Greece’s cri­sis is an in­sti­tu­tional one

The Pak Banker - - OPINION - Puja Mehra

IT could be months, it could be years but this is a his­tor­i­cal pe­riod which would be the true chal­lenge to see if the Euro­pean ex­per­i­ment can suc­ceed or will fail" For­mer Greek Prime Min­is­ter Ge­orge Pa­pan­dreou was voted into of­fice in 2009 and within a short pe­riod he was forced to seek in­ter­na­tional bailouts of 250 bil­lion euros and em­bark on an aus­ter­ity pro­gram to fend of a debt cri­sis. In an ex­clu­sive in­ter­view The Hindu, Mr. Pa­pan­dreou talked about how the Greek debt cri­sis un­folded, the cur­rent sit­u­a­tion of the coun­try's econ­omy and the eu­ro­zone's eco­nomic prob­lems. Edited ex­cerpts. How se­vere is the eu­ro­zone's debt cri­sis now?

Europe is still bat­tling be­tween re­ces­sion, de­fla­tion and very slow growth. There has been a gap be­tween the more com­pet­i­tive economies and high-sur­plus economies. For ex­am­ple: Ger­many has big­ger sur­plus than China which it should in­vest even if it in­vests just only in its own in­fra­struc­ture which would cre­ate more stim­u­lus, more jobs which al­lows for more con­sump­tion and that will help the Euro­pean econ­omy. In the view of the mar­kets the cri­sis has been mit­i­gated if not com­pletely solved. How­ever if you look at the debt of cer­tain coun­tries, for ex­am­ple Greece, if you don't have growth in Europe we are get­ting into a spiral of cut­ting, fur­ther re­ces­sion, more cuts… and that just means that the debt is just grow­ing. foods which are based on our tra­di­tions. That is be­com­ing a niche in many parts of the world. And if you com­bine that with health and tourism, cul­ture…re­new­able en­ergy… we have a lot of sun, wind and geo­ther­mal. We are No. 1 in Europe in ex­ports of fish­eries. Greece has a very ed­u­cated younger gen­er­a­tion. Many of them have left for other coun­tries but if in­vest­ment comes, they could re­turn.

In Europe, we started the quan­ti­ta­tive eas­ing (QE) seven years af­ter the cri­sis. There are two ba­sic is­sues in Europe. First of all, Europe is at a turn­ing point as far as its own ba­sic struc­ture is con­cerned. Se­condly, there is a prob­lem with the ar­chi­tec­ture of hav­ing a com­mon cur­rency with dif­fer­ent eco­nomic poli­cies and dif­fer­ent lev­els of economies. We were a less com­pet­i­tive, less de­vel­oped econ­omy, than say Ger­many, and this meant that with com­mon cur­ren­cies we could not keep up. That was a struc­tural prob­lem. Is it right to say that your fis­cal poli­cies were not in­te­grated?

That's right. This means that we have reached a cross­road where we say ei­ther we go into a deeper in­te­gra­tion or we start feel­ing the pres­sures of splin­ter­ing and go­ing our own way. Some coun­tries were wor­ried to pull their own re­sources, I would say pool their risks in a com­mon Euro­pean Union, which then moves to­ward a bank­ing union. That means then that whether you have your money in a Greek bank or an Ital­ian bank or a Ger­man or French bank your euros are equally valu­able and equally guar­an­teed. We haven't reached there but we have done the first few stages, which is the mon­e­tary, the res­o­lu­tion mech­a­nism. Now we have to get the guar­an­tee. Guar­an­tee, of course, means pool­ing risk.

An in­sur­ance com­pany pools risks of thou­sands of peo­ple to give in­sur­ance to peo­ple who need it and that creates a sense of se­cu­rity. How­ever, some coun­tries say why should we put in our own ca­pac­ity in pool­ing this risk, par­tic­u­larly, if we see our­selves as very sep­a­rate na­tions. That's the first prob­lem. Se­cond prob­lem is the sense of can we be­come one fam­ily. Q: At the height of the cri­sis, Greek peo­ple couldn't with­draw their sav­ings from their bank ac­counts, firms couldn't make pay­ments…

When the cri­sis be­gan in 2009-10, I took the mea­sures in or­der to avoid a run on the banks and there­fore a need for cap­i­tal con­trols. Un­luck­ily, ev­ery govern­ment tried to do their own thing. I do hope now we are mov­ing to a fi­nal stage of sta­bil­i­sa­tion and mov­ing out of this cri­sis. Greece has made the deep­est and quick­est fis­cal ad­just­ment of any OECD coun­try ever and that has taken a toll on not only the Greek econ­omy but Greek fam­i­lies. 25% loss of GDP in th­ese years, which is a huge loss but of course, has meant that mov­ing away from a more na­tion­al­ist based out­look of each other's in­ter­ests.

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