies and in the European Union.

But also creating a sustainable and a green economy, which is competitive and is based on quality.

And on those large issues, I look forward and I thank you, Gordon, and you government for the cooperation and I look forward to further cooperation between our two nations and our two people.

Thank you very much.

The Prime Minister, George A. Papandreou, accepted questions from the audience, who attended the speech at the Corvinus University of Hungary, and answered a whole as follows:

And as was mentioned, the tax problem, tax evasion, is a much deeper problem. I would begin by saying, and I don’t know Hungary as well, but I would assume that there are some similarities in the fact that our citizens have been somewhat wary or sometimes suspicious of the state, as the state in Hungary was authoritarian in the past, and in Greece we also went through dictatorships, clientelistic politics, and so on.

So very often our citizens will say well, where is my money going? So that is a question of governance; that is a question of good governance.

And the mistrust of where your money is going will have an effect on whether you want to be a tax evader or you don’t want to be a tax evader.

And often this is coupled with corruption. That can create even a greater diversion of money.

So one of the things we did to deal with the issue of tax evasion – and we are now only four or five months in government, so these are our first steps – is to say we need much more transparency in governance.

People will have to be able to see what we are doing and how we are deciding. From the fact that most of our cabinet meetings are televised, the fact that we now have a law which we are passing through Parliament, where every signature of every civil servant, from mine to local government, will be on the Internet, if it has anything to do with money, so that people will know where their money is going and can be critical or can check and see where their money is going, to making sure that this money is actually used well, that we make right decisions through a process of deliberation, whether it goes to health or to education or to investment in infrastructure, in growth and so on.

We have, as someone mentioned, an investigation going on, on the statistics of our country, why we had given wrong statistics. But we have already set up in these few months an independent statistical bureau – and the Eurostat will be on it, on the board – so that our citizens will know what our statistics are, and the European Union will know, and the international community will know, so that makes it much more transparent.

And this is, I think, one first step to say now it’s your time to really contribute, pay your dues. Because this money, you know where it will go and you know it won’t be lost in corruption, it won’t be lost in bureaucracy, it won’t be lost in wrong decisions, or if wrong decisions are taken they can be corrected.

But we also are making a major change in the tax system, and the next week, the next ten days will be ten days of discussion about our new tax law in Greece, where we do change the burden. And this, I think, is very important.

The rich will have to pay more. We will also cut some of the burden for the poorer in our country.

We also are bringing in a property tax for a level up, which will be quite an important tax, as you have done, even though you have a constitutional issue here or a legal issue here. We will be bringing in this similar property tax, which will help in the redistribution.

We have a similar problem with offshore companies, and that is not just a national problem. That must be dealt with at the European and the international level, so that people cannot avoid taxes, because it’s very unjust to say I will cut money from the pensioner and from the civil servant, who cannot hide their income, and then those who have huge incomes can just hide it by taking it offshore. And that’s something which alone a national government cannot do.

But there are measures which we can take and we are taking. They may be similar, but we can exchange our experience on how we deal with this, in taxing those who have taken their property and put it onto an international offshore company.

We have increased the VAT: difficult for the market, but as you said it may be less distorting than other types of taxes.

We are creating incentives so that money that is reinvested, that has come from the profits of companies that is reinvested in the company will be taxed less than money that goes to the pockets simply as profit for a shareholder.

We are taxing all incomes in the same way, because in other countries there are differentiations. So if you are a shareholder, you will be taxed as if you have a wage, as if it’s wage. And that makes things more equal. That was not the case up to now.

We are subsidising social security contributions for the small and medium-sized firms, so that, particularly for the younger generation, that is a student that gets a degree and goes to work, the social contribution will be subsidised by the state for four years, so that there is an immediate incentive for entry into the market, both for the company and for the younger employee.

We have been, at the same time, making other reforms which are not directly tax-related, but they obviously will be cutting down on waste. And this does have to do with one of the mayor’s considerations. We have quite a few municipalities, and we are merging them to about 350 – that’s going to be a major change – so that they are stronger and can provide services for all.

We have about 60 prefectures, and we are abolishing prefectures and we will only have regions, and they are becoming 13 regions. So we will have central government, 13 regions and 350 local governments.

And local government today has about 6000 companies, local owned companies, and they will be cut to a few hundred.

So we are cutting down from five levels of administration to three levels of administration, and this is also a very important change, in order to make sure that we have a much better administration and we can serve our citizens in a better way.

Finally, on the Greek diaspora, I am glad to see two members of the Greek diaspora here: our Ambassador from the United States – we met a few days ago in Washington – but also the Mayor here in Hungary. It just shows how diverse the Greek diaspora is, and also how important it is for our country. And I know there is a Hungarian diaspora also.

We will be working with our diaspora also to have them participate, if they like, in creating a bond, a Greek bond, for those who would like to buy up Greek bonds. And I think it would be a good investment, because we are moving out of the crisis. But also use the Greek diaspora in innovation and bringing us new knowledge.

As far as CDSs are concerned – just one final point – we have already published a letter by Chancellor Merkel, President Sarkozy, Prime Minister Jean-Claude Juncker and myself, which gives some specific ideas on what we should do on the CDSs. And I think that would be the best way to look it up on the Internet, you can find it, so I don’t get into the details.

Thank you.