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As Greek Protests Continue, Prime Minister Says Economic Shift Is ‘Daunting’

July 1, 2010 at 12:00 AM EDT

JUDY WOODRUFF: Next: the beginning of a new series about the global economic situation.

“NewsHour” economics correspondent Paul Solman will be reporting from Europe about the problems there and the tough choices ahead.

Tonight, from Athens, a look at how Greece is coming to terms with one of the worst debt crises in the world.

Paul’s interview with the Greek prime minister is part of his ongoing reporting on Making Sense of financial news.

PAUL SOLMAN: Protesters in Athens this week up in arms over a bill being debated here in the Greek Parliament to raise the retirement age, reduce payments to pensioners, make layoffs easier.

After a fire and three deaths in May, the protests have again turned violent. A letter bomb was sent to the interior minister last week, killing an aide. The Athens stock market has also reacted violently, down some 40 percent for the year. And the rate to lend Greece money on the open market has soared to 12 percent, junk bond status, because of a debt that’s 115 percent of GDP.

Trying to walk the fine line between markets and mayhem, low-key Prime Minister George Papandreou, brought up in exile in America when Greece was ruled by the military, sociology student at Amherst College, son and grandson of prime ministers, and a model of calm, making the difficult case that, despite the storm, Greece is on the right course.

We sat down with him at his private office in the parliament.

Prime Minister Papandreou, thanks for joining us.

GEORGE PAPANDREOU, Greek Prime Minister: Thank you.

PAUL SOLMAN: Is Greece, the Greek economy, coming apart?

GEORGE PAPANDREOU: Well, obviously, we had — we have a daunting ahead of us prospect to change our economy, change our society, I would say.

PAUL SOLMAN: But that’s why people are protesting in the streets, I mean violently protesting, right?

GEORGE PAPANDREOU: Well, the — let’s differentiate some of the acts of violence, which are the very small minority, very unhappy events, a very small minority. But they don’t represent in any way the peaceful demonstrations, which are understandable, and the fact that, at the same time, a large number of the Greek people, I would say a majority of the Greek people, understand that these measures are necessary.

PAUL SOLMAN: What are the basic problems of the Greek economy?

GEORGE PAPANDREOU: I would say, first of all, the fact that the — we have a debt is sort of the tip of the iceberg of the problem of being more competitive on the one hand — and that’s why we’re really changing the productive, if you like, basis of our economy, moving into a green economy, a more transparent economy, also an economy where we had a — we still have a large shadow economy, which is also a hope, because bringing that into the formal economy will also help our — our — not only our statistics, but also bring in revenue for the public sector.

PAUL SOLMAN: Shadow economy meaning an underground economy.

GEORGE PAPANDREOU: An underground economy, that’s right

PAUL SOLMAN: People don’t pay taxes

GEORGE PAPANDREOU: That’s one thing, but there’s — don’t pay taxes or labor’s not registered. There can be a lot of graft in some areas.

When we tackle that — and some of the legislation which we have already passed is starting to tackle these issues. I will give you an example. Tax evasion is going down. We have higher tax revenues, even in the first two months after the new tax law which we passed. These are types of things which will allow us to tap into lost revenues which exist, because Greece is not a poor country. It is a rich country, but it is a badly managed country because of these particular issues.

PAUL SOLMAN: Are these the key solutions that the IMF insisted on when it and Europe granted you $100 billion-plus back in May?

GEORGE PAPANDREOU: There’s a whole range of issues. Obviously, we took some very difficult and immediate measures.


GEORGE PAPANDREOU: Such as cutting wages. We have cut down wages up to 20, even 30 percent, in some sectors, public sectors, cutting in pensions. These were very difficult measures.

Obviously, that’s why people are unhappy and feel the pain. Even though there are demonstrations, we also have a large support. People understand that this is a patriotic duty, that we must move forward, change our economy, do not default, and deal with our debt.

Two laws which we’re passing this week have do with a fiscal stabilization authority, which will follow our budget through the Parliament, an autonomous body, making things very transparent, and, secondly, a major pension reform, which will make our pension system viable.

PAUL SOLMAN: But will that bill pass?

GEORGE PAPANDREOU: That bill will pass, yes.

PAUL SOLMAN: You guarantee it? I mean, isn’t that hugely controversial at the moment?

GEORGE PAPANDREOU: It’s hugely controversial. And that’s why we are showing that there is a strong political will that, yes, we can do things which in the past 10, 20, 30 years, no other government, not only wasn’t able to do, but didn’t dare do. So, this is — just shows that, today, we have the will and the capability of doing that.

PAUL SOLMAN: Nouriel Roubini in The Financial Times just the other day says, an orderly refinancing of Greece’s debt — that is, stretching out the terms, lowering the payments — is achievable, desirable, unavoidable.

Yes? No?

GEORGE PAPANDREOU: We could have made the choice of defaulting, but we have made the choice, not only Greece, of not defaulting, and taking this very painful — making these very painful changes in Greece, in order to be honoring the contracts with our creditors.

At the same time, this is not only a Greek decision. This is a decision of the European Union, which has backed Greece, plus, of course, the countries in the IMF, with a huge package of $110 billion for loans, of course, which we’re paying back, but that just shows the political will to help Greece move out of this crisis and make the necessary changes.

PAUL SOLMAN: Two quick questions. Right now, your debt is 12 — you’re paying 12 percent or more for debt. Back in February, it was six 6 percent. And you said at that time, credibility is the key issue.

So, isn’t that a suggestion that things are deteriorating?

GEORGE PAPANDREOU: The markets are very fearful, very risk-averse, after 2008. So they take time in order to see whether a program or a government or a company or a bank is credible.

We need that time. We were given that time through this package from the European Union and the IMF, so that we can make the necessary changes in our country. So, I would say, let’s look at the trend in Greece. The trend in Greece is a positive one. We’re 40 percent down on our deficit. We’re ahead of target for — as — from the first report card we’re getting from the IMF and the European Union.

We have made major changes. We’re doing reforms in pension, education, and health. These are things which just show that we’re on track.

PAUL SOLMAN: So, why does it matter to America, to Americans what happens here in Greece?

GEORGE PAPANDREOU: Well, first of all, I think that we’re all in a very interdependent world, so that anything that happens anywhere in the world affects everyone else.

We saw that with Lehman Brothers in — in the crisis in Wall Street. It didn’t just affect the United States only. It affected the global economy. But we saw that also with Greece.

I wouldn’t have expected — and I didn’t expect this even just a few months ago, was how Greece could become the center of attention because of its problems. And that just shows how, even though we all know this, when it hits you, it is much more striking, the fact that we are so interwoven, so interdependent. A small event here, an article here, a comment there can create a panic throughout the world.

PAUL SOLMAN: Prime Minister Papandreou, thank you very much.


JUDY WOODRUFF: On Monday, Paul will interview the French finance minister, Christine Lagarde.