Greek foreign minister talks of a new financial transactions tax

Greek Foreign Minister Stavros Lambrinidis jokes that his ability to draw an audience comes from morbid curiosity in the economic fate of his small European country. “They want to see what a dead man looks like,� he says with a laugh. With many observers proclaiming that Greece is on the brink of bankruptcy, Lambrinidis is in the U.S. pushing the message that Greece is not a lost cause, heralding his government’s commitment to radical cuts in public spending and insisting its European partners will not let it fail.

Greece’s immediate need is for European governments to pony up the loans they pledged on July 21, essential to making payroll and cutting pension checks as early as mid-October. But Lambrinidis also says Greece is trapped in a recession spawned by the austerity measures. “We start making these humongously painful changes that the rating agencies said we had to make, and after we make the changes we get downgraded again because now the agencies are saying there’s a major recession and therefore we will not be able to pay our debts,� he said during an interview with Times editors Monday. “There’s a wonderful madness in this whole thing — but there it is.�

Lambrinidis knows there is little political mileage in complaining. But he does argue that the U.S. and Europe must find new sources of capital to spur economic growth and says it’s time to discuss imposing a tax on financial transactions. The European Union is studying the merits of imposing a small tax on the sales of bonds, stocks and other financial products that it believes could raise billions of dollars for investing in job creation.

You cite all the steps Greece has taken to reduce spending, yet the talk of default persists. Why?

No one wants default — in Europe at least. Europe is a strange animal because it has to make all of these decisions with 27 governments and populations on board. And when all these different doctors, discussing different recipes for the patient, sometimes feel it necessary to do so in public, that may give the impression of a lack of cohesion or a lack of will.

Knowing Europe as I do, it would be betting on the wrong horse if one bet that Europe will not bind together to protect the euro and to protect Greece. Nevertheless we are where we are today, with daily headlines that we are about to default and collapse and bring everyone else down with us.

Why are we hearing about a financial transactions tax now?

One is a hard-core argument about how to restrict the speculation that brought the whole system crashing [down] a couple of years ago. An FTT could be very low, and would [target] those who do the thousands of transactions per day, up and down, to do the speculation. It wouldn’t hurt the simple citizen investing a little money here and there.

Everyone told me there would be a moral hazard if I got bailed out without bringing my people to their knees. There had to be pain. And I say: Fair enough. Now I was not the first bailout in recent history. The first bailout was banks. And we’re talking a much bigger bailout than the one Greece is getting. Where was the moral hazard there? What kind of pain was there for a system that we thought acted irrationally and irresponsibly and brought the whole world to the verge of collapse?

So in the midst of a major need of the U.S. and Europe for jobs and growth, I don’t think it should be a taboo thing. Europe is ready to apply a financial transactions tax on the Eurozone alone. But the broader this is, the better this is. You will minimize the risk of capital flight. Let’s begin a discussion.

In the U.S., the banks and Wall Street would be opposed, and there is probably no way the Republicans would support a tax.

You put this in a headline and everyone’s going to think that Greece is looking for a way out of its struggles by claiming it’s the bad markets that did it. I don’t believe this for a second. I recognize 100% it’s our responsibility. No scapegoating anyone else. All I’m saying is all of us have to think of growth at the same time and of new sources of funding in order to not get in this spiral. And these sources of funding cannot come from our economies because they are not growing.

It would not destroy [the banks’] revenue. It would make them tinily poorer, when they have done incredibly well in the past two or three years profiting off the ruins that they created in 2008.

How long will it take to get out of this trouble?

This is a European issue. At the same time that Greece fulfills its own responsibilities, very difficult ones, Europe has to fulfill its own responsibilities such as applying the July 21 decisions to give us that breathing space, and in filling the holes in economic governance. Once we get all this done, which will get done in the typical European way of screaming and kicking and shouting and eventually surprising everyone with our determination, I think we’re going to be in pretty good shape.

I would not be surprised if there was suddenly an epiphany in the system. [But] it is hard to predict anything other than the fact that Europe will safeguard Greece and the euro, because consequences otherwise would be extremely problematic.

Is public sentiment in Greece strongly in favor of staying in the Eurozone?

It is hugely in favor of remaining in the Eurozone. The effect of going back to the drachma would be twice as devastating. People would lose their savings. They would get many years of chaos. The middle class will dwindle away. Plus, this would be a bad message for Europe to send. If a European country that accounts for only 2% of European debt were to collapse this way, the markets would think: OK, this is a free-for-all. Let’s go for the next one. There are a lot of people out there waiting to make a lot of money out of that.

Is there a limit to how much the Greek people will take?

If you look at all the changes we’ve made to now, you might have predicted that the government might have collapsed months ago and it has not. People are not obviously in the streets celebrating that salaries are cut and thanking the Greek socialists for this wonderful job. But there’s a wisdom demonstrated up to now in the necessity of some of these changes.

There is a thing, however, that is obvious in any democracy: People need to see some light in the end of the tunnel. Because otherwise you do reach potentially a breaking point when people say: Look. We’ve been making all these sacrifices and you’re asking every time for more and more. And where’s the light?