A Greek accumulation of policy mistakes…

1. The Euro’s Growing PainsAntonio de LeceaEuropean Union Delegation to the United States of America________________________________________________________________________The Streit Council for a Union of DemocraciesSAISMay 4, 2010

2. Outline • A Greek accumulation of policy mistakes… • …an incomplete Euro Area enforcement and crisis resolution • …both now being tackled… • …for the benefit of the Euro Area and the global economy.

3. Death throes? The euro: It can’t happen, It’s a bad idea, It won’t last. US economists on the EMU, 1989-2002 by Lars Jonung and Eoin Drea Economic Papers No. 395 / December 2009

4. 1. An accumulation of policy mistakes in Greece • Poor fiscal policies and governance • Declining competitiveness • Poor statistics led to miss many opportunities from entry in the Euro Area

5. Poor fiscal policies • Bloated public employment • Poor procurement rules • Poor revenue performance • Serious expenditure slippage in 2009 • Poor fiscal accounting

9. Deteriorating competitiveness

10. 2. Incomplete Euro Area governance • Fiscal surveillance initially focused on nominal deficits • Reviewed in 2005 to bring more economic rationale • And expanded in 2009 to take account of structural aspects • Though assessed on the basis of statistics not sufficiently surveilled • Crisis resolution mechanisms available for non-Euro Area members (and third countries) but not for Euro area countries.

11. Markets did not price risk properly for a long while Greek spreads on 10 year benchmark bonds to German Bund

12. 3. Now being tackledby Greece … • On 15 January commitment to reduce deficit by 4% in 2010 (both revenue and expenditure). • On 3 March additional 2% deficit reducing measures for 2010

13. 3. Now being tackledby Greece …

14. 3. Now being tackledby Greece … • On 15 January commitment to reduce deficit by 4% in 2010 (both revenue and expenditure). • On 3 March additional 2% deficit reducing measures for 2010 • Ambitious tax reform launched in March • Statistical data reviewed in April • On 2 May Greek Government approves extraordinary adjustment programme (negotiated with the EC, ECB, and IMF) for 2010-2014, with further consolidation for 2010 and specification of fiscal measures and structural reforms for 2010- 2012

15. 3. …and by the EU • On 16 February package of enforcement measures (fiscal, structural, statistical) addressed to Greece • Euro Area Leaders and Finance Ministers commitment to support stability of the Euro Area with financial support alongside the IMF. • Proposals for enhanced economic policy coordination (May 12) • Enhanced EC (fiscal, structural) surveillance in close cooperation with ECB, IMF • Proposal for a more permanent crisis resolution mechanism for the Euro Area • And an ambitious framework of structural reforms (Europe 2020)

16. 4. for the benefit of the Euro Area and the global economy • Ensure stability in the Euro Area • to enable the EU to focus on crisis recovery, • increasing growth potential, • contributing to a reinvigorated, balanced global growth, • a sound reform of global financial regulation, • and an effective and legitimate global economic governance.

17. Conclusion Greece and some Euro Area countries are not the only ones with large fiscal and external imbalances

19. Conclusion • Greece, and other members of the Euro Area family, will still have growing pains. • But they will grow strong. • The euro is not a substitute for sound policies.

20. Conclusion Also state and local finances are a challenge • Its governance must still be perfected. • But it will certainly outlive us.

21. Thank you for your attentionAntonio de LECEA