George Papandreou on Greece's Financial Crisis

As prime minister, his father riled the West by embracing spendthrift socialist practices. Now, a generation later, current Greek Prime Minister George Papandreou is struggling to guide his nation through its worst financial crisis in recent history, and may soon have to activate a $61 billion rescue package to stave off default. Anthee Carassava spoke with him in Athens.

The numbers look awful. Can you blame market analysts for fearing a case of Argentina on the Aegean?
We're not looking for scapegoats. These are problems of our own making. Markets, however, take a snapshot of the day, projecting it onto the future. It's difficult for them to evaluate the changes we are making: changes in mentality, changes in our political culture. That may take some time for the markets to realize. But we need a period of calm to make these changes happen. We just passed a new tax law, for example, that is a major revolution in our country. It's more just and transparent, and it will target tax evaders. This will help slash our deficit. Those numbers are bound to come down.

But does Greece have enough cash to make it make it through May? How long can it keep borrowing at such high rates?
For starters, we will not default. The EU-IMF support mechanism safeguards against us falling off the cliff. Secondly, this is not a bailout. It's not free money. We've tapped into the markets, but the problem is the cost of borrowing, and how long we can sustain that. I don't see a problem even in May, but that doesn't mean that we have closed the option of using this mechanism. Greece and its citizens have gone through a sense of psychological terror these past few months. Their psychology has been swinging up and down to the moves of the markets. There is a need, now, to move on—to go beyond this daily crisis mode and turn this situation around. We will have to make a decision about whether we activate this mechanism in the next few weeks.

So activating this package is no longer a matter of choice, but of time, right?
We haven't taken an official decision yet. All we're saying is let's prepare so that if we have to push the button, it's ready. The preparations may take a few days or a few weeks for the details of both the terms and the way this mechanism will work. That's being worked out between Greece, the EU, and the IMF now. Once this happens, we will have to assess the situation in a calm and organized fashion.

Do you want to gauge the U.S. market for investor appetite before pressing the button?
The markets are part of the evaluation. But this is a road show [for U.S. investors] we're launching; we basically will be saying this is the new Greece, it's a new government making historic changes, tackling bureaucracy with new, one-day startup business shops, downsizing local government, moving into green energy, busting cartelism, and bringing in meritocracy. It's a worthwhile investment.

Can Germany's anger at Greece's profligacy delay the aid?
We ourselves are angrier about this situation than anyone else in the world. The Germans are obviously unhappy about the situation, but they are happy that the government here is making these changes. We're not asking for a bailout to continue bad practices. All we're telling them is support the changes we have to make.

The aid package won't solve Greece's problems, though. It may just defer the prospect of default, no?
It gives us the room to maneuver to make the necessary changes to make our economy a viable one. That's the basic logic of this mechanism.

Could more than one support package be in store?
That's implied, and it's there if necessary. The issue is that we may not need it. But the fact that it is there is a good cushion. Our reforms are building a track record of credibility. Don't forget, the Wall Street crash was all about shattered trust. This is one of the deficits Greece faced until recently.

But next to trust, there is also the issue of political will. Are you prepared to take additional budget cuts, sack public employees, and lower labor costs, or will the IMF decree that?
The IMF will not come in on its own. It will be with the EU, and it will only come in in this mechanism. That's what we decided. Secondly, we will do whatever we need to do. And this isn't puff talk. We've already done it. We're not renewing tens of thousands of contracts in the public sector. We are moving to close down or merge hundreds of public-sector organizations. We're shrinking local government, scrapping some 6,000 semiofficial operations. Thousands of board members will be out of jobs. That shows our political will and determination.

But if you need to do more, you will do it?
We know we need to do more. And we have a program. What exactly the measure will entail remains under debate. We don't want to burden those who do not have a responsibility for this crisis.

Do you fear social unrest?
It's very easy to show a picture of a protester and say protests are gripping Greece. You also have to consider the support of people who want to see this change happen. I'm not saying that they are happy with these painful measures. But they want and hope that the result will be a better Greece.

The attention is shifting to Portugal, Spain, and Italy. Are you concerned about the negative impact this may have on the Greek crisis?
The fact that a support mechanism has been decided offers a buffer so that there is no contagion. But sovereign debt is a wider question not only in Europe but across the globe. While every country is a unique case, I think it's not an issue of countries acting on their own. We need a more coordinated strategy not only in Europe but around the world.

In hindsight, do you regret going public with the 12.7 percent deficit figure that shocked global markets and fed global speculation?
People have told me, you could have hidden this deficit. It would have been a hidden time bomb ticking under the government. It would have exploded and blasted our credibility. We chose to instead say "Hey, we're transparent. We'll accept the costs." This may have created a sense of short-term turmoil, but it will turn out positively for Greece in the mid- and long term.

If you saw your predecessor on the street, what would you tell him?
I'd tell him that he could have had the courage to face up to problems and done a much better job. That he and his party shoulder huge responsibility for the problems we face today.

No rage? Or "You screwed up and I'm paying for it"?
The rage is there, but most Greeks are anguishing over the "Why?" because they know they have the potential, that Greece deserves so much more. Still, it's not worth pondering over the past. We have to move forward. There is a real sense of urgency.

Your father, a former prime minister, had several run-ins with European leaders. Are there times when you wonder how he would have handled this crisis?
At times of distress, we all like to recall the advice of fathers and mothers. The best advice my father gave me was to keep faith and deep confidence in the potential of the Greek people; nurture the belief that they can do things. After living through several years of frustration and disappointment, their self-confidence was in doubt. Today Greeks believe that things can change; that we can become the masters of our fate and make Greece a better place. We're using that dynamic to re-create Greece.