GREECE IS NOT AN ISLAND / THE NEW YORK TIMES OP EDITORIAL ( HIGHLY RECOMMENDED READING )

March 10, 2010

I.H.T. Op-Ed Contributor

Greece Is Not an Island

By GEORGE A. PAPANDREOU

My country’s economic plight has dominated headlines for months. While many commentators have focused on the underlying problems within Greece, less attention has been paid to my government’s determined efforts to address them and to the wider global problems that are now hindering our capacity for economic recovery.

When I became prime minister in October, I was fully aware that Greece faced a serious budget deficit. Only after I took office, however, did I discover that our predecessors had concealed the deficit’s true size — 12.7 percent of gross domestic product, twice what they had claimed.

In response, we have had to impose an unprecedented austerity package, including deep cuts in public-sector wages. No one is exempt — the pay cuts apply to all public officials, including me. We have also raised value-added and excise taxes. These moves will slash our deficit by 4 percent of G.D.P. this year; by 2012, we will meet the European Union limit of 3 percent.

Too little attention has been paid to other measures we have taken. My government is streamlining public administration. We are building our capacity to prosecute tax evaders and eradicate corruption. We are streamlining business legislation to encourage investment and focusing on our goal of making Greece a world leader in green development.

Greece must, and will, transform itself into a competitive and credible partner in the international community. I will not shrink from this challenge — and I do not believe the Greek people will either, because they understand that these reforms also bring vast opportunities.

Yet our crisis has exposed deep flaws in the international economic system, flaws that savage cuts to salaries will not cure. Despite the radical reforms my government has launched, opportunistic traders have forced interest rates on Greek bonds to record highs. Some of these speculators are making a fortune by betting on our nation’s misfortune. Many countries face similar deficits and similar perils.

The Greek case is not an outlier. It is yet one more flare-up in a broken system of financial regulation and predatory behavior that has swept from Wall Street across the world. The collapse of the banking system, for which taxpayers had to foot the bill, and the painful recession that ensued, have caused us all to reconsider many assumptions.

If global economic growth is to be sustainable, we need better coordination and greater solidarity between nations. If we let market forces alone dictate the terms, our fragile economic recovery will almost certainly falter.

That is why several of my fellow European leaders and I are embarking on a determined effort to transform the system of international economic governance. The European Monetary Union’s rules did not anticipate the consequences of financial deregulation and the attendant risks of contagion.

We must now establish and enforce clear rules to contain the inordinate power of markets over our national economies and our common currency — not for Greece’s sake, but for Europe’s.

Many Europeans are hesitant, even fearful, about the future at the very moment when global challenges demand boldness. If we are confident, we will keep moving forward — not just on critical financial reforms, but on full European integration. If fear prevails, we will see a re-nationalization of European politics. That would be a tragic betrayal of past sacrifices and hopes.

These are the real tests of Europe on which Greece’s crisis has helped shed light. But just as Greece is not island, neither does Europe live in isolation. We are all part of a poorly regulated financial system that urgently needs to be fixed.

The crisis in Greece should be a wake-up call for bold reforms well beyond my own country. I am in Washington to meet with President Obama with a message from Europe: The challenge we face is not just Greek or European; it is American as well, and together we must find a solution.

Bland promises and sterile debates over global reforms will do nothing to fend off the financial predators who have enriched themselves while ordinary citizens have lost their jobs, homes and pensions. The current regulatory system allows this to happen.

Democratic governments worldwide must establish a new global financial architecture, as bold in its own way as Bretton Woods, as bold as the creation of the European Community and European Monetary Union. And we need it fast. Only this will build a new confidence and fairness that our citizens can trust, and that can prevent each new crisis from becoming an epidemic.

George A. Papandreou is the prime minister and foreign minister of Greece.