core sector communique

Greece’s Papandreou Acknowledges His Country Faces Credibility Gap

• Greece faces credibility gap over public finances
• Greece is setting in motion wage, tax and pension reforms
• Rodriguez Zapatero says euro is helping the zone weather the financial crisis  

Davos-Klosters Switzerland, 28 January 2010 − Greek Prime Minister George A. Papandreou acknowledged that his country faces a big “credibility gap” over its public finances, but said that the government is taking the measures needed to restore international confidence in its economy. Addressing participants in a session on “Rethinking the Eurozone” at the World Economic Forum Annual Meeting 2010, Papandreou denied that Greece has sought, or is seeking, to raise loans either from its fellow European Union member countries or from China to help meet its financing needs. He said that a public offering of government debt paper earlier this week was heavily oversubscribed and this only proves that Greece has no need to look elsewhere for financing.

“There is a credibility gap and overcoming it is the first challenge that we face,” Papandreou said. The crisis should not only be seen as a challenge, but also as an opportunity. Greece is already setting in motion a series of structural changes, ranging from wage, tax and pension reforms to the introduction of an independent statistics bureau, which will not only help the country meet its target of cutting the public sector deficit by 4% this year, but will also boost international confidence in state reporting of its finances, he added.

Spain’s Prime Minister José Luis Rodriguez Zapatero joined Papandreou in asserting that the existence of the euro has helped the zone’s 16 member states weather the international financial crisis. “The Eurozone has been a great support,” Rodriguez Zapatero said. In an apparent reference to press speculation that some countries might withdraw from the zone, the Spanish leader was adamant that this would not happen. “Nobody is going to leave the Eurozone, just as nobody is going to leave the European Union. That is the proof of its success,” he said.

Nevertheless, both prime ministers agreed that the crisis has highlighted the need for improved coordination between member states on economic measures, particularly in tax and labour policy. “That is the great lesson,” Rodriguez Zapatero said. All Eurozone members recognize the need to become more competitive, the Spanish leader added. But increased competitiveness will not be achieved at the cost of abandoning Europe’s policies of social protection and cohesion.

The Eurozone economies remain under stress, but it is the same sort of economic and financial stress that is being faced by all developed industrial economies, said President Jean-Claude Trichet of the European Central Bank. “We see the same problems in other major industrial economies. The goal is to reinforce confidence in both markets and households,” he told participants in the session. Asked about the health of Europe’s banks, Trichet said that the European Central Bank is urging banks to display maximum transparency. It is also calling on them to do their utmost to help the real economy of the Eurozone and use profits to strengthen balance sheets rather than boost remuneration.