The financial crisis has been one of the biggest global challenges of the past few decades. Its origins can be traced back to the US banking sector in 2008, but the crisis quickly spread to Europe, mainly due to structural deficiencies of its Economic and Monetary Union (EMU). It resulted in a serious debt crisis with global repercussions, exposing the lack of a regulatory framework in the financial sector. Greece was among the first European countries to be severely affected, mainly due to the weaknesses in economic structure, the product of imbalances that were exacerbated over many years through the accumulation of errors and omissions in policies that eventually led to the creation of excessive debt.
Nonetheless, it is worth mentioning that Greece has probably been the Member State that benefitted most from the EMU, a major achievement of the EU integration process. The Greek economy’s remarkable expansion during the last 15 years – triggered largely by the improved housekeeping that took place in the latter part of the 1990s in the course of nominal convergence to enter the third stage of the EMU and adopt the euro – not only changed the face of our country, but also made a significant contribution to the wider stability of South Eastern Europe, thanks to the important expansion of trade and investment with our neighbours.
During this period, Greece witnessed a remarkable improvement in the standard of living; peripheral countries also benefited from low interest rates and the financial stability brought about by the euro.
However, by the end of this decade, all was not well. Commentators have said that even before the true state of Greece’s public finances was revealed in the autumn of 2009, Greece was known to suffer from a lack of ‘competitiveness,’ leading to a very big current-account deficit, primarily driven by a surge in imports. The rapidly increasing size of the public sector greatly contributed to a consumer spending spree during the latter years of eurozone membership. The Greek private sector is not perfect, either; unit labour costs relative to the country’s main trading partners in Europe rose too fast, large swathes of the private sector suffered from gross inefficiencies due to the small size of firms, tax evasion remains a huge problem and large sectors are still overly dependent on government contracts. And during the Greek economy’s expansion period, we missed an opportunity to introduce those necessary reforms to improve our competitiveness and achieve sound public finances.
But the inadequacy of fiscal and structural reforms became all too apparent when the fiscal crisis hit. The assistance provided by our eurozone partners at that critical juncture was indeed crucial for coping with the crisis. An unprecedented mechanism was set, the so called ‘troika,’ with the aim to refinance our debt and introduce all the necessary reforms. The deal, which included a raft of spending cuts, pension reforms and public sector job losses, was agreed between the Greek Government and the troika-members of the EU, the European Central Bank and the International Monetary Fund.
Given the scale of the errors made in recent years, the policy of fiscal consolidation and reform we are implementing today is essential to free ourselves of the constraints of high public debt, and to lay the foundations for sustainable growth. Unfortunately, Greece has been 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 cost adjustments for a period of time.
Greece’s eurozone participation preserves price stability, promotes financial and economic strength and facilitates the implementation of the deep and broad reforms required for the revival of the economy. The Greek people recognise the need for a major economic and institutional transformation and they overwhelmingly support eurozone membership, which they believe is crucial for the success of this effort.
On a European level, important steps have been taken to enhance economic and fiscal union by strengthening the economic pillar of the EMU. The new Treaty on Stability, Coordination and Convergence in the Economic and Monetary Union, as well as the European Stability Mechanism Treaty for the establishment of a permanent mechanism to provide financial assistance to member states in need and thirdly, the Euro Plus Pact signed last March, definitely move towards that direction.
Through primary and secondary EU legislation we have managed to create a solid fiscal framework, which would effectively lead to sound public finances. This new framework is an important step in our two-year intensive effort to address the economic crisis through fiscal discipline.
Furthermore, growth should definitely be an essential part of the European strategy to address the current crisis, placing it among the top EU priorities. In this respect, we should make use of several tools and means to generate growth, such as the completion of the Single Market, credit-related measures to increase liquidity, better mobilisation of structural funds and use of ‘project bonds’ to stimulate private financing of key infrastructure projects.
Circumstances demand that we overcome our limitations and surpass ourselves. We have to work to the best of our ability and emphasise our strengths in the spirit of cooperation. Despite the hurdles that lie before us, all eurozone countries – great and small, strong and weak – share a real interest in securing its cohesion and stability. Suggestions to dismantle the eurozone are unrealistic, and would risk the collapse of the common market. Moreover, we consider the euro an indispensable part of the process of European integration through which the peace, prosperity and solidarity of the European people is consolidated.