Euclid Tsakalotos is the current Greek finance minister, member of the Hellenic parliament for Athens B and professor of economics at the National and Kapodistrian University of Athens.

The Politic: Your PhD thesis “Alternative Economic Strategies: The Case for Greece” from 1989 argues for necessary reforms to the political system and societal attitudes to create economic reforms. Given the challenges the Greek people and state have faced over the past decade, does this theory still hold?

Euclid Tsakalotos: The view of our government is that we need to get out of the crisis without returning to the pre-crisis model because the pre-crisis model had a lot of deficiencies. If it hadn’t a lot of deficiencies, we would not have gotten into the crisis.

Apart from the strictly speaking economic challenges of reforming a significant part of the economy,  including the banking sector, we had quite a lot of political economy challenges as well. For instance, a major problem we had to deal with are the clientelistic politics of the Greek state, which is something that goes back to the Ottoman times. People exchanging political favors was a real big part of the system. So for instance, when I first came here, I had to sign every day papers transferring a nurse from one northern city to a second northern city, which is ridiculous for a minister of finance. It wasn’t inefficient in the old system because what it meant was that if someone didn’t sign it and if someone below me didn’t sign it, the people who wanted to go from one town to the other would have to come to me and say “why haven’t  I been transferred?”. Then you could say “why aren’t you voting for the right party in the elections?”.

So there was a very sclerotic public administration.

There was a very slow justice system. I can’t remember which law lord in London in Britain used to say “slow justice is no justice”. And you know, this also affected the business environment. Reforms were definitely not just economic but obviously as an economist and a minister of finance I had mostly to deal with economic ones. There was a whole set of reforms that had to be done.

How do you deal with Greece’s attitude towards corruption?

Corruption includes a wide range of illegal activities from tax evasion to money laundering to straight bribery and so on. We’ve done an awful lot on the tax evasion front. More or less, before the crisis, rich people in Greece paid taxes on a voluntary basis. We were far below on the revenue side, as a percentage of GDP, compared to the EU countries. It was one of the reasons why we did have the crisis and budget deficits. We’ve done various things to address tax evasion. We’ve now got an independent tax authority, so it is not so amenable to political influence, and we have also increased its staff by hiring new people.

On the other hand, we’ve been trying to reform the public administration so that there’s more of a professional administration. As a result the higher echelons are now appointed in a more open process where people from outside the public sector can also apply and there’s a transparent system of appointing general secretaries, directors and deputy directors of the various ministries. So there are things you can do there. But it is also a slow process. It’s also a cultural thing. And it’s not all a matter of corruption, it’s sometimes just a matter of public service culture in Greece. Since civil servants were often appointed politically or through contacts through the clientelistic system, they were rather risk averse. Moreover, it is also a matter of the legal system. In Britain — I don’t know how it is in America — a public servant will do what is right as long as it is not illegal. In Greece, a person will want to know where the law says you can do it. It’s the opposite. In Britain you can do it, unless you’re not allowed to do it. In Greece you can do it if it specifically says and that’s ridiculous because it creates huge legislation if every time you want to find a solution to something which is a win-win –– no corruption –– it’s the right answer and it’s in the law, you have to write a law because you can’t get your civil servants to do the bloody thing. So that’s a cultural thing –– we’re trying to change that. That won’t change from one day to another.

On a similar topic, you have spoken for some time of the need for a continuous and active search for alternative solutions, even in protest movements outside government. Is there a line that must be drawn? Violent protests?

We’ve had quite a bit of protest but we haven’t had that many violent protests, to be honest, since SYRIZA has been in government. [Editor’s note: SYRIZA is the acronym for the Greek Coalition of the Radical Left.]

I think on your previous question, we are searching for a model that has a role for the private sector, a role for the public sector and a role for what we call the social sector, where Greece is lagging other countries. For instance the social economy in a country like France can be 10, 15 % of GDP while in Greece it’s only 1% –– there’s lots of scope for cooperatives and people taking initiatives and it’s something between the public and the private sector. With this in mind we have introduced legislation for social economy.  

We’ve even passed a law on energy communities so that people and organisations can actually participate in energy projects and energy saving projects or economizing on energy. So from bottom up initiatives that are not necessarily for profit, but they’re not necessarily the state either.

We’ve also now got something like a sovereign wealth fund called HCAP. Within it we’ve got real estate assets and state owned enterprises (SOEs). It has a board now that can actually proceed with restructuring these firms, so that they can meet public needs much better. In the past, they used to be stuffed with, just again, political appointees and cronies and these firms were neither efficient in a market sense or in a social sense. It was the worst of all worlds. There are things you can do about edging yourself to a more balanced, mixed economy.

What freedoms do the exit from the bailout package in August and debt relief give you as a Ministry and as Finance Minister?

I think you move from a surveillance which is both on targets and how you meet the targets, to one which is the surveillance on the targets. It’s one thing to have a target for a primary fiscal surplus of three-and-a-half until 2022, but it’s another thing to say, for instance, “well you should reach that target by cutting expenditure and not by increasing taxes”.

So now we’re a normal country where we return to normal politics. As you would expect, if you’re more on the center-right, you’ll be more in favor of tax cuts, if you’re more on the center-left, you’ll also want tax cuts plus social expenditure for more doctors or nurses or school teachers, as long as you keep the target – and we’ve got high targets. We have also created fiscal space above that, to spend over the next four years, that will reach 3.5 billion euros. One of the issues is how you’re going to spend it. There, the European institutions will not have a big role in it. Before, under the program, they did have a role. So now, we return to normal politics, just like in America and in Britain, where center-leftists and center-rightists disagree on the mix of policy. So we are changing from a surveillance supervision target and means to reach those targets, where the people outside Greece had a role in both of them, to much more surveillance on targets.

Europe is torn between the status quo of France and Germany and the rising populists of Italy, Hungary and Poland. The UK’s exit from the EU is another major plot unfolding as well. How vulnerable do you think Greece is to European diplomatic and financial distress?

We’re not so vulnerable because part of the debt deal we got in June 2018 –– we also got a buffer of about 25 billion euros –– to protect us from market turbulence. So we’re covered for the next two or three years anyway. Obviously it depends on the size of the market turbulence.

I’m not a populist politician, but I also think as a left politician, you can’t shout at populists. You have to look at the causes of why people are voting for populists. So if you look at Italy, you have an economy where GDP per capita has hardly increased at all for over twenty years. You’re also looking at an economy where in Rome, the middle of the country, there is around a ten percent unemployment rate. As you go further north, it goes from ten to eight to two. As you go southward, it goes from ten to twelve to fifteen to twenty. With that kind of inequality and non-rising living standards, you get populism.

You don’t attack the populists, you attack — if you want to deal with it — the roots of populism. In a European level, this means you have to attack the social and regional inequalities. If you don’t, you will keep getting populism.

So in the past, you have advocated for some sort of European financial federalism. Is this some way to fix this?

There are steps towards that, which I would like to see, like in America — and this is hardly arguing for socialism. The United States, which is a monetary union, has a fiscal, federalist aspect. If in Texas, for instance, there’s a huge recession which isn’t shared by the rest of the economy, more money flows in from the federal budget to Texas. Also the bonds that pay for that from the US federal budget are paid by all Americans, from Californians to New Yorkers. There’s a stabilization function where you get compensated, but there’s also a solidarity element because the US increased its budget deficit for the flows that go to Texas, but those bonds are paid back by all Americans.

That’s what we need in Europe. That’s quite far away from Europe. There are steps you can do on the way to that. You can have a stabilization process with less solidarity, in terms of loans. We’re edging towards having a serious discussion on that.

You recently traveled to the US to talk to investment groups. What does America offer in a post-bailout Greece?

The position of this and the previous US government was and is very supportive of Greece and to get a proper debt deal, together with the IMF. I mean I’m not President of the fanclub of the IMF, or even just an ordinary member of it, but they did support us on the issue of debt. We needed a bigger debt relief and the American government agreed.

I think Greece is supported by America now because it is sort of an oasis of stability, where around us there is quite a lot of instability –– in the Middle East, in Turkey, the refugee crisis. We have attempted to solve a very long standing problem with our northern neighbor, the Former Yugoslav Republic of Macedonia (FYROM). We reached a compromise on the name of Northern Macedonia –– we shall see how that concludes.

Geostrategically, we’re showing that we’re a country that is solving problems and not creating problems in an area that has enough problems to be getting on with. That is quite important. It’s been very disappointing that the opposition hasn’t been supportive on that, because we have effectively reached a compromise consistent with the principles that they themselves supported the last ten years.

A Chinese corporation recently purchased the port of Piraeus. How influential is China in Greece and Europe now and in the future?

Well, China  has a lot of money for investing. One of the reasons why we wanted to sort out this problem with our northern neighbor was to make Thessaloniki a sort of hub of both trade and energy –– a center for the Balkans. You can’t do that if you’re not on speaking terms with your northern neighbor. The Chinese want a railway to go from Greece right the way through central Europe. That’s quite important.  There are sometimes when Europeans and Americans say that we’re too friendly to Chinese investment –– our reply to that is hic Rhodus, hic salta. It’s just that the Americans and French aren’t investing as fast as the Chinese. Although, to be fair, the Thessaloniki port was sold to a French-German group. A country that has lost 25% of GDP in the crisis, which is the greatest fall in peacetime, there needs to be investment to return to its previous levels of GDP.

Yet, regarding our growth strategy, it must be stressed that we don’t want to fall back to the pre-2009 economic model, which was characterized by huge infrastructure projects: motorways, railways and cheap finance.

We want to shift money to small and medium sized enterprises because Greece’s economic backbone is small-medium sized enterprises (SMEs). Before 2009, 80% of European funding money went to infrastructure projects and 20% to SMEs. We’ve tried to reverse that. We are changing the model as well.

Greek elections are due in September 2019. Do you think the success of this government will convince the Greek people to vote in favor of it again?

It’s difficult to predict. I think it’s going to be a close run thing. Obviously now it’s a bit difficult to tell, till the dust has settled on this Northern Macedonian issue because there was a lot of nationalistic opposition to this. I don’t think it’s going to affect the voters in six months time but I don’t know.

New Democracy is ahead in the polls. But the number of people who voted New Democracy in the last election and say they will vote again is 80%. So they’ve effectively gathered their troops, more or less. With SYRIZA, it’s 40%. The other 60% hasn’t gone to New Democracy, it’s gone to the “I won’t vote/I won’t answer/I don’t know”. This is a very big thing. Whenever you see a poll in Greece, you’ll see that “I won’t answer/I don’t know/get lost” is quite a big thing. I think a lot of people have suspended judgement. They want to see if we will really come out of the debt memorandum, will the pensions be reduced, will the minimum wage be increased.

I think that people are upset because life is difficult for them in genuine terms. They are upset because of the objective conditions affecting a large number of people. They have suspended judgement,  until seeing is believing. So we’re arguing that we’re moving out of the debt program, New Democracy is arguing that we’re not. People will be able to see for themselves.