If the Greek people want to default on their debts and face the consequences, it’s their choice, Finance Minister Tonio Fenech told The Times Business yesterday, a few days after two thirds of Greek voters voted for anti-austerity parties in the country’s general election.
For the past four years the Maltese government has been applying the policy that while we seek to achieve financial sustainability our first focus has to be the economy and jobs
Mr Fenech said the Greek people had to decide their own future but their huge debt had to be addressed, adding that Europe did not owe Greece a living.
“Unfortunately it is clear that although the two major Greek parties realised that they need to work together to bring Greece back on its feet the population at large still believes that somebody owes them a living. In reality Europe does not owe Greece a living,” he said. Mr Fenech said Europe was willing to support Greece and to show solidarity with the country, adding that many governments in Europe, including Malta, were criticised for putting money into Greece.
“Greece must address the huge public debt it has accumulated, which they themselves benefitted from. We are willing to hold discussions with them at ways of supporting growth,” Mr Fenech said.
He said one huge problem in Greece was the way EU structural funds were used.
“If Europe can help Greece make better use of these funds, let’s do that. But if they retract from the commitments given this will simply mean that governments will pull back on the package which is so fundamental for Greece. The package was signed on the pretext that Parliament post-elections will honour that package.
“The parties that said they will not honour it are now no longer minor parties, because obviously the Greeks do not want to carry the pain, but they are not realising there is a bigger pain if they do not carry the weight that is being asked of them at this point in time,” Mr Fenech said.
Mr Fenech added: “Greece was the cradle of democracy. Unfortunately it is not a case study of modern positive politics or economics.”
The voter backlash in Greece has been largely blamed on too much emphasis on harsh austerity measures to sort out the country’s finances. Mr Fenech, who has stressed that a balance between financial sustainability and growth is necessary during the eurozone crisis, described Greece as being “at the edge of the precipice”.
“Greece was falling. It wasn’t, like some other countries, 10 steps away from falling, it was falling and we had to hold it to prevent it from reaching the ground. Greece is not the right model to discuss the future of Europe. Greece was an extreme case, a failed country which has accumulated so much debt that it is at the point of bankruptcy.
“It’s not a matter saying: ‘Continue increasing your debt until you have so much growth to start compensating for it’, because it is too late. Let’s be frank, there is no level of growth which is sufficiently large to start paying off your debt. You have to go for a balanced budget to be able to do that because only a balanced budget and a level of growth can start consistently reducing debt. The problem is that in a country undergoing severe economic difficulties the over emphasis on austerity can kill the economy,” he said.
In France, a central platform of President-elect Francois Hollande’s electoral platform was to call for economic growth in Europe in addition to austerity measures. Will the EU now place more of an emphasis on growth promotion?
“For the past four years the Maltese government has been applying the policy that while we seek to achieve financial sustainability our first focus has to be the economy and jobs. In 2009 we increased the deficit precisely to protect the economy and jobs. Without growth sustainability will be very painful. That does not mean that in decisions taken there is no pain. In reality there is a balance, you have to control your expenditure, and this has been the policy of this government, not to increase taxes, because we believe this goes counter to job creation.
“Rather we have given measures of tax relief to encourage small businesses to grow and we introduced the micro invest scheme which gives a tax reduction. We also reduced income tax. This government has been consistent in its approach that to achieve financial sustainability we have to be prudent in our expenditure approach, but take the necessary measures to incentivise growth and employment,” he said.
Mr Fenech described the emphasis on growth by France’s President-elect as “positive”, as Malta has been consistent in its approach.
“The Prime Minister had made it clear during a speech during an EU summit in January that the solution to the crisis lay not just with austerity measures but with programmes of growth initiatives. This message was also reflected in the last package for Greece which was not about austerity. In this package there are large chunks which talk about the measures the Greek government must take to increase growth opportunities such as liberalisation and privatisation. These things have gone into the programme because growth is paramount. A country cannot live merely by austerity, but there has to be growth,” he said.
Mr Fenech said when a new French President says he wants to fight for growth it overshadows the fact that in reality growth was at the centre of the discussions at the last four EU summit conclusions.
“So it is not fair to say ‘Now we are going to talk about growth because Hollande is President of France’. The EU has consistently backed that approach. What is of concern obviously, is not whether we talk about growth, but whether France is seeking to relax the rules in terms of the fiscal pact which are very important because we need a discipline in the EU to ensure that public debt is reduced. The two are not in contradiction, we always supported growth measures and Europe is not just about balancing the books, but also about creating jobs.”
Mr Fenech said there are different actors in Europe in promoting growth: the EU and the individual member states.
“I had an informal discussion with an EU Ambassador whose country is passing through a tough time and this Ambassador informed me about a series of tax measures this country intends to take to reduce the fiscal deficit. My response was that we have taken a completely different approach – each country obviously has the right to do what it wants to do – we prefer to control expenditure rather than take tax measures. When the economy is in a recession tax measures can make a situation even worse. The EU has to see how best to use its tools to promote growth, such as the use of cohesion funds, reviewing rules that hinder growth and continuing to open the internal market,” he said.
Mr Fenech said the latest IMF report on Malta was positive and it pointed out that this was an exceptional performance by Malta in a crisis.
“This has also been acknowledged by the ILO, a workers’ organisation. Malta is one of the few countries to have increased unemployment in this crisis. This country is doing well, if we keep moving in this direction we can do much better,” he stressed.