Mr. FERGUSON:
Well, I think we are now ready to begin this session and it is my very great honor and privilege to welcome Prime Minister Kyriakos Mitsotakis to the World Economic Forum.
As I suspect most of you know he has been Prime Minister since July last year. I wanted to just begin with a little note about his academic credentials, because he is a Harvard AB, has a Stanford Master’s degree and an MBA from Harvard Business School.
And I discovered in preparing for this event that you won the Hoopes Prize at Harvard, which is a big deal.
Mr. MHTSOTAKIS:
Nobody has any idea what the Hoopes Prize is, so you might as well explain what it is.
Mr. FERGUSON:
Well, the Hoopes Prize is the most prestigious thing you that can get as a Harvard undergraduate. It is given for the best senior thesis, which means you did a really substantive piece of work.
Mr. MHTSOTAKIS:
Thank you; it’s kind of you to remember that. It was actually a thesis on populism, interestingly enough, written back in 1990.
And I was looking at Greek-American foreign relations and to what extent populism constrains foreign policy and whether you can actually play that double game of saying one thing to your domestic audience and something completely different when you try to do an international negotiation.
So when I go back and read it, there are still some interesting messages about the power of populism, but also about how you can actually defeat populism, which is what we did in practice in the previous elections.
Mr. FERGUSON:
This is music to my ears, as a former Harvard professor. We actually teach people useful stuff.
Henry Kissinger, once upon a time a Harvard professor, observed that when you actually enter the real world of politics, many of your ideas from academia fall apart.
Is real politics very different from the politics you studied at Harvard?
Mr. MHTSOTAKIS:
Yes.
Mr. FERGUSON:
In what way?
Mr. MHTSOTAKIS:
Well, first of all, given that I come from a political family, I was able to combine my academic interests with an experience of what real politics is all about, but I think nothing really prepares you for the demand, the responsibility and the weight of the office, the need to take quick decisions, the fact that you actually are forced to make decisions without having access to all the necessary information, and about the psychological reality that, occasionally, there is no such thing as a good decision, there is a less bad decision, that you can actually take, but what we have proven in practice, is that you are actually rewarded if you move very quickly.
Remember, we had one discussion before I got elected Prime Minister, and one of the topics we discussed was how quickly do you actually engage in a reform agenda, and I was telling you at the time, that everyone gave me advice, that you need to do all the reforms very quickly, at the beginning of the electoral cycle, and then when you look back historically, very few governments actually are able to do that.
So, I think we are actually breaking with that trend. We worked very quickly to deliver, on our complete reform agenda, we lowered taxes for businesses, and individuals, and real estate, we have significantly improved the business climate in Greece, we have intervened in the banking sector, all this is reflected in our borrowing costs, there are days when they are lower than Italy’s borrowing costs, who would have thought so, even 6 months ago, our stock market was the best performing stock market in the world.
Mr. FERGUSON:
Is it true that you pointed this out to President Trump?
Mr. MITSOTAKIS:
I did point that, he was very happy about it, he was not aware of the fact, but I think we are just at the beginning of a long-term cycle of growth for Greece, because the fundamentals are there. And do I mean by fundamentals?
First of all, political stability. Ten years ago, Prime Minister was here at Davos in January of 2010, was not aware of the fact, at the time, that the country was heading towards a bankruptcy. Look where we are now, ten years later, we have a stable government with an absolute majority, a committed center-right, reform-oriented party in power, you do not find many of those in Europe these days. Just look at, you know, other European countries, the complexities of coalition building, how difficult it is to actually form a government, look at what’s happening in Spain, look at what’s happening in Italy, it is difficult to form a government these days.
So, the fact that we actually have a government with a clear mandate, we don’t have any elections until 2023, is, I think, very encouraging for those people who look at the macropolitical risk.
And then if you look at the substance of what we are doing, I think the policies are right, the economy is responding, business confidence is booming, people are investing again in Greece.
And there is also something quite intangible, if you come to Athens now you feel it, I mean you really sense a sense of optimism that hasn’t been there for a long, long time.
Mr. FERGUSON:
So, it is remarkable to look back on the last ten years, at Davos your predecessors were frequently followed around by gangs of journalists asking about the mixed phase of the crisis. I can remember seeing Mr. Tsipras almost fleeing through the main congress center. And the turnaround is remarkable.
I think it is worth spelling out, maybe for those with short memories that Greece suffered by far the worst economic performance of any developed country during the financial crisis. It was the only place where there was a great depression.
And now, when one looks at the indicators, growth up from 1.8% last year projected 2.3% this year, the debt which was really the great nightmare, mountain on a declining path from 181% of GDP to 175% last year, it is going to go down below 170% this year, unemployment is going down, current account of fiscal balance positive.
And here is an interesting stat, growth’s fixed capital formation up to 10% last year, and expected to grow another nearly 13% this year.
This is an amazing turnaround story. Are you going to claim all the credit for it?
Mr. MITSOTAKIS:
No, but what I can tell you is that essentially we had two crisis that hit us. Greece was exiting the crisis in 2014, then we had our experiment with populism, which really was very, very painful for the country, people still forget that we had to go through capital controls, we had banks that actually closed their doors for three weeks in July 2015, we came very close to actually crashing out of the euro and it was only as a result of a spectacular, what has been termed ‘kolotoumpa’ a huge U-turn done by Mr. Tsipras that we managed to stay in the Eurozone.
And then, we followed a fiscal policy that delivered results, but overtaxed the middle class, so didn’t really deliver any real growth.
But if you just look at the pattern of what has happened since the election, we are in a completely different trajectory, and that was always my case to the Greek electorate. Give me a mandate to really change the country and to make sure that we have left the crisis behind us.
So I do expect growth in 2020 to be close to 3%, but I think that is a sustainable growth. You mentioned gross capital formation and this is probably our number one challenge. We are way behind EU averages; we need more direct investment in Greece.
I think we are on a good path to convince our creditors to use the returns from the profits of the central banks, what we call the SMPs and ANFAs, as an instrument to encourage private capital formation in Greece, which I think is the right approach.
And I think we are also on a good path to convince our creditors that they need to relax our fiscal targets for 2021, to give us more fiscal space to further cut taxes; because there was always a grand bargain implied for Greece: You do the reforms and we help you with more fiscal space.
No Greek government ever convinced even itself that they wanted to do reforms. We do the reforms because we think they are necessary for the country and not because they are part of any post-program arrangement.
So, now people look at Greece and say okay, supply side reforms are being addressed, difficult reforms are being done; we should probably give the government more fiscal space. We still run a very tight ship.
We are sitting on close to 40 billion of cash reserves. So this is not a question. I mean, we could access the capital markets much more systematically; we just don’t need to do it. We have repaid the IMF.
So this is no longer a question of us not having access to the capital markets and our debt may be high in objective terms, but if you look at our debt repayment schedule until 2032, it is extremely benign.
So there is no real issue regarding our debt sustainability. So I think we are making this case, I hope, very convincingly. And there are also other issues which need to be addressed.
For example, we don’t have -I am using some technical terms, but I am sure the audience understands- we don’t have a smoothing mechanism for our primary surplus.
So, if we deliver a bigger primary surplus, let’s say, as we will in 2019, there is no way for me to carry it over to the next year. It doesn’t make sense, whatsoever. The mindset is to spend it at the end of the year, but that is not serious fiscal policy.
So, I will lobby, and I think we will be able to get a smoothing mechanism, by which if we overperform in one year, let it count towards the next year. That is what long-term fiscal management and fiscal planning is all about.
So, I think for the first time, we are approaching the Europeans with a concrete plan. This is what we want to do, this is what we ask from you, and I think that, you know, the Eurogroup overall but also the institutions have been receptive to our story.
Mr. FERGUSON:
And the good news is, that attitudes on fiscal policy seem to be in quite a state of flux. It used to all be about monetary policy, plus austerity in the fiscal side, one census in the wider policy community, amongst the economists, that actually, there are limits to monetary policy, and now we need to think about some kind of fiscal expansion, not least in the core economy, Germany. So, that is very helpful for you.
Mr. MITSOTAKIS:
Yes, and I would very much hope that this is also a message that resonates in Germany, regarding German politics, I am in no position to give advice to the German government.
Mr. FERGUSON:
Go on.
Mr. MITSOTAKIS:
But…
Mr. FERGUSON:
Isn’t it time the boot was on the other foot?
Mr. MITSOTAKIS:
But the general trend, seems to me, that, you know, an environment, as you said, where monetary policy has reached its limits, where structural reforms need to be re-evaluated. I am not sure now, the traditional playbook for structural reforms that, you know, we had from, you know, all the big multilateral institutions is as relevant today as it was, but clearly, we need to become more productive.
But fiscal policy is an instrument we need in a very benign interest rate environment, and again Greece is running a huge primary surplus. I mean, from 3.5% to go down to 2%, we are still in a fiscal straitjacket, it is not that we have decided to go ahead and spend our way out of the crisis.
Plus, there is also another aspect. There was always scepticism, that if you give Greece fiscal space, Greek politicians will return to the old, patronage politics and start hiring people in the Public Administration. I cut my teeth, politically, in trying to reform public administration, so when I tell people, this is not going to happen, we want to reform the public administration, we want to make it digital, but it is not a question of just hiring, people right, left, and center, we will hire people where we actually need to hire people, I think I have some credibility in making that case.
Mr. FERGUSON:
So, what are the things we should look for in terms of
reforms, because in a way we need persuading that you really are changing the politics of Greece in a fundamental way.
What are the things that we should look for this year to judge you by?
Mr. MITSOTAKIS:
First of all, one important reform that is still unfinished is our pension reform. We will be legislating a new pension system regarding primarily focused on the first pillar, on the mandatory …of pension because the previous law essentially gave very little incentives to people to actually stay on and work and there were lots of incentives to actually could work relatively early on.
There are significant reforms that would take place on…insolvency and private bankruptcy, this is particularly important for banks as they address the NPL programs.
Significant reforms on energy. I really want to focus on that because it is an interesting story. When we came into power, the Public Power Cooperation, largest company in the country, 51% owned by the state, was on the edge of bankruptcy.
Now, in six months it is a success story. It’s share price has tripled, it has gone through a rapid restructuring, we are opening up our energy markets, we are privatizing, partially privatizing our networks, big portion on renewables.
So energy reform is a big core of what we want to do for 2020.
And frankly we are doing down the doing business index of the World Bank looking at all the aspects where we lag behind, and try to address all of them. There is no single issue which will left unaddressed.
For me the biggest long term turn is education, it is not just a Greek challenge but our public education has, well, there is some real value in there but it is completely disconnected from the private sector.
We actually have a piece of legislation now that is really freeing up universities giving them more potential to cooperate.
You know, we had an open call to ask for American universities to come to visit Greece to establish cooperation with Greek universities. We have … for 12 US universities, we had 190 that actually applied, to come and visit Greece and see how they can cooperate with universities.
We are offering the first, very proud of that foreign English course by the University of Athens in Classics, catered to foreign students.
Greece should be a regional educational powerhouse and we are leaving money on the table when we are not doing that.
And of course another issue which is important when you look at all these rankings, gender balance. I am proud that yesterday we elected the first female President in the history of the Hellenic Republic.
It was my proposal; it was a bold proposal. She ended up getting cross-party support. 261 members of Parliament out of 300 voted for her. She is our top judge, who is moving to become President of the Republic.
A highly qualified woman, with a lot of sensitivities on human rights, but also on the environment, and the first female Head of State in Greece.
I think it may be also symbolically important that we are moving into a new era.
Mr. FERGUSON:
It was more than just the fact that she was or is a woman.
It is also the fact that this is not a party-political figure and that seems like one of those ways in which you are meaningfully changing the game in Greek politics. Was that part of your thinking?
Mr. MHTSOTAKIS:
Yes, it was.
I mean, there are a lot of highly qualified, experienced politicians who could get the job, but I decided to make a paradigm shift and that’s why I picked her and it was very well received by the general public and I am sure she is going to be an excellent President.
The President is primarily ceremonial in Greece, but is still the Head of State and has specific constitutional powers, so on the symbolism but also on the substance I think it will end up being a very good choice for the country.
Mr. FERGUSON:
Can I turn now to the broader question of the future of Europe?
Having been for some time a whipping boy of European politics, you have now put Greece in a position where yes, plausibly you can start telling the Germans how to think about fiscal policy, but I would like to ask you a broader question about your vision of Europe.
One senses a generational change happening here in European leadership. How do you see the future of Europe? Because one can’t really look back in the last ten years and say it has been a great success.
Mr. MHTSOTAKIS:
I would say yes and no.
I think there are a lot of things we can be proud of. If you look at the last five years, you know, dealing with the financial crisis, in spite of the difficulties, the fact that we didn’t have the right instruments, big mistakes were made, but we developed the capacity to address these types of systemic shocks.
If you look at growth in Europe, it’s been pretty good over the past five years. Lots of jobs are being created, Europe pioneering in data regulation, so it is becoming a regulatory powerhouse, in a good sense, because it could also be in a bad sense.
So, I think there are a lot of aspects about Europe that are interesting, and I think that the outgoing Commission and, Jean Claude Juncker, on many fronts, did a good job, but I am very happy that the new team…
Mr. FERGUSON:
That is very diplomatic of you, I must say. Because I am not sure I would be quite so enthusiastic in my assessment of the last 10 years.
Mr. MITSOTAKIS:
Well, I said, you see, I focused on the last 5 years. But, on other areas, clearly, a lot of progress need to be made. I like the agenda put forward by Ursula Von Der Leyen, we have spoken a lot about it, I am a supporter, I am a fan of an ambitious agenda, both on climate, on skills, but also in Europe, you know, playing aboard to your political role, which frankly, there is a lot to be desired there.
We have, in our part of the world, we see a lack of European leadership on issues such as migration, for example, where Europe, I think, has failed, across the board we can discuss that.
Mr. FERGUSON:
Right.
Mr. MITSOTAKIS:
So, I like to see the glass half-empty, yes, there is a generational change, you know, President of the Council, President of the Commission, a new generation of leaders coming in the Council, that I think look at the world through a different lens and really want, you know, a united Europe to punch above its weight.
So, for us, this is no longer about going to Europe complaining about our own problems, it is about going to Europe and contributing to a European debate, or to a regional debate. When we talk about our part of the world, this is not a question just about us, problems we may have with Turkey, it is about the Eastern Mediterranean, why it is important for the stability of Europe, why Europe needs to invest more in this part of the world, as a whole, so we want to be part of the important discussions about the future of Europe, and I think we have the credibility to do it.
Mr. FERGUSON:
Let’s talk about migration. Because that was one of the great crises of the last decade, and it hasn’t gone away, and Greece has been one of those European member states, that has had to bear the brunt of refugee inflows. Tell us the situation as it now stands, in Greece, and also what you think needs to be done at the European level, to come up with some more equitable burden sharing.
Mr. MITSOTAKIS:
We have had increased flows of refugees and migrants over the past 6 months. And, we have a problematic, a difficult situation on our islands, especially the islands of Mytilene and Chios are significantly overburdened.
There was a big meeting in Athens today with my team and the people from the region and the mayor. I understand, absolutely understand that we will support the people on the islands because they feel that they are swamped right now with increased flows.
Why did this happen? I don’t know but to a certain extend there were statements made by Turkey that they want to use refugees as a geopolitical level to push Europe to be more cooperative.
We want to cooperate with Turkey and refugees, but that is not the way to do it frankly.
So what we are doing, there are two levels: what we are doing as Greece and what Europe needs to be doing.
We have changed our asylum law. It has gone into effect since January 1st, we are processing applications much faster, we need final decision within two months. If you’re granted refugee status you are free to stay, work in the country or move to Europe but if not you need to be returned.
If you are Syrian, you need to be returned to Turkey fast, otherwise you can be returned to Turkey or to your country of origin.
And we need bigger infrastructure on the islands. So we are building new centers in the islands where we can also keep people that have to be returned in a more confined facility.
So this is a very different policy from what the previous government did, which essentially let anybody in and we inherited 80.000 asylum applications that were in the process of being processes, no final decisions being made.
So that is what we are doing in the Greek side.
But of course Europe has failed on migration to come up with a unified strategy and I’d be very blunt, you cannot be part of Schengen, expect to take advantage of the free movement of people, and not participate in any burden share regarding migration. It is just not fair, it is not just right.
So as we come up with the European compact on migration and refugees, the Vice President of Commission Margaritis Schinas, highly qualified, in charge of the portfolio also, happens to be Greek so we are in close touch with him.
We would envision a mechanism by which decisions could be made at the borders in some sort of border country but also European facility, same rules apply to everyone. Burden sharing for those who actually get refugee status and a unified European mechanism for those who don’t and need to be returned to the countries of origin.
But we need to agree that some burden sharing is going to take place.
You know, I have taken a particular interest in unaccompanied minors, which is a dramatic problem and one which really should touch anybody’s heart.
When I reached out to many European countries to help us on this issue, honestly the response I got was not what I expected. I don’t think anyone is going to be threatened if they receive 100 children, because these are the numbers we are really talking about, if you distribute them to many European countries.
Some countries have been cooperative – some have not. So at some point I think we need to get our act together and make a very clear case that this is not just a question of a coalition of the willing.
This is a core European policy, it needs support from everyone and if you want to be part of Schengen, you got to play ball and make sure that you also assume your responsibilities as far as migration and the refugee crisis are concerned.
Mr. FERGUSON:
It would be wrong not to talk about Libya; one can’t talk about the migration crisis without looking at what is going on, on the other side of the Mediterranean.
And you are in the midst of something of a crisis with respect to Turkey’s decision to sign an exclusive economic zone agreement with the Tripoli government.
Fill us in on the situation there and how you think it is going to play out, because you have reacted quite firmly to this initiative, which seems to entirely sideline Greece.
Mr. MHTSOTAKIS:
Well, this is… You just need to look at the map to understand that this is, not just legally, but also geographically preposterous.
Libya and Turkey don’t have any opposing coasts, so you cannot sign a delimitation agreement regarding maritime zones. In this case, what has been signed completely disregards the fact that our islands have a right to an exclusive economic zone, which goes against everything we know in International Law.
And of course we all know it is an agreement signed in exchange for Turkey’s military support to the Sarraj government and on top of that, it is an agreement that has not been recognized by the Libyan legislator and you know, three quarters of the country that is represented by somebody else basically says that this agreement is against the interest of the Libyan people.
So we have said very-very clearly that we don’t recognize this agreement. We’ve got the European Council to say the same thing that this is an illegal agreement and I have also made it very-very clear to everyone concerned that there is not going to be a political solution in Libya, to which the European Union will have to agree, in which case, we would need to agree, where we will agree, unless these agreements are scrapped.
And this is not just about Greece versus Turkey, this is about the Eastern Mediterranean, it is about energy security, it is about the ability to build a pipeline that actually brings gas from the Eastern Mediterranean to the European Union, whether it is Cypriot gas, Israeli gas, potentially Greek gas.
We do not need Turkey’s permission to do that. Turkey is always invited at the table, I want to make it very clear, these are not agreements that intend to exclude Turkey from anything, but at the end of the day, one has to accept that we have to play by the rules of international law.
And, in my mind, spoilers should not be rewarded. Because it is easy to be a spoiler, but at the end of the day, one needs to draw a line between those who are spoilers, and those who play by the rules, and we are a rules-based transnational institution, that is what the European Union is, and I am very happy that, at the Council level, we have full support of all the European Union countries, that, what has happened between Libya and Turkey is illegal and does not produce any direct legal ramifications.
Mr. FERGUSON:
We are almost out of time, in what is frustrating me, brief slot, but let me conclude by asking you a little about NATO. When the French President, Emmanuel Macron, described NATO in an interview last year, as brain dead, I have to confess I was somewhat surprised. Is NATO brain dead?
Mr. MITSOTAKIS:
No, NATO is not brain dead, it continues to be the pillar of the transatlantic relationship, as a transatlantic security organization, it is irreplaceable. That does not mean that the European Union on its own, should not develop a stronger defence capacity and the ability to take decisions on the foreign policy and on the defence level, speaking one language.
For example, in Libya, we have not yet been able to do that. Indeed, it was sort of frustrating, because we found ourselves in a transition period, you have a new Commission coming in, new Head of European Diplomacy coming in, but we have to speak with one language on these issues, otherwise we let other people at the table, and these are core security issues for Europe.
So no NATO is not brain-dead, far from it. At the same time there are European countries that are interested in cooperating more on security and defense. Greece is clearly one of them. We spend more than 2% of our GDP on defense, so we have assets to add and bring to the table.
And there is merit in discussion regarding on more coherent European defense strategy.
Mr. FERGUSON:
Is this an opportunity, once again, to offer some words of advice to Germany which is not one of those countries that meets its 2% of….
Mr. MITSOTAKIS:
I think Germany is gradually, it is nudging itself towards the 2% threshold.
But I again, as I sense, you have a particular interest in this. I have a very good relationship with the Chancellor, I made very clear to her that I think it was a mistake that we weren’t invited to the Berlin process. And that we should participate going forward. Very clear on that issue, we are the closest neighbor to Libya and I think that this request will be accepted and it is not just about Greece versus Turkey, it is about Greece being the closest neighbor to Libya, full stop, and a member of the European Union and NATO.
But what is important is that we are changing our narrative with Germany. This is no longer an acrimonious relationship about debtors versus creditors, I would be in Berlin in the beginning of March with the Chancellor to participate in a forum on green energy and how to engage Greek German companies to invest more in the opportunities that Greece has to offer on the sustainable energy front.
So, we change the narrative in our debate with Germany, I think it is to our common interest to do that.
Mr. FERGUSON:
And that gives us a nice way into your next Davos session which is going to be on environment, so if you could give us a very brief glimpse of how you see Greece’s green strategy. I know you have….
Mr. MITSOTAKIS:
Two things. First of all we are in the forefront of climate change. Before the Australian bush fires, we had 100 people die in a wildfire that became uncontainable, a lot to do with also in competence in dealing with the issue, but clearly we would be faced with the consequence of climate change much sooner than many people anticipate.
Greece has a potential to be a sustainable energy powerhouse, unlimited access to wind and solar, and we intend to play that role. We are moving off coal, lignite in our case, much faster than we had anticipated.
We will shut down all our lignite producing plants by 2023. By 2028, we will be completely off lignite. Much faster than anybody had anticipated.
We are making the switch towards natural gas in the meantime, but also clean energy in a very fast, but also very organized manner. So this is very important for us.
Mr. FERGUSON:
Prime Minister, thanks very much for giving us your time and answering my questions. Ladies and gentlemen, Kyriakos Mitsotakis.
Mr. MHTSOTAKIS:
Thank you. Thank you very much.
