Second speech in the Parliamentary discussion on the Government Policy Statement

Mr Speaker,
Honourable Members of Parliament,

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1. The public discussion that took place in Parliament yesterday and today, at this highly critical juncture for the future of Greece, was certainly very useful for the people of this country. It was extremely useful for me personally and for the new unity government which, with your vote of confidence, will undertake the enormous task that lies before us.

2. I thank all those who support the government and who intend to provide it with their vote of confidence. In my view, each of these votes corresponds to a personal decision to undertake a burden of responsibility: to ensure that our country remains within the eurozone, and to ensure that the process of fiscal consolidation and reform of the Greek economy is continued.

3. I also thank those who, advancing specific arguments, have stated the reasons why they will not give a vote of confidence. I have listened carefully to their positions and I wish to assure them that, within the framework of the government’s policy to rescue the country, I take their concerns very seriously into consideration.

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Honourable Members of Parliament,

4. When presenting to Parliament the government’s policy statement I stressed that there are two keys to winning the battle to rescue our country from the state into which it has fallen: explaining the truth of our situation and restoring confidence. The truth emerges from an accurate reading of developments and an understanding of the actual situation in which we find ourselves. Allow me to give you my reading of developments in the eurozone, the causes and nature of our economic plight, and the policy required to deal with it.

5. Several Members of this Parliament have expressed their concerns about the escalation of the crisis that has gripped the eurozone. Indeed, everyone is deeply worried, as the crisis spills over from the European periphery to the core economies. Furthermore, rising pressure in the government bond markets is having an adverse impact on the European banking system and, via the banking system, on the real economy. Particularly worrying is the negative chain reaction between the bond markets, public finance, bank lending and business activity. These developments are not only threatening the European economy with recession; they are placing stability in jeopardy.

6. What led to the expansion and the deepening of the crisis? First, the measures deployed in various countries that were vulnerable on account of their fiscal problems and structural weaknesses proved to be inadequate. Second, the European mechanisms set up to support the banking system and shield the economy from the crisis had neither the fire power nor the flexibility required to prevent contagion.

7. The escalation in the crisis over the past few weeks has led to doubts about the ability of the eurozone and its member states to deal with it. So much so, that some are making grim forecasts regarding the stability and the cohesion of the eurozone.

8. I am optimistic that the eurozone will prevail in the current ordeal. I believe that in the end, despite the divergences in approach to how the crisis can be solved, and despite the political and institutional factors that constrain freedom of movement in adopting the measures needed to deal effectively with it, the people of the member states of the eurozone and their leaders will surely take the right decisions. And they will adopt measures and an institutional framework that will safeguard the standing of the euro and protect the stability and solvency of the European banking system.

Despite the hurdles that lie before us on the national level, I believe that all the countries – great and small, strong and weak – share a mutual interest in securing the cohesion and stability of the eurozone. Because this will ensure the continuation of the European integration process by which the peace, prosperity and solidarity of the European peoples is consolidated.

10. To deal effectively with the crisis, we need more radical measures, including the strengthening of financial resources and room to manoeuvre by the European Financial Stability Facility (EFSF), a more watertight framework of economic governance within the eurozone, and real steps towards convergence and integration of the various member states’ fiscal policies.
Honourable Members of Parliament,

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11. Time does not allow me to expand in greater detail on the subject. In any case, before formulating proposals on how to rescue the eurozone, it is both imperative and our duty to implement the right policies to rescue Greece, so that when the eurozone starts to emerge from the crisis Greece will still be numbered among its members. This must be our overriding objective.

12. What is the nature and basic cause of the debt crisis and, more generally, the banking and economic crisis in our country? The main cause is the accumulation of excessive public debt relative to the size of the economy, due to the persistently high budget deficits over a number of years. The continual accumulation of large budget deficits was not compatible with the monetary policy of the ECB, whose key mission is to maintain price stability. The combination of expansive fiscal policy and rates of inflation that for a number of years were consistently higher than the average rate of inflation in the eurozone led to loss of competitiveness, with adverse impacts on the balance of payments, business activity and employment.

13.The accumulation of excessive debt – both in the public and private sectors -is one of the main causes of all the crises to have hit advanced and developing economies throughout the ages. In the case of Greece in particular, the expansion of the public sector and the growth of the economy were founded, for a number of years, on borrowed money, and both proved to be unsustainable. Borrowing was, by and large, not used as a tool for financing productive investments, but instead used to meet the consumption of the government and the private sector. In other words, we failed to create the foundations on the basis of which we could repay the ever-burgeoning debt.

14. The global credit crunch served to show just how vulnerable the Greek economy really was, on account of its fiscal imbalances and loss of competitiveness. When the true scale of the problem was revealed in the autumn of 2009, the markets responded mercilessly and the cost of borrowing soared. Thereafter, doubts about Greece’s ability to implement the policies required to rein in the debt led interest rates to prohibitively high levels that rendered the public debt unsustainable. As a result, Greece had to request a bailout package from its European partners and the International Monetary Fund.

15. When presenting the government’s policy statement to Parliament, I outlined the reasons why, despite the significant progress made in reducing the budget deficit, the time when the country can raise funds on the global markets has necessarily been deferred to a later date. As a result, liquidity in the banking system has contracted and funding of the economy has become anaemic. It is clear that, despite the reduction in the deficit, the high and ever growing public debt and loss of competitiveness are the main obstacles to economic growth, the creation of new jobs and improved employment figures.

16. The basic causes of Greece’s economic woes are, unfortunately, homegrown – they are the product of policies, practices and mindsets that have been endemic over many years.

17. At the same time, however, it needs to be said that the excessive public debt reflects the inadequate workings of the economic policy framework of the eurozone and the failure of the capital markets to give effective early warning of real credit risks and to encourage timely implementation of tighter fiscal policy. For instance, the Stability & Development Pact failed to deliver ideal results and, as it turned out, was unable to anticipate and prevent fiscal derailment.

Although for a number of years prior to the crisis Greece, at the highest political levels, had been the recipient of repeated warnings by the European Commission, the EU Council of Ministers and the ECB on the need to implement responsible fiscal policy and to reduce the budget deficit in line with the terms of the Stability Pact, these warnings were ignored. Indeed, the deficit continued to grow and was, to some extent, concealed from view. Accordingly, it is essential that we adopt a new framework of economic governance in the eurozone, which in future will effectively preclude the creation of excessive budget deficits.

18.The policy of fiscal consolidation and reform implemented today is essential, given the scale of the errors made over the past years. Only by applying this policy can we free ourselves of the constraints that high public debt implies, and lay the foundations for a different type of growth that, above all, will be sustainable. Unfortunately, Greece is called upon to correct, within an extremely short space of time, the accumulated ills of many years. And this demands an immense effort and involves enormous adjustment costs for a period of time.

The costs of adjustment and the sacrifices of the Greek people must be distributed fairly. However, without fiscal reform we shall never manage to create the primary surpluses needed to enable us to reverse the rising course of the public debt and to raise funds from the global markets so as to finance sustainable growth and create new jobs. Without money our options are very limited.

19. By leveraging the comparative advantages of our country in sectors such as energy, tourism and agriculture, by introducing structural reforms that enhance our competitiveness

- that generate further competitive advantages and strengthen exports
- and by leveraging effectively the community funds released via the National Strategic Reference Framework, economic recovery and job creation will be achieved within a shorter space of time, thereby offsetting the adverse impact of the austerity measures. We must act quickly and methodically, in line with a specific strategy, mindful of the unemployed -particularly unemployed young people – so as to make the period of adjustment as short as possible and to ameliorate the side-effects.

20. When presenting the government’s policy statement to Parliament, I mentioned that regardless of whether we are members of the eurozone or not, our country’s economic problems remain the same. I stand by this view. However, I am sure that these economic problems will be even worse and their resolution even more difficult if Greece is not part of the eurozone. First, an exit from the euro and the adoption of a new, devalued national currency will lead to massive inflation, which would hit first and foremost the incomes of ordinary working people, particularly salaried employees and pensioners. Second, it will make it even more difficult to service the public debt, which is denominated in euro and which will have to be serviced by the government at the exchange rate of the new, devalued national currency. Third, Greek public and private sector assets will be available at fire-sale prices for all those who have funds in euro or other strong currencies. However, as I explained in my presentation of government policy to Parliament, membership of the eurozone implies significant benefits and facilitates adjustment of the economy, provided of course the right economic policy is pursued. However unpalatable, these are the hard facts of the matter. By understanding precisely our situation and the international context of our predicament we can better assess the policies required and set the right course for the national endeavour to restore the economy to health. But we should all take note that there are no easy solutions to be drawn out of a top hat.

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Honourable Members of Parliament,

21. As I have already pointed out, the task that the unity government is required to carry out is immense given the brief term of life assigned to it. For this reason, it would be wrong to expect too much of it. Implementation of the decisions taken at the eurozone summit meeting of 26th October and implementation of the policies associated with those decisions will facilitate the transition of the country to conditions of fiscal balance and sustainable growth. Thereafter, when greater stability and certainty have been restored, elections will be held so that the next government can continue the task of restructuring and reforming the economy.

22. Of course, if the peoples of Europe and international organizations are to continue financing our country, they will need more than the promise by the present, short-lived, unity government that it will carry out the task you have assigned to it. They will understandably require the express undertaking of the leaders of the parties comprising this government that they agree with the full implementation of the decisions taken on 26th October, and undertake the obligations that led to, and derive from, those decisions, as I described in my government policy statement to Parliament. Greece is asked to make this commitment for the simple reason that the Europeans and our institutional partners are also committing themselves to long-term financial support for our country.

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23. When, following the proposal of the three political leaders, the President of the

Hellenic Republic honoured me with the invitation to lead a unity government, I
accepted fully aware of the responsibility I was undertaking. The stakes are
enormous: will Greece remain a member of the eurozone, or will we be obliged
to leave?

23.1 firmly believe that, united, we can prevail:

- With the support of the Europeans and other peoples who have faith in our endeavour and who are investing in our success within the eurozone.
- Through the implementation of the policies and reforms required to restore the country to economic growth.
- With the mobilization of the Greek people in the national effort.
In this way, the sacrifices of the Greek people will not be wasted. On the contrary, they will shape the foundations for a brighter future. 24. We must enter the fray with confidence in our abilities, with determination, in a spirit of common purpose. If we fuel conflict and friction, particularly at this crucial juncture, we shall do ourselves no service.

24. The process of rescuing the country and overcoming the crisis is a process in which we all have to take part, a common goal requiring solidarity, understanding and mobilization. The road will not be easy. This is why I am not addressing my remarks solely to those of you who intend to give the unity government your vote of confidence. I also address my words to those of you who do not intend to give the government a vote of confidence, and I beg of you to bear with us: By all means, exercise your right and duty to criticize the government, but please do not reject the common endeavour.

Honourable Members of Parliament,

25.1 ask for your vote of confidence in the unity government.

Thank you.