“We need to mobilize European resources to help all member states address this. If this does not happen, for whatever reason, it will be up to the member states to spend more money to support businesses and households. This is what we will end up doing in Greece, stated Prime Minister Kyriakos Mitsotakis during his discussion with OECD Secretary General Mathias Cormann, in the context of the Delphi Economic Forum.
“If we do not do this, we will allow the forces of populism in Europe to re-emerge stronger. And as we look to build up support towards Ukraine and against Russia, it will be a terrible, terrible mistake if for economic reasons, we will lose the support of our populations because they will feel the pain from this invasion as intensely as the Russian citizens,” stressed Kyriakos Mitsotakis.
“We have €230 billion of unused loans from the RRF facility. I think we need to be very creative and, with the help of the Commission, to think how we can use these loans -which member states have expressed no interest in using- to repurpose them, in order to help us deal with high energy prices, but also help certain member states deal with the migration crisis,” pointed out the Prime Minister.
“I just had the opportunity to meet with the Prime Minister. And to sort of see what has been achieved in the recent years here is really fantastic! The economy here -you are coming from a difficult situation not that long ago- is really heading in the right direction now and the response to the pandemic was strong, said OECD Secretary General.
“Structural reforms to improve competitiveness and fiscal credibility continued to be pursued during the pandemic and the benefits are very clear and very obvious. High employment growth, sharp drop in unemployment, even in the pandemic. And the fact that the government here was able to pay off the final tranches of the IMF loan, two years earlier, is such a strong signal of the performance in recent years of Greece to rebuilt its’ fiscal credibility, which is a very strong foundation from which to boost investment growth and more jobs into the future,” Mr Cormann added.
The complete conversation, between Prime Minister Kyriakos Mitsotakis and OECD Secretary General Mathias Cormann, follows.
First Intervention
Florian Eder: What is your assessment of the economic situation of your country, in particular, and of Europe?
Kyriakos Mitsotakis: Coming out of the pandemic, Florian, we were all hoping that we would be able to resume rapid growth, and we were forecasting a growth that could possibly exceed 5% for 2022. Of course, nobody thought that we would be faced with a situation where we would have a war on the European continent. And it is very clear that the Russian invasion of Ukraine would have significant economic ramifications for the global economy. We’re not just talking Europe here. But I’m sure Mathias here will comment on this in more detail. We still expect the Greek economy to grow substantially in 2022, but of course, we will revise our growth forecast downward. But the biggest challenge that we are all facing today is related to the prices of energy, especially the prices of gas, and the linkage between gas prices and electricity prices. And here I want to be very clear and very direct. We need to break the link between gas prices and electricity prices. If we do not do that, we will impose a huge economic pain on our citizens and on our businesses. I would hope that we are able to do this at the European level. And we’ve discussed this already at the level of the Council.
We will have an extraordinary Council towards the end of May, where I expect the decisions to be taken in that direction. We need to mobilize European resources to help all member states address this. If this does not happen, for whatever reason, it will be up to the member states to spend more money to support businesses and households. This is what we will end up doing in Greece. It will have fiscal implications, but I would hope that we can be able to do that at the European level. And my last comment on this. If we do not do this, we will allow the forces of populism in Europe to re-emerge stronger. And as we look to build up support towards Ukraine and against Russia, it will be a terrible, terrible mistake if for economic reasons, we will lose the support of our populations because they will feel the pain from this invasion as intensely as the Russian citizens.
Florian Eder: You said you would expect that extraordinary European Council meeting, of your colleagues – Prime Ministers and Presidents and Heads of state and government – to take a decision. How confident are you that this is going to happen?
Kyriakos Mitsotakis: First of all, the Commission has done a very good job in terms of offering us options, but at the end of the day, it’s up to us – the members of the Council – to take specific decisions and there are many ways of addressing this. I mean, we have proposed the option of putting a cap on the wholesale prices of natural gas. There are other ideas in terms of de-linking gas prices and electricity prices, because the market design of the European electricity market never took into consideration the possibility that gas prices could increase tenfold. Because right now we need to be honest. We have a non-functioning gas market. The forces of supply and demand have not really been disrupted, but the prices of gas have gone through the roof. And of course, we also have €230 billion of unused loans from the RRF facility. I think we need to be very creative and, with the help of the Commission, to think how we can use these loans -which member states have expressed no interest in using- to repurpose them, in order to help us deal with high energy prices, but also help certain member states deal with the migration crisis.
We should not forget that there are countries such as Poland that are currently welcoming more than 2 million refugees and they will also need extraordinary support. We did this back in 2020 with the RRF and it was a huge success. I do not think that there is an appetite in the Council to increase the envelope of the funds that would be available at the supranational level. But let us be creative and think in terms of repurposing existing funds, funds that have been approved to help countries in the short-term deal with this issue. Because there’s also an energy transition element. We should not lose sight of the fact that we want to decarbonise and this is a central theme for all of us. Reducing emissions. But if people associate decarbonization with very high energy prices, we will not have the level of public support to be able to drive through these important changes.
Florian Eder: Last question on this: you said €230 billion are unused or unpurposed money of the existing fund. Is that about the amount of money that you think will be sufficient?
Kyriakos Mitsotakis: Well, that’s a lot of money. Let me put it this way. And no matter how you divide it amongst member states, it will help. And again we need to be creative in terms of how we can use this money. But this is a very expensive proposition and again I would hope that we will be able to do it at the European level. If we cannot do it at the European level, we need to do it at the national level. One thing is for certain, we cannot for a long period of time tolerate these very high prices of energy, and in particular, the very high prices for electricity. We have heavily subsidized the more vulnerable households in Greece. We will continue to do so but we probably need to do even more to be able to absorb the pain on households but also of the pain on the real economy.
Second intervention
Kyriakos Mitsotakis: I think Mathias is right when it comes to food. But he’s also right when he points out that the electricity market in Europe was not designed to accommodate this sort of extreme level of volatility that we see in gas prices. It was very well designed to encourage investments in renewables, but currently it does not make much sense to offer an electricity price that is determined solely by the most expensive marginal unit of fuel that enters into the system, which is gas.
I’ll give you an example from Greece: we had very good weather conditions over the past week, which means relatively sunny with some wind, which means that more than 60% or 70% of our electricity can be produced from renewables, which currently are becoming much cheaper. But the price of a unit of electricity is still determined by gas, because we will need gas to make up for the shortfall. We will never be totally dependent on renewables. That is why I think it is so important to focus on the market design of the electricity market and to break that link between gas prices and electricity prices.
On food, I think Mathias is right. There are countries in our neighborhood, our immediate neighbors, such as Egypt for example, that are incredibly dependent on wheat imports from Russia and Ukraine. And I think right now the absolute first priority should be to help Ukraine with its harvest. We discussed this with Matthias and I see a role also for the OECD in the next chapter for Ukraine, when hopefully this war will come to an end and when we talk about the reconstruction of the country. But, in the short term, what is imperative is to make sure that we protect as much as we can from the Ukrainian harvest.
Florian Eder: I’m interested in a more personal aspect of this, Prime Minister. You have a reputation of planning ahead, and you came into office with a very clear reform agenda, you then ticked all the boxes, one after the other. How does this crisis and this war affect your work as Prime Minister? Τhe next elections are due next year, how much does that change, just everything?
Kyriakos Mitsotakis: Maybe you should ask my wife. But we certainly work. We did come into power with a very clear reform agenda. And we had to deal with numerous crises because before COVID we also had to deal with the migration crisis and with a very aggressive neighbor. We had a very difficult summer in 2020. Then we had Covid and now, of course, we have the war and the economic implications.
But I’m quite happy that we have been able – in spite of all these extraordinary events – we were very consistent in terms of delivering on our reform agenda. We’ve lowered taxes on labor and income. We’ve made Greece a more attractive destination for foreign investment. We have many companies that are interested in investing in Greece at present. We’ve made the case why a geopolitically stable Greece should also be a natural target for foreign, but also for domestic, investment.
We strengthened our geopolitical alliances. We have put Greece on the map when it comes to the energy transition, but also we’ve made it very clear that we will play a role in the new energy discoveries in the Eastern Mediterranean. But we also addressed challenges such as labor reform, education reform, healthcare reform.
I think the real challenge these days for anyone who has the privilege of leading a government is how you split your time between day-to-day crisis management – which, I’m afraid, is going to be the rule – and long-term planning. It is not easy, obviously it means you need to work even more.
But you should never, I think, in my mind, lose sight of the fact that there is a bigger picture and a bigger vision towards which we work. And the vision that I laid out to the Greek people, when they put their trust in our government in 2019, is still very valid. And it will also be the vision that we will present to the Greek people in 2023, when we will ask them if they want to renew their mandate. This is a long-term transformation process for the entire country. We really want to catch up with the rest of Europe. We want a Greece that is a protagonist in Europe and no longer a laggard.
And I’m happy that, on the symbolic front, many of the legacies of the past decade are being addressed. You mentioned, Mathias, the fact that we’ve repaid our IMF loans ahead of time – symbolically, very important.
We were one of the first European countries to receive RRF funding. Yesterday, Valdis Dombrovskis – who was supposed to be here physically – handed over the European decision, giving us €3.6 billion, the first tranche of the RRF program.
And of course, we also intend to exit the enhanced surveillance mechanism by August and reach investment grade by 2023. So as much as we focus on dealing with the short term crisis, we need to keep in mind that we have a bigger project for the country.
In each crisis there is also an opportunity. When we talk about energy now, renewables become more important. Not just because they help us reach our climate neutrality targets, they become more important geopolitically. If we talk about energy independence, no one is going to take away our wind and our sun. So the faster we move in terms of licensing for renewables, the better it will be for the country. So in each crisis, there’s always an opportunity to drive through your reform agenda. And obviously there are always bumps, there will be mistakes, but we never lose sight of the big picture.
Florian Eder: You mentioned it already. Valdis Dombrovskis also said that he would expect Greece to exit the enhanced surveillance – sort of the last step of the program – this summer, which has upsides and carries the risk that the European Central Bank for example can’t help as easily if there was a crisis. Is it actually a good idea – in the economic crisis that we’re in, that we are talking about here – to kind of lose that safety net if you want?
Kyriakos Mitsotakis: This is our baseline scenario. We’re working towards that goal. And again I think it’s also important to send a signal to the markets that “yes, we can stand on our own two feet. Yes, we are a credible government that is implementing reforms”. And if you look at our fiscal condition, our debt may be high as a percentage of GDP but it has very peculiar characteristics, which makes it more benign to the international capital markets: it’s long-term debt with low interest rates primarily owed to official creditors.
So we are making the case that we want to complete the enhanced surveillance program in August and we’re working towards that target.
Florian Eder: And the next target you mentioned also is investment rate, like next year. Did I get that right?
Kyriakos Mitsotakis: Yes, and I think this is also perfectly doable. Again, we all understand that there may be some slippage in terms of the fiscal targets we have set for 2022, because of the extraordinary circumstances that we are addressing. But we remain committed towards a path of fiscal sustainability. We will be reducing our primary deficits. We will have a primary surplus in 2023 and the markets will take a hard look at what it is we are doing and I think they will take the decision that we deserve to be at the investment grade level, at some point in 2023. And when we reach that point, that will put the final exclamation point on closing this very painful chapter for the country which opened essentially twelve years ago with the financial crisis of 2010.
Third intervention
Florian Eder: To you, the sanctions against Russia that are in place, have been in the G7 mostly, are very carefully designed and balanced. So, Mr Cormann said that everybody could contribute, but also the impact was more or less evenly distributed. Do you think there is a risk that this will not hold for very long?
Kyriakos Mitsotakis: First of all, I think you’re right to point out that this is a symmetric shock, but there are always winners and losers also within the Western world, especially when it comes to energy. And that is why I think that like-minded countries, Western democracies, US, Australia, the countries that have imposed sanctions, need to also strengthen their cooperation when it comes to the global energy market. Why am I saying this? The EU has agreed with the US an important deal to import LNG from the US in order to start replacing Russian gas. Maybe we could do a similar deal with Australia. Australia is one of the big LNG exporters together with the US and Qatar. And of course, for these deals to make sense, we should not just talk about security of supply, but we should also talk about prices. There is a lot of money that is being made currently in the global LNG market: very low production costs but a price that is extremely high. So, I think there is scope for more cooperation. When we look at, for example, the European energy market and we’re discussing the possibilities of price caps, we need to make sure that we will not affect the LNG market and that we have enough LNG to cover for whatever disruptions we may have in the gas supply. That’s why I think this level of cooperation between like-minded countries needs to be strengthened.
Now on sanctions. Again, the question returns to how much pain will European societies suffer from the energy crisis? We’ve imposed draconian sanctions on Russia. They are already and they will be very painful. But that is why I think we need to muster the European firepower to cushion the blow on the European citizens. And this is something that we can do. And Mathias was right. He mentioned, I think, the positive side of the European integration story, which we tend to forget. This has been a hugely successful experiment. Speaking as a Greek, who has been a member of the European family for more than 40 years, I can attest to that. But also if you look at our most recent experiences, how we dealt with vaccine purchases. Τhe RRF was a milestone in the process of European integration, the ability of Europe to borrow at the supranational level and finance member states through grants and loans. This was something which was inconceivable two years ago. And we need the same level of ambition when it comes to addressing the impacts of energy, because at the end of the day we are democracies and this is our big strength.
We should not turn our strength into a weakness. I will again come back to the argument that if we do not address this challenge, there will be forces of populism from the extreme right or from the extreme left that will take advantage of this. And you look at European countries that are currently in a campaign mode, and you will easily understand how dangerous this is for the whole European experiment. At the end of the day, our job is to protect our citizens, in particular the most vulnerable citizens. And we have demonstrated through the RRF that this is something that can be done. This will have a huge impact on our economies and it will not just affect – as many people think – big businesses or the big investors. When we, for example, are channeling RRF funds into renovation programs – which is one of our flagship RRF programs – we benefit the end customer who will pay lower energy bills. We benefit local industry because the building materials are Greek. We benefit the local self-employed plumbers or the people who installate the new installation. So these are sort of win-win projects, which are financed through the RRF.
But let us not lose sight of how painful these increases in the prices of energy are for everyday citizens. And that is why a European approach, a European assistance, in this context is going to be so important. And I’m sure that we will demonstrate at the end, the same level of ambition that we did two years ago when we set up the RRF. Again. I remember I was one of the first heads of state and government who sent out a letter asking for an RRF type of instrument. At the time there was huge resistance, even from countries such as Germany, but they understood – and Chancellor Merkel understood at that point – that this was something which was necessary. I think the same level of necessity is also currently present. And I’m sure that Europe is again going to – sort of – rise to the occasion and offer some level of European solution to a problem that is essentially European.
Florian Eder: Small question on that fear of populism, of the rise of populism. Again it is, of course, very tangible in several European countries. What does that tell you? At the same time, the pressure is mounting on Germany and Austria and others to no longer block a complete embargo of Russian energy. Are these calls something you would want to join, or are they not very helpful?
Kyriakos Mitsotakis: It is not helpful at present to talk about a complete ban on the import of Russian gas. I’m very clear on this. We cannot replace Russian gas from one day to the next. But let us look at the functioning of the market and come up with realistic solutions. What we cannot accept is a solution that will put us in a weaker position than Russia. The point of sanctions is that we’re willing to incur some pain, but, at the end, we are inflicting more pain on the country, which is the target of sanctions. If we get this mix wrong, we would essentially shoot ourselves in the foot.
Fourth intervention
Florian Eder: If you had the chance to ask the Oracle of Delphi, what is the one question that you would want to have an answer to.
Kyriakos Mitsotakis: The Oracle was notoriously good at always offering the answers that you wanted to hear. That is why it survived for so many years. Maybe a good skill for some politicians. Not my type of skill, certainly. But I would agree with Mathias. I think “the million-dollar question” is how quickly will the war end? What will the peace settlement look like? And again, I will end on where you started. At the end of the day, this is a huge humanitarian tragedy, very personal to us in Greece, because we have more than a 100 thousand Ukrainians of Greek origin living in Eastern Ukraine, especially in the city of Mariupol. That is why we have committed to participate in the reconstruction of Ukraine, and not just by rebuilding the maternity hospital that was bombed during the first days of the war. But we would actively want to play a part in this effort. And we are, of course, always trying to also help with the evacuation of desperate people. So this should be our number one priority. But I’m not sure that the Oracle – in her confused state of mind – will be able to offer a clear answer to this question.
