New York: Economic Club | Prime Minister’s speech
PRIME MINISTER
PRESS OFFICE
New York, September 23, 2010
Ladies and gentlemen, Andy, it’s an honor to speak to you today. Since I took office almost a year ago, Greece and the European Union have faced unprecedented challenges. So I would like to give you a pragmatic picture of the real problems Greece is facing, the progress the new government has made in reforming our country and our capacity and determination to make further major changes.
I would also like to dispel some the peculiar “mythology” around the Greek case, which has been played up by some media commentators and financial analysts.
Six months ago, just before the European Union and the IMF agreed to a EUR110 billion loan and support package for Greece, everyone was convinced that Greece was doomed to default.
Today Greece is a different country, a country with a credible government that is delivering change, a country firmly on the path to long-term stability and growth. There are many encouraging signs that investors are now waking up to new opportunities that the new Greece has to offer. Only a few weeks ago, the biggest bank in Greece, the National Bank, the largest commercial bank, went onto the markets for recapitalization. The response: more than positive. Norway’s state pension fund recently invested in Greek bonds, an important vote of confidence from the world’s second biggest sovereign wealth fund.
The reason why investor confidence has been growing I believe is quite clear. The Greek government has proven that it means business. We have delivered on our commitments, even exceeded targets, even confounded expectations.
In a matter of months, we have pushed through the most extensive and ambitious reform program in Modern Greek history.
First, we had to take tough but necessary measures to regain control over public finances. As a result, the deficit is already down 32% this year, and we are on track to achieve the target of 40% deficit reduction by the end of the year.
We have reduced government expenditure by almost 8%. Our primary deficit is down 60% year on year, and we embarked on deep structural reforms to eliminate bureaucracy, improve public sector efficiency, and overcome longstanding obstacles to growth and investment.
We are now focusing on increasing revenues by cracking down on corruption and tax evasion, while making governance more transparent.
We have launched efforts to attract investment, capitalizing on our comparative advantages, from solar power to shipping, cultural tourism to organic agriculture.
In short, we have turned a fiscal crisis into an opportunity to push through necessary reforms that had been put off by successive governments afraid of the potential political costs.
In fact, the latest opinion polls show that public support for our reform agenda is strong, and has actually increased since April.
Six months ago, people were predicting riots in the street, but aside from a few isolated incidents they haven’t transpired. And let me tell you why.
We were elected by a solid majority hungry for change. The Greek people were tired of living in a country that was not fulfilling its potential and convinced that they deserve and are capable of much more.
And they have the confidence in our government to do what it takes to deliver the necessary changes.
So I am absolutely determined to ensure that the sacrifices of the Greek people will not be in vain.
I am also doing everything possible to make this a joint effort of the government, with the Greek people, not in spite of them. And I am confident that any short-term pain will be outweighed by long-term gains.
Many of the structural reforms we have implemented are already bringing substantial and sustainable financial gains. Let me give you just a few examples.
We have streamlined local administration, reducing over 1000 municipalities to 325, 57 regional prefectures to 13, five levels of government to three, 6000 local government enterprises to 2000. This will generate about EUR1.5 billion every year. A more efficient public sector will also create a more business-friendly environment.
Secondly, our reforms to the pension system, which include raising the retirement age to 65 and abolishing early retirement before 60, will lead to an astonishing ten percentage points of GDP in savings over the next four decades. These reforms also guarantee a viable pension system over the decades to come.
Thirdly, we are liberalizing closed professions. Today we just voted on opening up the truck drivers’ profession. Opening up closed professions with restrictive practices that distort the market: This will lead to greater competition and lower production costs in these sectors.
Studies estimate that relaxing product market regulations, lifting barriers to entry in services, opening up closed professions, could potentially boost Greece’s output by 5-6%.
These are just some of the changes we have already made to restore credibility and confidence in Greece. And we have many more reforms in the pipeline to jumpstart the economy.
To potential investors looking for new business opportunities, I would say: The Greek crisis is not beginning of the end, but a new beginning.
There is enormous potential to boost foreign direct investment in Greece. In 2008, foreign direct investment accounted for just 1% of GDP, compared to an OECD average of 4.1%.
To turn this around, we have passed several measures to encourage entrepreneurship and attract investment.
Stability is one of the principal advantages of the new Greece. For example, we have pledged to maintain a stable taxation environment for major investments, for up to ten years.
Starting from 2011, non-distributed corporate tax for all businesses will drop from 24% to 20%.
We are drastically cutting red tape for business startups. We have just passed a law to fast-track licensing procedures for investments, in order to leverage public-private partnerships in new infrastructure such as green energy grids, broadband, urban renewal and agro-business.
The state owns real estate assets worth over EUR270 billion – roughly equivalent to the public debt – that are largely unexploited, so we are launching an ambitious program which spans transport, energy, telecoms, gaming, real estate, utilities and banks, either through outright sales, concession agreements, initial public offerings, privatization, strategic partnerships or holding companies.
We have also created incentives for investments in emerging markets, such as research and development, exports and renewable energy.
We are currently liberalizing the energy market, a key sector where public-private partnerships can play a pivotal role.
Greece has all the right natural credentials for green development, from energy-efficient housing to clean power grids crisscrossing our islands. Our wind power potential is unrivalled in Europe.
We have already passed legislation to facilitate large-scale investments in renewable energy, a sector predicted to generate EUR45 billion in investments by 2015, which will create 250,000 jobs.
Today we have growing interest and tangible interest from the Middle East, Turkey, Russia and Italy, eager to develop strategic partnerships in the energy sector.
In line with our green development agenda, we are reorienting our agricultural production, which will be geared towards high-quality products. We want to create a Greece which is linked with high quality.
Our goal is to export the Mediterranean diet, which gives Greeks our longevity around the world.
We are revamping our tourism industry and tapping into new markets like China, Russia, India, Israel, Turkey and the Middle East.
Beyond the classic three Ss – three Ss: sun, sea and some ruins – Greece has much more to offer, from wine routes to arts festivals, cooking schools to ski resorts, from rafting in our mountains to canoeing around our islands, scuba diving to see sunken ruins to rock climbing over the Aegean Sea.
And by the way, we recently realized that the word “Aegean” sounds like the Chinese word for “love.” So we predict the “Mamma Mia experience” of marrying on a Greek island is certainly going to become a booming industry. I know one that is going to be married soon. Eleni, congratulations. Her father is here.
This is just to show the hidden potential of an industry that is already strong in Greece.
With the highest number of university graduates in Europe, Greece also has a highly qualified workforce. High-tech will find new infrastructure and beautiful surroundings where innovation can flourish.
Greece also has many other unique advantages. We are not an isolated economy. Greece is not only a core member of the European Union. We are geopolitically and economically linked to emerging economies to the east, north and south, from Turkey to the Middle East, from the Black Sea to the Balkans.
China has recognized our strategic advantages and chosen to invest in the Athenian port of Piraeus, as a hub for all its exports to Europe.
Of course, many challenges remain. While I am proud of our achievements so far, I am mindful that we still face many uphill battles. Perhaps our biggest challenge, my biggest concern now, is to ensure that cuts do not hurt those most at risk in a recession and do not counteract potential increases in revenue.
We are doing everything we can to protect the most vulnerable citizens. This is not simply an issue of compassion or even social justice. I believe that having an active, participative population is key to an innovative and vibrant, competitive economy.
We are working hard to ensure that those with the means to do so contribute their fair share. In particular, our efforts are focused on aggressively bringing the shadow economy to book. This will not only generate vital revenues; it will also help us to create a culture of transparency and collective responsibility.
Corruption – the rule of the powerful, if you like, not the rule of the law – is a democratic challenge that many countries face. We are using data mining, crack squads and crosschecks of assets to catch and prosecute tax cheats.
Even Google Earth has come in handy to uncover undeclared swimming pools.
In the first six months of this year, we collected over EUR1.2 billion in tax arrears, and we will soon bring in much more, as we are ready to pass a law to expedite prosecution of these tax arrears.
Starting in 2011, the spending and assets of the self-employed will be monitored to determine a minimum taxable income. So there will be no more cases of plastic surgeons declaring earnings lower than shelf stackers.
Our policies are designed to restore trust in state institutions, and the rule of law. People will pay their taxes, if they trust the government to collect them both justly and use them wisely.
Changing the way the state is run, changing governance practices, will change our political culture. Transparency, meritocracy and accountability are at the core of these changes.
That is why we have established an independent statistics authority – unluckily, the shortest joke was some while ago “Greek statistics” – and we have introduced a fiscal responsibility bill to ensure transparency and accountability across all government spending.
We have recently passed a law that calls for all public expenditures to be published online. And we have launched OpenGov, as we call it, an e-governance tool to enable greater public participation in policymaking and open recruitment for senior government posts.
I believe we will become THE most transparent country in the European Union.
Corrupt practices will be hit through transparency and good governance, even though bad habits don’t die out overnight.
Perseverance is of the essence. And we will persevere.
We are determined to win the fight against corruption, no matter what the cost, because we know it is to the benefit of our country and our people.
We have decided to create a different Greece, a new Greece that is more transparent, just, sustainable, competitive, and ultimately a very good investment.
Nevertheless, we are still fighting a battle to dispel persistent doubts about Greece’s credibility. Spreads on Greek sovereign debt or sovereign bonds are still high.
Over the last months, the Greek population has been buffeted by the ups and downs of the financial markets. So now every Greek from 9 to 90 years old knows what spreads mean and what derivatives mean.
Market volatility has sent ripples of panic and fear, at times, to Greek society. And unfortunately, as fears of a global double-dip recession still linger, market psychology remains cautious, sometimes even pessimistic.
And as we all know, expectations often influence reality, and economic reality. And in times of crisis this can mean that we will have self-fulfilling prophecies.
So I would like to take this opportunity to respond to a persistent rumor: default. Default is not an option for Greece. All our Herculean efforts during the past year have been geared to ensure Greece does not default.
With the EU-IMF support mechanism, we are completely covered in our borrowing needs until 2012.
Our progress in meeting conditional targets will be closely monitored through quarterly reviews, so there is no question of us slacking off, not that we have any intention of doing so.
Default is not an option for Europe, either. Europe has invested heavily in Greece’s success today.
The support mechanism was not only a contract with Greece to make the necessary changes; it was also a vote of confidence in Greece’s capabilities to carry them through. And that is what we are doing.
Above all, it was a decision that Europe will do what it takes to turn the situation around.
And regardless of the occasional squabbles in the European Union, or the complexity of our decision-making process, I would take care in coming to hasty or simplistic conclusions.
Europe is much more robust and powerful than some newspaper columnists would have us believe. The European Union also happens to be the largest economy in the world.
So theories about default, haircuts and exit from the eurozone show a remarkable lack of historical perspective and understanding of the basic rules of European economics and politics.
On the contrary, I am confident that both Greece and Europe will emerge stronger from this crisis.
I talked earlier about the mythology surrounding Greece. If you have never been to Greece, never had the pleasure of basking on one of our beautiful beaches or admiring one of our ancient temples or tasting some of our Mediterranean diet, if your impressions of Greece are based solely on recent media reports, you might think that Greece is hopelessly in a bad situation – brink of bankruptcy, social collapse, professional protestors.
The fact is that Greece is none of these things. It is a complete fallacy, for example, to profile all Greeks as inherently lazy. That was one of the profiling I was seeing over the last few months: These lazy Greeks, they work so short hours.
Of course, if you visit our islands and you see them dancing, all of us dancing and having fun, well, that’s part of our tourist industry.
But I looked up in the OECD to see who works most, the longest hours, amongst OECD countries. It so happens that Greeks work the longest hours of all other OECD countries.
Contrary to reports of Greek profligacy, wages in Greece are actually 60% lower than in the United Kingdom, France, Belgium, Holland and Ireland.
Nor is Greece just a country that trades on its glorious past and spectacular coastline. No, Greece is a modern, dynamic democracy, a nation of creative entrepreneurs, with a vibrant culture.
And the successes – I think you can attest to this – of the Greek American community in so many different fields, whether it’s Hollywood, Silicon Valley, academia and the East Coast, this just shows the entrepreneurial spirit but also the dynamism of the Greek people.
In reality, the reality is that in Greece we have been making a clean break with practices which we want to change, practices of the past.
And we are forging ahead with a wave of reforms to put Greece on a path to fiscal stability and sustainable growth.
This is not just crisis response. There is a real longevity in our reform agenda.
Even under the most prudent forecasts, we fully expect to return to positive growth rates in 2012.
Up until 2008, Greece exhibited strong growth for more than a decade. We had a much higher growth rate than Spain, Portugal, and even Germany.
So I am sure we can achieve similar, or even better, growth rates, once the positive impact of these reforms kicks in.
So rather than betting against Greece, canny investors should be looking at Greece as a sustainable growth proposition. Forward-thinking business leaders should be moving into the Greek market to make their business grow in Europe and beyond.
If Greece is not already on your radar as an economy on the rise, a future success story, then it should be.
This is not simply a self-centered proposition. In this fragile global economy, we need success stories more than ever. And it does not take much to make Greece a flagship of success.
Thank you very much.