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The Atlantic Council of the United States

Conference Call: The Austere Life: The Changing Nature of Europe’s Politics and Societies


Kostas Bakoyannis,
Mayor of Karpenisi, Greece;

Alexis Papahelas,
Managing Editor,

Washington, D.C.

Date: Monday, April 9, 2012 

Transcript by
Federal News Service
Washington, D.C.

OPERATOR: This recording is for the Alexei Monsarrat teleconference with the Atlantic Council of the U.S., scheduled for Monday, April 9th, 2012 at 11:00 a.m. Central time.

Excuse me, everyone. We now have Kostas Bakoyannis, mayor of Karpenisi, Greece; Alexis Papahelas, managing editor of Greek daily newspaper Kathimerini; and Alexei Monsarrat, director of global business and economics at the Atlantic Council on the line.

Please be aware that each of your lines is now in a listen-only mode. At the conclusion of our guests’ remarks, we will open the floor for questions. At that time, instructions will be given as to the procedure to follow if you would like to ask a question.

I would now like to turn the conference over to Mr. Monsarrat, who will be offering some introductory remarks and introducing Mr. Bakoyannis and Mr. Papahelas. Mr. Monsarrat, you may begin.

ALEXEI MONSARRAT: Thank you, Tiffany (sp), and good morning to everyone. As she said, I’m Alexei Monsarrat, the director of global business and economics at the Atlantic Council. This is one of our calls in our ongoing look at what is happening in Europe and how the Greek debt crisis has affected what’s happening there. Some of you may have been on our call last week, where we looked at some of the way the debt mechanisms might work in other countries.

But this week we really want to look more carefully at the social and political issues that are happening in Greece right now and the way that the crisis, and particular the austerity measures, are affecting how people view Europe, how that might have a larger effect on the European project, as some of these problems roll over to other countries.

And we’ve got a couple of really great and unique voices that we’re having a chance to hear from this morning. Today, with us, we have Kostas Bakoyannis, who is the mayor of Karpenisi, Greece, where – he’s been there since 2010. He’s the son of former Greek foreign minister Dora Bakoyannis, who is currently in the – in the parliament. And before becoming mayor, Mr. Bakoyannis worked in the European Parliament with the World Bank, the Greek Foreign Ministry and the Boston Consulting Group. He (was ?) educated here, in the United States, at Brown and Harvard, and then is currently also getting his doctorate at Oxford.

Alexis Papahelas is the managing editor of the widely read and circulated Greek daily newspaper Kathimerini. He also serves as the secretary general of the Hellenic Foundation for European and Foreign Policy, an organization which provides a forum for public debate on issues of European integration and international relations that contributes to a better-informed and -documented knowledge of the European and international context in Greece.

So we’re really fortunate to have two great voices with us this morning. I wanted to just remind everyone quickly that this is an on-the-record discussion, so we’ll be putting up a transcript of this later on. And just have that in mind when you are speaking and asking your questions.

With that, I would like to turn it over to Kostas Bakoyannis.

KOSTAS BAKOYANNIS: Good morning from Greece, and thank you very much for the opportunity. I’d like to shortly speak about what’s happening in Greece right now. A week ago, a 77-year-old pensioner, a grandfather of two, went to Syntagma Square – that’s an (ancient ?) square of Athens, right in front of our parliament. It was another busy morning with countless passerby, until the man put a gun to his head and pulled the trigger in plain sight. (In a sent ?) note, he blamed the Greek government, which he compared to the Nazi collaborators who occupied Greece during the second world war.

Yet another wave of demonstrations and riots followed. Nothing – (inaudible) – you probably know – (inaudible) – street demonstrations take place every day. Have we reached the point of no return? Has the austere life taken its toll on Greek society? Has – (inaudible) – (social ?) poverty – (inaudible)? The questions gained another urgency by the upcoming elections that are expected to take place on May 6.

Greece is now living in – (inaudible). Since 2009, (Greek ?) GDP has declined by one-fifth, an unprecedented dip in modern economic – (audio break) –

(The events ?) – is taking place in Greece, which has adopted this policy of internal devaluation. In other words, the – (audio break) – amount we’re paying on this expenditure, reduce labor costs, and introduce (some reforms of ?) public administration of the economy while keeping the hard currency.

(Inaudible) – but I would suggest that the Greek problem is primarily political and not economic. Indeed, Greece today suffers from a profound leadership crisis. The basic elements of our Greek strategy are familiar to all who follow international media. (For they see ?) a political system mired in corruption and – (inaudible) – how to at least construct the reforms and to develop the easy path of wasteful spending, offering patronage to organized interests. (Audio break.) And it was clear to all concerned that we reached a breaking point.

Unfortunately, however, our two-party system responded to the crisis in the worst possible way. Government socialists – (inaudible) – present internationally (the image of the ?) state, or, domestically, the need to blame for any economic measures abroad. The – (inaudible) – being famous in Greece’s so-called troika. The main opposition party, the conservatives – (inaudible) – vote against the first package of financial assistance and the ensuing economic – (inaudible).

For two years, both parties competed in this populist arena. The socialists would (fake service ?) reforms abroad, but would stall any changes domestically by delaying or simply not implementing the necessary laws. The conservatives would outwardly object to any reforms, and conceal themselves in a fierce anti-troika and – (inaudible) – rhetoric. Only when European leaders threatened Greece with expulsion from the eurozone for – in response to Prime Minister Papandreou’s botched referendum – did the wake-up call start.

Both socialists and conservatives reversed gears. The two parties were forced to the table and agreed on a national unity government led by – (inaudible) – minister Papademos. Unfortunately, however – and contrary to the Italian experience, for example – Papademos was not allowed to choose his own cabinet. And the government was given a very short (lease ?) of life – (inaudible).

(Audio break.) Half of the electorate appears undecided about whom to vote for. (Audio break) – the two big parties have historical lows. Combined parliament and majority appears on the (thread ?), and nationalist, extreme fringe parties move in from the left or the right, or from strength to strength. For the first time, European education of our country is actively challenged.

Greeks appear, to all, with conflicting and contradictory sentiments: the desire to remain (in the hard core ?) of Europe, the eurozone, which is shared by the overwhelming majority, and then, a distance – or, if I may say so, rage – against the troika, the memorandum and the economic policies of the past few years.

I will put it to you that if you want to see whether Greece will survive the next crisis – this crisis or be thrown into adventures in the near future, you don’t need to look at the economy. Forget about our debts and forget about our deficits. If there is light at the end of the tunnel, it will depend on whether European (monitoring ?) prevails on the elections of May 6. It will depend on whether the two main, and one of the smaller parties that share the European outlook and are prepared to secure Greece’s future within the European family at all costs will gain sufficient seats in parliament.

A European majority, regardless of which party’s first or second, will be able to form a coalition government, agree on a four-year closed mandate, build trust internationally, enforce the rule of law in the face of pockets of resistance by organized interests, and proceed with the necessary structural reforms in public administration and the economy.

Historically, the Greeks have been on the right side of history. We have stood at the crossroads before, but each and every time the healthy instinct of the Greek people carried the day. Greek society has tremendous potential. I am convinced that the Greeks will be once again (walk ?) for Europe and that we will (stretch out ?) with knowledge of economic recovery. Thank you.

MR. MONSARRAT: Thanks very much, Kostas. That was a great overview of what’s happening, and an important analysis. And Alexis, I would turn to you to get your thoughts on that and your additional comments, as well.

ALEXIS PAPAHELAS: OK. Well, the situation – I mean, I don’t have very much to add to what, you know, Kostas said. That was a very good analysis of the political landscape. And I agree with him that it’s mainly a political problem. The situation right here is very difficult. We have a lot of frustration among the public. I think the vast majority of the people don’t actually believe that this economic prescription by the troika and, you know, our foreign partners is actually working. They think that, you know, more austerity leads to a vicious circle where, you know, it’s very hard for a country to get out of this impasse. And it’s very hard for any country, of course, to go through a fifth year of recession and through a very forceful and sudden domestic devaluation, which is what’s happening right here now.

This, you know, is leading of course to a polarization. You have a rise of the extremist parties. We have a couple of nationalistic and European parties which are gaining strength. We have a fascist party, which is according to the current polls getting more than 4 (percent) or 5 percent – which means, you know, they will get into the parliament. And at the same time, you have the left, which is rising; it’s reached an enormous 35 percent in total of the – of the vote.

And it’s a very big and open question in my mind whether the two major parties which have dominated Greek political life for the past, you know, 40 years – they – and they were traditionally getting more than 80 percent – whether they will be able in the next election to get a majority over 50 percent, along with a couple of the other pro-European, smaller parties.

I think that’s critical, because in June Greece is going to face another milestone, in the sense that we have – we’ll have our – the usual review by the troika, an assessment of where the fiscal program is going, and so in. And it’s very clear that there will have to be another fiscal adjustment effort. I mean, we’re talking about 11 (billion) – an extra 11 billion for the next three years. We’re talking about laying off people from the public – from the civil service, and so on. And I think, unless the pro-European parties have a clear majority and a clear mandate, you know, to implement this kind of program, we’re going to be heading for some serious trouble.

The problem right now is that I think there’s sort of an inherent contradiction – and a lot of people feel very frustrated, because the people who want Greece to stay in the euro, and they do want Greece, you know, to remain a stable, pro-Western kind of democracy and so on – they understand that they need stability, and they understand that the two parties and the smaller parties have to get this majority.

At the same time, they don’t trust the current political system. They think that it doesn’t have the ability to reform itself, attract people from the market or from the academia, or competent people that can really govern the country. And I agree with Kostas that this is – the problem for the country right now is mainly – in the larger sense, it’s a political problem. It’s a lack of strong leadership. There’s nobody who really can defend the reforms and take ownership of this program. And even the politicians who are implementing the program, they are blaming this on foreign powers. And it’s very difficult to convince anyone that the – this needs to be done just because somebody in Germany or in Brussels wants, you know, that to happen.

I tend to be optimistic medium-term, in the sense that I do believe that we’re going to go through a rocky summer after the election. I think it’s going to be a very difficult situation because whatever government is going to be elected will have a very, very tough time negotiating with the troika. I don’t exclude the possibility of having a break in the – in the program with the troika – with IMF and ECB and EU – for, you know, maybe a month or two or something like that, because I think, you know, whichever government is going to be elected will try to appear that they are – as renegotiating the current package.

I think that’s going to be very difficult, because we shouldn’t forget that Germany will have an election in 2013 – which means, you know, it will be a much tougher stand, probably, you know, by Berlin. And I think that, you know, it’s going to be a messy summer, with a sort of unpredictable outcome by the fall. But I think, middle-term, the voices of reason and the voices of pro-reform and all that, you know, they’re going to prevail here in Greece.

And I do also hope – of course, you know, at that point our European partners are going to show a bit more understanding in terms of what’s happened in Greece. And they will try to help the country, perhaps, with a mini-Marshall Plan or some sort of stimulus package that will help initiate, you know, the growth which is, you know, clearly lacking; and you know, to actually have people – help people see a bit of light at the end of the tunnel, which is clearly not what they see right now. I’ll leave it at that for now.

MR. MONSARRAT: OK, that’s great. Thanks. And if our operator can just explain again the call process – and then as the queue builds up on calls, I’ll ask a couple just to get things going.

OPERATOR: (Gives queuing instructions.)

MR. MONSARRAT: OK, thanks. And just a quick update: I think we have lost Mr. Bakoyannis, just for the time being. So while we work to get him back, Alexis, you’ll have to carry the load a little bit.


MR. MONSARRAT: You ended on a – on a, overall, medium-term optimistic note, but citing some internally, really difficult ways – you know, paths to get there. I guess my question is what does make you optimistic over the medium term? What – what are you seeing that’s giving you reason to think that? And what can – what can intervene to change that optimistic scenario?

MR. PAPAHELAS: Well, two things. First of all, I think that there are a lot of very creative and pro-reform forces within Greece in the private sector, Hellenic universities in the diaspora. And they have not been expressed in a – in a political manner. And they feel very frustrated right now. And I think there was not enough time during this crisis for them to organize politically and express themselves. But I believe that, you know, in the next few months you will see more, younger kind of people getting to politics, either getting into the current parties or creating new parties, which I think is also – you know, might be necessary at some point. And you know, I think that’s going to – that’s going to happen.

And at the same time, I also think that the Europeans – at some point they’re going to decide that they don’t really want a failed state in this very, sort of, extended neighborhood. And I believe that, you know, they will try to help Greece, as I said, you know, either with a stimulus package or by sort of extending the fiscal adjustment period by a year or two. I think, you know, they will be able to show a bit more understanding. And then, you know, we will – I think we will hit sort of a compromise.

MR. MONSARRAT: OK, thanks. I’d like to go now to Charlie (sp) Ries, who is the former U.S. ambassador to Greece.

Q: Thank you, Alexis, and good to talk to you, Alexei.

MR. MONSARRAT: Thank you.

Q: You know, when you think about this whole thing, I wonder whether you and Kostas – if he comes back – cast your mind back, with 20/20 hindsight, to 2010. 2010 rather aggravated the situation that you face now because so many of the tougher things were not done there and because the European first rescue package imposed such a, you know, draconian interest rate on the country. It may have been better if the fight had been engaged there.

And the other thing that struck me back in 2010 was that the EU and the IMF never insisted that new democracies sign up for the measures as a condition of them – and then allowed a sort of a corrosive political debate to be undertaken that both undermined what it was that the government felt that its position was in 2011, but also wasted a lot of time on the structural measures.

I’m heartened by your optimism, Alexei, about the future. And one can only hope that those people who have avoided politics in Greece come back in. But with – in this scenario, in which the Europeans realize they can’t have a failed state, and some new-blood leadership comes in in Greece, isn’t it likely that the Europeans may impose a condition for that new assistance relating to euro membership?

MR. PAPAHELAS: Yes. I mean, that could be the case. I think that even though the Europeans are pretty much secured now, because they have put all the money, the new package, in a segregated account – which practically means that, you know, the money goes directly for payments of, you know, whatever official debt there is. And then, we get the money as the program is implemented. And if it’s – on a very strict basis; in other words, the Greek government has very, very little latitude in where to spend the money.

So I think what’s going to happen initially – as I said, you know, I predict probably that there’s going to be a breaking away in the program because of a very hard sort of renegotiating period. And then, you know, of course if there’s no deal there, we might have the possibility of a Greek government not being able to pay salaries and pensions. And there, of course – you know, either they will have to face reality and, you know, come back to the table and, you know, strike a compromise, or there – you know, there could be turmoil. And of course, they could – we would go back where we were in November, when our membership in the euro was at stake. It’s hard to predict right now, you know, which of the two scenario(s) will – you know, will be more likely.

MR. MONSARRAT: Thanks very much. I’ve got Brian Beary from Europolitics.

Q: Oh, hello. And thanks for taking my call. I’m the Washington correspondent for Europolitics, which is a European affairs newspaper based in Brussels. And I just had a more sort of question about society and Greek society. I know that we all read about the austerity measures being – hurting the Greek people very, very severely. But can you just maybe give some examples concretely from your experience in the last three or four years living in Greece, what kind of things, how has life for ordinary Greek people changed directly because of this current debt crisis that – and the austerity measures that are taking place?

MR. MONSARRAT: Great, thanks. And I think we have Kostas back on the line. And if you want to take a first stab at that, that would be great.

MR. BAKOYANNIS: Sure. Thank you.

Well, there are many answers to this question. I start with the most obvious, which is unemployment. Right now we have an unemployment rate that exceeds 20 percent. Over the past two or three years we have lost more jobs than were created over the past two decades. The second is that we have had dramatic cuts in wages and pensions. The third is that there are – because on one hand of the structure of the attempts to go forward with some structural reforms and then the other, because of the resistance to these, there is an incredible social tension. And the state itself does not function as it used to. The result of these is that the average citizen feels rather isolated and very much alone. There’s a lot of insecurity in Greece right now, which in many ways I think can explain the reaction of the Greeks to what’s happening.

MR. MONSARRAT: Thanks. Alexis, I don’t know if you want to add anything to that.

MR. PAPAHELAS: (Inaudible.)


We now have Peter Flory from the National Defense University.

Q: Yes. Hello. And my question has to do with growth. You identified earlier the importance of recreating economic growth in Greece, both in terms of the political equation and giving the Greek population something to work with here other than just austerity, but also it’s part of a long-term economic solution. And my question is what are the segments of the Greek economy, where do you look at to see growth that can realistically be rekindled and then become sustainable as something over the long term? Because before you get through the long term, you got to get through the short term and that’s painful enough. But in terms of a long-term solution of Greece within the eurozone, it seems there has to be a more sustainable economic engine either created or recreated or restarted in Greece to sustain that over time.


MR. : Why don’t you – why don’t you take that to go?

MR. : Sorry?

MR. : Why don’t you go ahead – take –

MR. PAPAPHELAS: OK. Well, I mean, first of all I think, you know, for any growth to occur, there has to be some sort of political stability. There’s no way anybody’s going to invest in Greece either, you know, a domestic businessman or somebody from abroad unless, you know, there’s a clear political horizon for a couple of years. And secondly, I think, you know, a big problem which is hindering growth right now is the currency risk. As long as, you know, people are not certain whether Greece will stay in the euro or not, it’s extremely difficult for anybody to make a serious – (inaudible). And I think, you know, at some point our foreign partners will have to help us and sort of try to really steer away this risk of – the currency risk, because I think it’s really paralyzing for the country.

Now I actually believe that, you know – I mean, clearly Greece has to be heading towards a more export-oriented economy. I think that the – tourism is a sector that has to be upgraded. It has to be – you know, people have to reinvest in tourism and, you know, upgrade the level of service and so on. Coupled with that, I would say that, you know, we could be the Florida of Europe in the sense of creating retiring communities for our northern neighbors. I know there’s quite a bit of business for that. But we need better infrastructure, better hospitals, better airports and so on in order to do that.

I think agriculture has great potential. I mean, Greece, for example, is a producer of olive oil, and we have not been able to – additionally to export that because we sell it wholesale to the Germans or the – I mean, sorry, the Italians and the Spaniards, who do a much better marketing job. I think once we get our act together, we could do a much, much better job in terms of agriculture.

I happen to think that, you know, because Greece is in a very unique geopolitical position – it has very good relations with the Middle East and others – we could also develop other sectors. For example, I think that the – if we were allowed at some point to have private universities, we could be an important education hub, both for the Middle East and the Balkans. I don’t see why we couldn’t have like an international MBA or a medical school establish itself here in Greece and, you know, work in the – in the area.

The problem right now is that, you know, we have a lot of our own challenges to face in terms of growth, which is cutting the red tape and a lot of these sort of regulations that, you know, don’t allow all these kinds of investments right now. But again, I think there are three or four sectors. And also let me mention, finally, the energy sector, especially the renewable sources energy, you know, environmentally friendly kind of energy projects, which could really be developed here and could be a great sector to work on.

MR. MONSARRAT: Great, thanks. Kostas, I don’t know if you have –

MR. BAKOYANNIS: No, I’m all right. Thanks.

MR. MONSARRAT: — anything to add to that.

OK, great. We’ll go to Tyson Barker from the Bertelsmann Foundation.

Q: Thanks so much, Alexei. And thanks so much for this call for both of the contributors. I’m curious to know to what extent there is change taking place as far as new parties developing domestically. I mean, we look at Italy now and in the kind of – (inaudible) – days, and we saw a complete transformation of the political landscape. One of the criticisms that a lot of international observers have of Greece is the kind of clientelistic relationship that the parties have to their constituencies. Is that taking root in Greece itself? And if so, is there a party maybe emerging in the center that is running on a(n) anti-clientelistic, pro-transparency, anti-corruption, pro-efficiency platform? What is the potential for occupying that space? And I say this with one person in mind from the European Parliament. Georgios Chatzimarkakis, I know, was thinking about starting a party in this way. He’s a German of Greek origin. Perhaps you guys can talk a little bit about the new parties emerging.

MR. MONSARRAT: Kostas, why don’t you start on that?

MR. BAKOYANNIS: Well, it’s clear that the political system in Greece is changing. There is no question about that. Within the last 18 months or two years, we have seen a very significant shift of the political tectonic plates unequal to any we have seen in the last 30 years in this country. Right now we see, as I said at the beginning, extreme fringe nationalist parties, which, I daresay, don’t offer realistic solutions and going from strength to strength.

There is, however, also a discussion taking place at the center, which has resulted in the creation of two or three smaller parties, two of which – one called Drasi, which is led by Stefanos Manos, and the other called Democratic Alliance, which is the one actually Mr. Chatzimarkakis is cooperating with, which are I think – have adjusted the rhetoric to the reality and are offering substantive policy proposals with specific solutions to the problems we face. Unfortunately so far, at least according to the opinion polls, these parties haven’t been able to gain traction within the Greek voting public. Hopefully in the next few weeks we’ll see more and more of that.

I would like to add one more thing, however. When one looks at the Greek political system, one shouldn’t just look at the small parties and – or at new parties. Of course they played a role and they can play a catalytic role disproportionally with their size. But one should also look at the processes that are taking place within the two-party system. There are important voices, sensible voices, if I may call them that, within the two big parties. It is important that these are heard and that they gain prominence within their own frameworks.

MR. MONSARRAT: OK. So Alexis, do you want to add anything to that?

MR. PAPAHELAS: Well, I mean, the only thing I would say is you have a — it’s a — it’s a period of anger and frustration. And it’s unfortunately been channeled to the protest world right now, which means, you know, the left or some other, you know, parties from the right. But the so-called center of the platform that the caller described, that has not been able to unite and rally around a strong personality. And there are, you know, two or three parties. They’re very small. They’re considered to be very sort of elitist. And right now, they’re not really gaining any momentum. And, you know, part of the problem, of course, is that, you know, we’re having this election in the — in the — in the middle of the worst recession and the middle of the worst crisis. And I think, you know, the — during the next election cycle, whenever it’s going to be, you’re going to see more — more new parties perhaps, you know, more movement in that — in that respect. But right now, I don’t really expect anything spectacular.

MR. MONSARRAT: OK. Thanks. We feel your pain a bit on political polarization from over here in the United States. I’ll turn now to Ron Freeman, Atlantic Council board of directors.

Q: Thanks, Alexei. The FT today of course was quite grim about the pre-election threat, so I’d like to switch the conversation away from the political towards the technocratic side. When Russia defaulted on its external and internal debt in 1998, I had occasion to ask the then-finance minister what the thinking was in the ministry, the technocratic thinking. He said they had looked very carefully at who the debt holders were, their external debt holders. They had found that many of them had bought the debt at steep, steep discounts to face value and were basically just speculating on — on a work-out.

I wondered to what extent — first question — to what extent Greece really has good information as to the cost basis of its foreign bondholders in Greek external debt, because if that cost basis is revealed to be quite low, that may give Greece much more room for debt renegotiation than perhaps even its own advisers believe — question number one.

Question number two, what has happened to the privatization program? There was talk last year about raising $50 billion — 50 billion euros — oh, sorry — 5 billion euros by the end of the year from privatization. That was 2011. Don’t hear much talk about it, but clearly progress on privatization would be a great confidence builder in terms of Greece getting its act together and seeking economic solutions for economic problems although recognizing there’s a political overlay.

And then finally, does Greece at the government level have a view as to whether it could comply with the fiscal compact that recently has been put forward? The compact has got a lot of flexibility into it in terms of timing. And it’s something that, again, a strong statement from Greece’s new government, whoever that might be after that May election, that it embraces the fiscal compact and is confident that it can meet it targets would, again, be a great confidence builder and aid the Greek effort to dig its way out of this deep whole. Sorry for a complex three-part question, but it’s a complex problem. Thanks, Alexei.

MR. MONSARRAT: Thanks, Ron. And Alexis, why don’t we start with you, if you want to take any one part or all of those.

MR. PAPAHELAS: OK. I’ll answer the last two questions. Now, first of all, the privatization effort I think is actually going well. We have a very good privatization board which is in charge of that right now. They already put out a tender for — an initial tender for one of our natural gas distribution companies, and they are preparing some others.

The problem, again, is, you know, nobody is willing to put up a firm commitment when, you know, A, you have an election looming in, what, you know, four or five weeks within a certain outcome; and secondly when you have, again, that currency risk, you know, over our head. It’s extremely hard to — you know, to get any concrete commitments.

I think, however, that, you know, the — it’s quite clear right now that the majority of the parties within the parliament, at least the current parliament, are supporting the privatization effort. It’s going forward. And I think, you know, if things go well in the election and if there’s a — sort of a predictable and not an adventurous kind of outcome, you will see the privatization process go on.

Now in terms of the fiscal comment, the only thing I would say, which I think is very encouraging, is that we were — our parliament was one of the first in Europe to approve that. And I think there is a realization here in Greece that if we are to stay in the euro, there’s no other way to go except, you know, to accept that and to have that as our guideline. Again, I have some doubts, of course, whether the current political system in Greece can deal with such a fiscal compact and the (instabilities ?) arising out of it. But again, I hope that, you know, at some point we will get the — an improved quality of political personnel and a better civil service, which we need desperately as well.

MR. MONSARRAT: OK. Kostas, do you want to add to that?

MR. BAKOYANNIS: Yeah, just to add very quickly that I couldn’t agree more on the importance and the value of the privatization program. Unfortunately, this is an open question in Greece for a number of years. There’s a lot that we could have done before the crisis that which have — which would have had protected our country from this economic storm. Unfortunately, we didn’t do that. So rather than having a soft landing, we are now living through a hard landing.

Nevertheless, clearly the new government will have to proceed as quickly as possible. It is very important that whoever the partners are in — after the election, that they agree on a closed mandate, on a fixed four-year mandate. As you know, this is a parliamentary system, which means that if the vote of — if the government loses the confidence of the parliament, an election can take place. It is, however, important that we agree that the next parliament will have a considerable lease of life so that they will be able both to implement the necessary reforms and privatization and to gain trust internationally.

Q: Alexei, no one — neither speaker addressed the first part of my question —


Q: — which is how well Greece knows the cost basis of the bonds in the hands of its principal bondholders.

MR. PAPAHELAS: Yeah. Let me — let me say that, you know, I mean, there’s already been, as you know, a very substantial haircut on the private debt. So I think this is a moot question right now because we — I mean, the next round of haircut and debt reduction, if there’s going to be one, is going to be in the official sector — you know, the European countries, IMF or ECB.

So — and I think, you know, we had pretty good information on what the cost of it was, of the private debt because, you know, we had very — the Greek government had very good technical advisors and also, you know, the IMF and the Europeans, we worked very closely with Greece on that.

Q: So you feel you have a good fix as to how much, say, pain you can inflict upon them and get them to accept it.

MR. PAPAHELAS: I think so, yeah.

Q: That’s the key.

MR. MONSARRAT: Thanks, Ron.

Q: Good, thank you very much.

MR. MONSARRAT: Thanks, Ron. Now we’ll go to Susan Schadler, who is a nonresident senior fellow here at the Atlantic Council.

Q: Hi, thanks a lot. Great sort of observations so far. I have two questions. The first is about the restructuring, following up on the restructuring.

Domingo Cavallo, at one stage a few months ago, made a comparison of the situation in Greece and the situation in Argentina and said — his big advice was not so much that there was a real problem with the fixed exchange rate, but there was a problem with trying to implement strong adjustment policies, fiscal policies, structural reform policies, when people felt that part of the beneficiaries of those very difficult policies would be foreign bondholders.

Now there’s been a restructuring. And I’m wondering if there’s any sense in Greece that — a change in mood, let’s call it, in Greece — that at least now a lot of the pain in the whole process is not to the good of repaying foreign bondholders in full.

My second question has to do with the tipping point. The way you’re describing the political situation is very dark, at least in the short term, and I’m wondering about how it could play out. In other words, are there things that you can imagine happening that would effectively really tip the political balance toward these smaller fringe parties that have ideas other than staying in the euro area or trying to bring Greece back, in a fairly conventional way, to better health?

And could any of this stuff actually end up in another technocratic government sometime in the next few years?

MR. MONSARRAT: Thanks very much. Kostas, why don’t you take a first go at that?

MR. BAKOYANNIS: Well, as you know, the PSI was a great success. It was the first time, I think, in the history of modern economics we have had such a big (haircut ?), that of one nation. And it is clear – I mean, if you look at the numbers, that Greece can survive right now. The sense, I think, in Greece is that we survived – that we were – that we were kept afloat, but we – everyone understands that we still have to swim far in order to get to the shore. So unfortunately, the PSI on its own didn’t translate in significant – in a significant electoral advantage for the so-called European or European-oriented parties.

In terms of the tipping point – because it is true, this is – we are painting a dark picture. Unfortunately, I think both Alexis Papahelas and myself were trying to be – (audio break).

What is important is that 50 percent of the Greek electorate, according to all opinion polls, hasn’t decided what they’re going to vote, which means that within the next few weeks we have – or there will be enough opportunities for the pro-European forces to put – or to make their case to the Greek people.

Now, you must understand the significance – the symbolic significance of the European project for Greece. Greece – Greek society is a European society. Greeks identify with Europe. They identify with Europe culturally, socially, economically and politically. This is a very strong argument that is going to be put forward, and it is very difficult to imagine that a few weeks from now, in this election, however dark we see things right now, the Greeks will vote against the European orientation of the country.

MR. MONSARRAT: Alexis, you want to add to that?

MR. PAPAHELAS: Yeah. I mean, I have to say that, you know, the recent debt reduction worked in a paradoxical way in the sense that, you know, a lot of people actually think now that we are over a huge hurdle and that Greece is relatively safe now, that it’s in safe waters.

And that, in the mind of a lot of people, allows them, you know, to vote basically – you know, to express their anger, to express, you know, their protest. And – you know, because they think, you know, now it’s OK. Greece is saved; Greece is going to really be expelled from the euro. And therefore, you know, I can vote for a smaller, an extremist party or, you know, the left or the outer right or whatever.

My sense is that, you know, the closer we’re going to come to the elections and, you know, the more clear it will become what’s at stake here – and that people will actually sober up and, you know, vote – if I – if I can use the expression – you know, more responsibly. But it’s not a – it’s not a clear-cut case. It’s going to be – it’s going to be a difficult one. And it will be very, very difficult for the two main parties who actually got Greece to where it is, to convince people that it can get it – they can get them out of it.

MR. MONSARRAT: I have a question of my own, if I can and as moderator to follow up on that. Is there anything that the rest of Europe – and obviously, sort of in particular anyone involved in the troika or Germany – anything they can do at this point to add weight to the pro-Europe argument? And I suppose I’m also asking for a bit of critique of their attitude so far, and whether you feel that’s fueling what’s – the anti-Europe sentiment that you are seeing? Or if that’s been more of what you talked about so far – which is sort of the domestic politics, using them as essentially somebody to blame for difficult changes that have to happen?

Either one of you on the –

MR. BAKOYANNIS: Well, there’s a lot one can say about the way Europe handled this crisis. It’s clear that Europe found itself unprepared to drastically respond to the crisis. I mean, a lot has been written internationally. If you compare the European and U.S. handling of the crisis, clearly Europe is found – is found lacking, mostly for structural reasons.

What you – where we are today, what’s very important is that our European partners and allies around the world understand the domestic scene in Greece. This is not just, you know, another time for critique, for reproach. This is not – this is a time for – to show solidarity and support. Unfortunately, what’s happened here is that we have, in two front – a two – that both European partners and the Greeks – they negotiate on both fronts.

If you look at, for example, the rhetoric that is – that is on display by the German government, you can clearly see that it is influenced by the German electoral circle and elections at – (inaudible). This doesn’t help, especially right now. It is important that the Greeks feel that they’re part of the European family, that they deserve to be part of the European family, and that they’re wanted in the European family. Otherwise, we are in danger of creating a self-fulfilling prophecy and just going into a vicious circle.

MR. PAPAHELAS: Actually, yeah, I agree with that. And, I mean – two notes. One is that I think, you know, it will be better for our European partners to be quiet during the weeks of – you know, leading up to the elections. They will have to respect, you know, maybe the choice that the Greek people will make, and the legitimacy of the election process and so on.

And at – and I think, you know, there has been a lot of caricaturing by the Germans and the others, you know, for Greek society. And I think, you know, that has really created sort of a – it has backfired in my opinion, you know, to a large extent.

And the other thing, I mean, I think at some point it will be very helpful if a lot of the European officials don’t talk any more about the risk of Greece exiting the eurozone, because the more they talk about it, the more they difficult they make it for any investment decisions, as I said before, or any (parliamentarian ?) effort to go through. It’s – that’s really a self-fulfilling nightmare.

And at some point, you know, they just have to be quiet about it. It’s not very easy, of course, because Europe is very cacophonic and it’s – you know, we have so many different centers of power, and you have so many European politicians and officials giving, you know, two or three interviews a day about this subject. But I think at some point they really have to be a bit more reassuring about the medium-term prospects for the country.

MR. MONSARRAT: Thanks very much. We’ve got a couple more questions and then we’ll wrap up because we’re at an hour here, but we’ve got Elaine Papoulias from Harvard’s Kennedy School.

Q: Thank you. And thank you to both speakers for sharing their insights. I wanted to just go back to the elections and raise the possibility that, in fact, we see a continuance of the trend that we’ve seen of the last elections, and that’s, you know, this phenomenon of the vanishing voter. The last elections, we’ve seen an increase in the – in just the number of people that don’t vote.

And I wanted to ask – you know, your thoughts on that possibility and what the impact may be. I mean, I agree with you that as we get closer to the time people might understand the weight that really surrounds this decision. But the Greek public, I think, is a bit schizophrenic in the sense that it believes that it’s important to say in the euro, but at the same time doesn’t want to undergo, understandably, the measures that the troika has imposed.

And my second question is: Should we fear the possibility that reality just overtakes the situation? I mean, if we take the case of Argentina, it was frighteningly similar. It imploded – and it didn’t really take people by surprise, it was protracted, it encased some of the best minds from around the world – not unlike the Greek case. Its country’s politicians were similarly very unpopular and instituted a number of austerity measures. But the forces of reality eventually hit, and it – you know, the catastrophe proved impossible to avoid. It’s true, Greeks identify with Europe on various levels and the EU may not want another failed state in Europe, because we do already have a couple.

You know, given this and given the fact that it’s also unthinkable that country would leave the eurozone, and again the parallels with Argentina are frighteningly similar – it was unthinkable that they’d drop out of the currency board and the currency board carried all of the prestige and symbolism, you know, for the Argentines that the euro does for Europeans. So, you know, the second part of my question is can reality withstand the slowness of what is required by the reform process?

MR. MONSARRAT: Thanks. Alexis, why don’t you pick that up?

MR. PAPAHELAS: Those are good questions. I mean, I have to say that the level of – the second question, I’m – you know, clearly I’m very worried. I mean, I can see that we are on the Argentinian road. I can see a lot of accidents that could happen, you know, from a bank run to some sort of social unrest kind of, you know, taking place that the – that sort of exceeds any kind of expectation.

I think, you know, clearly we will go through a very unstable, unpredictable kind of situation. There’s no question about it. I somehow think that, you know, the Greek society has shown an incredible tolerance, let’s say, and persistence throughout this crisis. Even though it’s the fifth year of recession and they’ve gone through two years of, you know, very painful adjustment, society seems still to be, sort of, holding up – you know, with a lot of anger, a lot of frustration, but still holding up.

I think it’s – again, I think it’s a political question. I think, you know, the only way to avert this crisis it to have a grand coalition government after the election with a very clear national consensus to move on with some reforms and so on. I think that, you know, there’ll have to be some very positive decisions very early on, right after the election or a couple of game changers, things, you know, like the prioritizations or something that would really change the mood, both domestically and abroad. And then we’ll be on safe grounds.

How likely is that? It’s hard for me to say right now. It’s – the situation is very explosive here and it’s very unpredictable. But again, when I remember where we were back in November when the country was with one – you know, one foot outside the eurozone because of the referendum answer – and you know, the country and the political establishment and so on – we managed to get our act together even at the last – at the very last minute.

So I do have faith that, you know, this is going to happen again, and I hope, you know, that the Europeans, and the U.S. of course which has been very helpful in that respect, will not let Greece, you know, sort of go off the deep end.

MR. MONSARRAT: Kostas, any final – any final thoughts on that?

MR. BAKOYANNIS: Yeah. I – of course, I second Alexis a hundred percent. I think that, you know, in many ways the past two years, it’s been a story of an accident waiting to happen. And yet, each time we’ve been able to avoid disaster and we’ve been able to keep afloat, as it were. I think this will be the case. There is, having said – having painted this dark picture, I think one should also – to be fair, one should also note that there’s a lot of social capital in this country. And I think it is this social capital that is keeping us alive right now, that’s allowing us to breathe.

Regarding the first question that Elaine posed – which I think is very important – about participation rates and the vanishing voter, right now it is difficult to tell and to predict what we’re going to see in this election. But it seems that participation rates are not about to fall, at least dramatically. There is one thing though that one should have in mind when is talking about – he or she’s talking about Greece at the year 2012. One of the positive spillover effects, if I may call it that, of the bubble that we had in the past decade or so, is that we have an extremely well-educated young generation.

We have young people in the 20s and their 30s – many of them have studied in Greece or abroad, have developed impressive skillsets, have international experience and have the capacity to help the country in the years to come. Of course, it is these people who are the most disillusioned right now. But in terms of moving forward, our human material will be our competitive advantage. And one of the main challenges for the next government and the government after that will be able to tap into these resources, both economically and politically.

MR. MONSARRAT: Thanks very much. And I think that’s a great note to end on. We’ve run to an hour, and we try to keep these pretty close to that so that everybody’s time is used well. And I want to thank both of you. I think this has been a really valuable contribution to the discussion here – certainly in the United States, where we don’t very often get to hear from Greek voices. And we’ll be continuing to explore this issue throughout the year, and as we go along. And so we’ll look forward to hearing from you again, hopefully, in the future.

MR. PAPAHELAS: Thank you very much.

MR. BAKOYANNIS: Thank you very much.

MR. MONSARRAT: Great, thanks.


OPERATOR: Thank you. This concludes today’s presentation. You may disconnect at this time.


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