Greek Deputy Prime Minister Theodoros Pangalos

The Economic Observer: What's the meaning of pension reform? Does it represent the start of a restructuring of the labor market?

Theodoros Pangalos：[A person] contributes part of his salary throughout his life. The second contributor is the state, and the third is the employer, so there is this three part financing, but the problem we face is we having an aging society.

Pension reform is something we will all have to do. Because 20 years later, pension funds will not have enough money to pay the pensioners. That means we have to increase the age for pensions and eliminate the increase of the pension itself.

Currently, the legal age to get a pension is 60 for women and 65 for men and needs to be adjusted so that they are both the same age. However, the actual age of the average Greek pensioner is 53. They manage to get their funds earlier because of our specific social situations. If you live until 80, it means you have to have a pension fund for 30 years. It is very good to live for a long time, but the system is not sustainable.

Of course, lots of people are not happy with this solution. They're against it, but we can't use all the money we have at the moment for big houses, we have to take care of the future generations.

The Economic Observer: But do you think the people protesting understand that?

Theodoros Pangalos:There have only been three general strikes in the public sector. The private sector has been functioning normally. Strikes are absolutely normal. How many people are protesting? The police say 15,000. Let's say it's 30,000. What is 30,000 people in a city with a population of 4 million? The proportion of people is important.

If it is a dramatic situation, there will be big demonstrations. Greeks will react strongly against real danger, if the situation is really desperate people will use their vote to change it because we have a democratic country.

Of course, there are a lot of people saying they are disappointed, saying they don't like the changes. My wages before the new measures were 6500 euros a month, which is the highest wage in the public sector, and have now been decreased to 4800; I lost more than a third of my income, and I am not happy with the changes. I have a wife and children, I am not a fool, but I have to cut down. There are things I could do before, but can no longer do. I have had to cut down on my holidays.

The Economic Observer: Most Greeks are very sensitive towards this reform. I just talked to a student who was returning to Greece after travelling in Spain, he said he feels a bit desperate because he will have to work until he is 65 to get his pension. He is concerned about this country. He said it was “l(fā)ost”- he didn’t know which direction the country was headed. I think that’s the sentiment some Greek people feel.

Theodoros Pangalos：The sentiment is normal. There have been so many changes, so many surprises. This is only one side of the problem, the other side of the problem is that a lot of people are not satisfied. But they are willing to offer help to come out of this situation. This is the sentiment of the majority, but they don’t speak much. The publics' attitude is leaning towards still staying in the eurozone. The majority of Greeks want to have a solution within the European framework; they want a dynamic solution.

The Economic Observer:  The young man said there is some serious corruption in the government and that the austerity plan is just sacrificing the interests of the poor for the politician's interests.

Theodoros Pangalos: This is bullshit about corruption. There was corruption, but now it has diminished. The real problem is we share our money and we have some systemic problems. Greece is a country with a very small amount of inequality.

We have people from small villages, we have 10-15% of the population below the poverty line of 800 euros a month. A greater number of Greek people live as middle class (85%) citizens; they earn 800-3000 euros every month.

Greece is not a poor country, as you can see everywhere here. The state is bankrupt because of the deficit the former government left. We, the current government, spend money we don't have. We spent money we borrowed from abroad and now we have to pay it back.

How much does public sector account for the whole economy? 30-40%. The whole problem is the public sector. My party has been recruiting. People are growing useless because of the wrong idea that the public sector is the solution to unemployment. There is even this wrong idea that by recruiting people, that they will vote for you; this is a political and economic problem in Greece, and it needs to be solved now. It hurts a lot of people.

The Economic Observer: In terms of the government, does a credit crisis exist?

Theodoros Pangalos: There is a crisis of confidence facing the political system as a whole. That’s why we are currently changing the political system. We passed a law to change the electorate system, the core of the entire political system, which will be put into effect in November. We have made quite a lot of institutional changes. You have to respond to the demands of the people. They demand more transparency, more balanced, more direct contact between the people and politics.

There is a crisis of confidence, but at the same time, nobody has any proposals that are different from what we have. Because we are at the point where we have to face the real economic situation. Greece doesn't have an independent currency like the RMB. We can not decide its value like China can. We can not do whatever we want. We can't not pay for the Euro deficit.

What is happening now is that this fund itself is facing bankruptcy where we could have no more money to pay the state. We have to ask the EU and the IMF for money to cover this liquidity problem. Those people will not give us this money if we are not engaged in the process of making the deficit disappear, and assure them that we will no longer have a deficit in the future. That's the whole thing, some people are saying we should not negotiate. Of course, we should negotiate. They set the rules. The head of the opposition is stupid, it is really a shame that they don't understand this simple question.

The Economic Observer: Do you think the mistrust the Greek people have towards the political system as well as the PASOK political party will be a risk to the policy changes the government is attempting?

Theodoros Pangalos: The problem in parliament, is that you can have different opinions, but you can’t disagree about fundamental issues. The austerity plan is part of this disagreement. There is the risk that the political environment will affect the implementation of the austerity plan.

Normally, when people are not satisfied with policies and not satisfied with the political parties, a minority of them resort to violence. This didn’t happen in Greece; we have not had an influx of terrorism due to economic reasons.

The communist party is trying to use some of the negative sentiment the people feel, but they have not been very successful, and they will never be.

The Economic Observer: There have constantly been market rumors, that even if it doesn't happen now, in the face of such a huge debt, in two or three years, Greece will exit the Euro and restructure its debt. How do you respond to these rumors?

Theodoros Pangalos：We must exclude the possibility of quitting the eurozone. The opposition is totally irresponsible; they are catering to nationalistic sentiments.

There are two scenarios. First, they kick us out, which is absolutely impossible because they saved us, and they gave us a mechanism which will work (an 110 billion Euro rescue system). Second, the people can do whatever they want. A referendum is possible and they can use it to decide what they want. But that would be total suicide and disastrous. Not because of my own personal interests; I have a house on an island with good food. I could live the rest of my life up on a mountain. But for the common people, it would be a complete disaster. What can you do with our own currency? Our own currency would be totally worthless. We are living off of 92% imported goods; young people like imported goods.

The Economic Observer: How much of Greece's failure is linked with its entry to the eurozone?

Theodoros Pangalos: Greece has made enormous gains since joining the eurozone. If you came to the country 30 years ago it was totally different. Greeks work very hard, the rate of our productivity increase is higher than the European average. This shows that our progress is very fast. This has resulted in the living conditions in the countryside and in big cities improving rapidly.

Before joining the eurozone, one out of every ten families owned a car; now, you have one and a half cars per family. 85% of families own a personal computer, 78% own their own house and almost half of the population owns a home in the countryside.

However, the high living standards and economic growth are representative of borrowing; borrowing by the state and distributing the wealth borrowed to the people. This has to stop. The borrowing has stopped because we cannot borrow more, and it’s time to pay back the money.

The Economic Observer: So it’s fair to say that the Greek people have enjoyed the privileges that came with joining the euro-zone, and now it’s time to pay back the cost of the privileges?

Theodoros Pangalos:It's not only the privileges, but it's also the obligations. European unification is what you take, and you also give. What we give: For example, Germany is the leading power of Europe. Germany is a good exporter, we are a good market. We will buy a Germany car and not a Japanese car even though it is cheaper. We buy a lot of milk, beef, cheese, and butter, from France and Germany. That is the duality. With that duality, we lost control, and it’s not only us. There are other countries in the same situation- Spain, Portugal, Italy, and the UK to a certain extent.

The Economic Observer: With weak domestic demand, and a less competitive export sector, what’s the way out for Greece's economy?
Thedoros Pangalos:  It will take two years to evolve. To have a growth rate of up to 3 or 4% is possible. We have to improve on tourism, which is one of our largest industries; we have to find a new market to build industry, probably foreign investment from EU countries whose citizens issue licenses have the ability to buy homes and live here.

In terms of budget we will help to create a good atmosphere to foreign investors; we have all the ports, and ships and trains.