Greece meets ambitious targets in 2010

January 2011

Last year, the deepening sovereign debt crisis was the major talking point at Davos. Greece’s newly elected Prime Minister, George Papandreou, pledged to restore the country’s fiscal health and push through a sweeping reform agenda.

One year later, with the support of an EU/IMF stabilisation mechanism, Greece has enacted the most ambitious and progressive reform programme in the nation’s history.

Greece achieved – and often exceeded – all its targets in 2010.

This is an overview of what Greece has accomplished in the past year.

Numbers at a glance

6.0% ofGDP …….Reduction in Greek budget deficit in 2010
37.0%……………y/y decline in state budget deficit
66.4% ……………y/y reduction in state budget primary deficit
5.5%………………Net revenue increase
2.0% ofGDP…….Projected decrease in the budget deficit for 2011

Deficit Reduction

“Athens has proven its critics wrong by implementing an ambitious and front-loaded fiscal adjustment program”
Olli Rehn, EU Commissioner for Economic and Monetary Affairs, August 2010

- Largest fiscal consolidation by any country in EU history in one year: the deficit was reduced by 6% of GDP in 2010 (above the projected 5.5%).

- The state budget deficit fell by 37% year-on-year (exceeding the targeted reduction of 33.2%)

- Greece reduced ordinary budget expenditures by 9.1% year-on-year (against a targeted reduction of 7.5%). Primary expenditures decreased by 10.9%, against an estimated 9% annual decline.

- Cut public sector wages by 15% on average. Introduced wage caps, reduced overtime costs and short-term contracts, and implemented a 1:5 hiring replacement ratio.

- Loss-making public enterprises, including Hellenic Railways, are being restructured, with a 15% wage reduction in all state-owned companies.

Fiscal management and public administration reform

- The Fiscal Management and Responsibility Act introduced expenditure ceilings and improves budgetary oversight.

- Local and regional administration reform reduces municipalities from 1000 to 325.
The law aims at generating productivity gains and total fiscal savings of the order of €1.5 billion over 3 years.

Enhanced Transparency

“This programme itself is an important achievement. It is based on prudent macroeconomic assumptions… It has the potential to correct long-standing flaws, because it entails a very comprehensive structural reform package”
Jean-Claude Trichet, President of the European Central Bank, June 2010

- Established an independent Hellenic Statistical Authority (in cooperation with Eurostat) to improve monitoring and accountability.

- Overhauled the tax framework to facilitate tax compliance and fight tax evasion.

- Passed a new anti-corruption law that obliges all public expenditure to be published online (diavgeia.gov.gr).

Boosting the Private Sector

- A ‘Fast Track’ legal framework was created to attract and expedite large-scale investments. It includes tax incentives, cutting red tape in licensing procedures, a stable tax environment with an 8-10 year horizon, and an investment programme worth  €4 billion.

- Corporate tax rate on non-distributed profits was reduced from 24% to 20%.

“Greece is on track to deliver on its reform agenda. Significant progress has been made, particularly in reducing the fiscal deficit, on the reliability of statistics, and key reforms on pensions and labour markets”
Jose Manuel Barroso, President of the European Commission, December 2010

Increasing Competitiveness

- The new Real Estate and Asset Privatization Programme will generate €7 billion through sales and privatizations from 2011-2013.

- Relaxing product market regulations, lifting barriers to entry in services, and opening up closed professions will boost Greece’s output by an estimated 5 to 6% of GDP.

- Liberalization of the energy sector to boost competition and encourage investments in renewable energy.

- Opening of closed professions – road freight transports, pharmacies, lawyers, notaries, architects, engineers, accountants etc – to enhance competitivenessand promote growth.

Pension and labour market reforms

- Passed a radical reform of the Greek pension system ahead of schedule. It includes a rise in the retirement age to 65 by 2013. The pension reform will considerably reduce future spending pressures, with expenditure to increase by no more than 2.5% of GDP up to 2060.

- Labour market reform revises the mediation and arbitration system, introduces the prevalence of firm-level agreements over sectoral and occupational agreements, introduces sub-minima to minimum wage, raises the minimum for collective dismissals, reduces the level of severance pay and allows more flexible forms of employment.

“There has been good progress in a number of key areas–notably in reducing the fiscal deficit and in completing a landmark pension reform”
Dominique Strauss-Kahn, Managing Director of the International Monetary Fund, December 2010

Banking Reforms

- A €10 billion Financial Stability Fund was created to provide rules-based equity to the commercial banking sector. This enhances the resilience of the financial system.

- Strengthening of the Central Bank’s supervisory role, covering both commercial banking and the private insurance sector.

- Application of quarterly stress-tests and promotion of restructuring of the Greek banking system.

Looking Ahead

If 2010 was a year of unprecedented reform for Greece, the Greek government is committed to building on this momentum to further enhance growth and competitiveness.

- Reducing the budget deficit to 7.4% of GDP in 2011, on track towards an ultimate goal of a 2.6% deficit of GDP in 2014 (with a primary surplus of 5.6% of GDP).

- The latest reports of both the European Commission and the IMF show that Greece is projected to have a primary surplus in 2012 – one of the few European countries with a primary surplus.

- Return to growth by the end of 2011.

- Estimated €1 billion returns from privatization and asset management programmes in 2011.

- A new entrepreneurship fund will deliver c. €2.5 billion to the real economy and create jobs in emerging sectors. The focus will be on encouraging innovative start-ups by improving access to seed capital and venture capital.

- Regular placement of short-term treasury bills with the goal of returning to normal market activity in the course of 2011.

Regaining optimism

Greece implements the Economic Policy Programme and records:

- The most ambitious fiscal and structural reform agenda in the history of the Eurozone.

- Unprecedented determination to deliver results, change and reform structures and institutions.

- Timely implementation of major reforms such as pension reform, labour market reforms and opening-up closed professions.

- Removing obstacles and providing incentives to release the hidden strengths and full potential of the Greek economy.

- Broad social support of the government’s efforts, recognising the importance of these reforms for future growth and stability.

The booklet with the charts and graphics:

A Year of Consolidation and Reform

>> For more information, visit the official site of Mediterranean Climate Change Initiative.

Prime Minister George Papandreou addressed a special meeting of his cabinet this morning to discuss the new budget-reduction measures proposed by the Government and the approval of the IMF and EU joint loan mechanism. Here are some selected excerpts from his opening address:

- “Avoiding bankruptcy is a red line for our nation”

- “We have waged a battle of credibility and we have won”

- “The decision of the European Union on the 25th March was decisive and historic for Greece, but also for Europe”

- “I know that with the decisions today our citizens must suffer greater sacrifices. The alternative, however, would be catastrophe and greater suffering for us all”

- “I have never sought to come to power for power’s sake, only to contribute. I’m not interested in sacrifice for the sake of sacrifice”

- “My only goal is that when I turn over power, I will have done what is right—and we will have created together a different and much better Greece”

- “At the end of my time in office, Greece will not be bankrupt—it will be reborn”

- “I must stress again that Greeks have always come through difficult times both stronger and victorious. This is the case today, too. This is why I have every confidence in the strength of Greece”

>> Read the full text of PM’s speech…

Greek premier George Papandreou shows coolness under pressure

You can read the arcticle here.

PES President Poul Nyrup Rasmussen addresses President Barroso in open letter entitled: ‘Greece and the Euro-area need a crisis-management mechanism’:

Greek Prime Minister George Papandreou visited Luxemburg, Berlin and Paris, before flying to Washington D.C. to meet President Obama, Secretary of State Clinton and other U.S. officials. Mr Papandreou also addressed the Brookings Institution, wrote an article, and gave several interviews.

1) Washington D.C.

Mr Papandreou met U.S. President Barack Obama at the White House on March 9th. The two men discussed Greece’s financial situation and the European Union initiative against currency speculation, as well as other international issues such as the Cyprus problem, the future of the Balkans, and Greek-Turkish relations. The Greek PM said that Mr Obama’s earlier announcement of a visa waiver for Greek visitors to the U.S. was a vote of confidence in Greece and its economy.

Mr Papandreou advised Mr Obama that the Greek government’s emergency economic measures had the support of international organizations such as the IMF, as well as of the European Union and the leaders of many countries. He stressed that radical changes were being made not just in the management of the economy, but in public administration, education and health, with the adoption of ‘green’ policies that would bring about sustainable development.

The Greek PM told Mr Obama that, alongside other European leaders including Chancellor Angela Merkel of Germany and French President Nicolas Sarkozy, he was determined to fight currency speculators – this would limit destabilization in both the Eurozone and world markets. Mr Obama approved of the initiative and agreed that the issue would be discussed at the next G20 summit. Mr Papandreou also told the President that Greece’s proposal for all Western Balkan countries to become members of the EU by 2014 would help stability in the wider region. Also, Greece was committed to improving Greek-Turkish relations, but was also in full support of President Christofias in his attempt to find a just solution to the Cyprus problem.

After the meeting, the Greek PM confirmed that he had not asked President Obama for financial aid, saying that political support from the leader of the world’s largest economy country was very positive.

Greek Independence Day: Mr Papandreou attended the annual celebration at the White House, in the presence of President Obama. Also present were Archbishop Demetrios of America, members of Congress, and prominent Greek-Americans.

On March 8th, U.S. Secretary of State Hillary Clinton welcomed the Greek PM to talks. In a joint press conference, they expressed mutual support. Mrs Clinton thanked Greece for its contributions to the NATO mission in Afghanistan and said that the U. S. supported Greece and the economic measures taken by its government. She also commended the country for its leadership in the Balkans, and the PM’s attempts to improve relations with Turkey. Mr Papandreou thanked the Secretary of State for her solidarity with the difficult decisions his government was taking to improve the economy and the system of governance in Greece. He stressed that progress with Cyprus, the Balkans, and Turkey was predicated on friendly cooperation rather than antagonism.

The Greek PM was also received by Nancy Pelosi, Speaker of the House of Representatives. After their meeting, Mrs Pelosi referred to the ties between the U. S. and Greece, dating from the times of Athenian democracy and supplemented by the millions of Americans with Greek roots. She congratulated Mr Papandreou for his bold stand in the face of economic pressures, and assured him that her country would be at Greece’s side at this difficult time. The Greek PM spoke in honour of the Americans who died during the Greek war of Independence, demonstrating the countries’ common values. Having been born in California, Mr Papandreou was himself an example of the Greek-American community and he thanked the Speaker for her support during the financial crisis, which was now past its worst.

Brookings Institution:

Mr Papandreou addressed the institution on March 8th. Introducing him, Strobe Talbott, President of Brookings, said that the Greek PM was a leader  not just of his own country, but of Europe; he was also a champion of everything good and a statesman of rare discipline, ingenuity, integrity and political courage. Drawing parallels with the situation in 1947, Mr Papandreou said that there was a crisis of global governance, and that cooperation between Europe and the U. S. was essential to deal with it.

There was a danger that the financial woes affecting Greece might extend to the whole world. His government’s tough measures would reduce tax evasion and corruption relatively soon, but it was important to plan for the long term as well, in particular by implementing financial regulations – the markets should work for countries and citizens rather than against them. Climate change also needed a coordinated global approach. Democracy must be defended in every possible way, not least against modern oligarchies and narrow interest groups.

Bill Clinton: The Greek PM met the former U.S. president, who offered support for the Greek government’s economic measures. Mr Clinton said that Greece’s long term prospects were ‘exceptionally auspicious’.

Article for the International Herald Tribune: Mr Papandreou wrote about Greece’s problems in a piece titled ‘Greece Is Not An Island’, discussing the measures his government had taken to confront the crisis and the need for control of the international markets.

Interviews: While in Washington, the Greek PM gave numerous interviews.

- The Charlie Rose Show, with Charlie Rose

- NPR, with Michele Kelemen

- NPR, with Robert Siegel

- PBS News Hour, with Judy Woodruff

- BBC World America, with Matt Frei

2) Berlin/ Luxemburg

On March 5th, Mr Papandreou met German Chancellor Angela Merkel. At a press conference afterwards, the Greek PM said that two main elements of the political support Greece had sought and received from Germany were: support for the measures his government had taken, and the decision to act jointly against currency speculators. In addition, bilateral cooperation in seven sectors would be expanded under the supervision of a committee set up by the two countries. Greece had asked for no financial aid from Germany, but wished to be able to borrow at the same rates as other countries. Mr Papandreou had earlier met Luxemburg Prime Minister and Eurozone Chairman Jean-Claude Juncker to discuss economic issues.

3) Paris

The Greek PM had talks with French President Nicolas Sarkozy on March 7th. The President issued a strong message of solidarity towards Greece and its efforts to bring about economic recovery; the countries of the Eurozone must now take measures. The Greek PM acknowledged the support of France, saying that resorting to the IMF was not Greece’s preferred course of action. No financial assistance had been sought from President Sarkozy.

>> Watch the video.

After an hour long meeting with the Greek Prime Minister, at the Elysee Palace, yesterday (March 7, 2010), French President Nicolas Sarkozy issued a strong message of solidarity towards Greece and its efforts to bring about economic recovery, making it clear that the Euro area member states would rise to the occasion.

“The Greek government has taken the measures expected of it,” noted Nicolas Sarcozy. “The countries of the Eurozone must now be ready to take their own [measures]. France will therefore do what is necessary”

George Papandreou stated in turn that he had received active support from France, which recognizes and supports the efforts of the Greek people. Noting that resort to the International Monetary Fund (IMF) is not Greece’s preferred choice, George Papandreou again stressed that Greece is not asking for financial assistance, only the opportunity to borrow at a rate similar to other Eurozone countries.

On Friday, March 5, Prime Minister George Papandreou and German Chancellor Angela Merkel held talks in Berlin.

In remarks made, following the meeting, Papandreou said that support for the measures taken by the Greek government and a decision for joint action against speculators were the two main elements of the political support that Greece had sought and received from Germany. A third element was a decision to expand bilateral cooperation in seven sectors, via a joint committee set up by the two countries.

Prior to his visit to Berlin, George Papandreou met the Prime Minister of Luxembourg and Eurogroup Chief Jean-Claude Juncker.

The guiding principle of our government is transparency – to overcome our budget deficit but also to address our credibility deficit we inherited from the previous government, whose creative accounting has even called the credibility of the EU Commission into question.

In five months since taking office, our government has launched a raft of far-reaching reforms, regardless of the political cost of those decisions. To restore confidence among our EU partners, we have decided that further measures are essential.

Many people rightly wonder whether more taxes and less revenue will deepen
the recession. But the immediate problem we face is not dealing with the recession, but an inability to borrow more money to service our debt.

A few years ago, Greece borrowed at almost the same rates of interest as Germany. Today, when we borrow 5 billion we must pay about 750 million more interest than Germany. If Greece cannot borrow on the same terms as our European partners, the consequences will be catastrophic. It is our responsibility to avert that catastrophe. Some of the decisions we have to take might seem unfair. But we have no choice.

Greece is being held hostage by creditors and speculators. Unless both Greece and the EU take courageous decisions, the future of the European economy is at stake. Europe needs to show its solidarity with Greece: That alone will stop speculative attacks on the Greek economy and the Euro. But our European partners have to persuade their own citizens that Greece is a credible, responsible partner.

Greece can and must do everything we can to put our house in order. 2010 will be a year of drastic reforms across all levels of government: changes to our budget, our tax system, our social security system, our public administration, our development model. All these changes will have a dramatic impact in addressing chronic problems and entrenched mindsets.

I wish we had more time to demonstrate the impact of the reforms we have already implemented. To prove to our European partners and the markets that we mean business. Unfortunately, we cannot afford to wait for these policies to bear fruit because our creditors won’t give us time. The global recession – which has caused ballooning deficits in many countries – has put further pressure on Greece’s borrowing needs.

Greece’s national debt now stands at 300 billion.  The GDP is 240 billion. This year, the Treasury needs 100 billion to cover operational costs, pay pensions and public sector wages, and service the national debt. We will have to borrow about half that amount.

Between 2004-2009, revenues increased by 10 billion, while basic state expenditure increased by 23 billion.  Today, 52% of government revenue goes to public sector wages and pensions. In 2004, that figure was 45%. In 2004, 6 billion was allocated to supplementary payments to social security. Today that figure is 12 billion. The EU has lost faith in Greece’s promises to cut wasteful public spending because between 2006 and 2009 basic budget expenditure (before interest) increased by 50% – or 20 billion.

Clearly, this is not sustainable. The history of the last five years cannot be unwritten. Our European partners will not forget that history until we can prove that we can make difficult but essential decisions to pull our country out of this crisis.

The loss of revenue these new measures will bring must be counter-balanced by cutbacks in government expenditure so that we do not waste a single euro. We will kick-start productivity through structural reforms, public investments and incentives to stimulate growth. These measures are essential to ensure that unemployment does not rise as a result of our austerity measures. With wage earners paying a high price, we will be aggressive in cracking down on tax evaders and ensuring that the tax system does not favour the rich.

This crisis is an opportunity not only to break old habits, but to fundamentally change our country. Rebuilding Greece’s public administration is a matter of national survival. Greece’s problems are not just economic: the underlying political and social causes must be tackled so that these problems do not resurface. People are angry and want to see fundamental changes to our governance model and our public services. The majority of Greeks are not lazy, crooked, or corrupt. They work hard, pay their taxes, and respect the law. And they have said loud and clear: “enough is enough.”

We all have to make sacrifices. We must treat our country with the same respect as our household. Because Greece is our home and this is where we live.

Mr Papandreou will also visit Washington DC on Tuesday, March 9, 2010, where he will meet the President of the United States Barack Obama.