 Let me perhaps make a few comments about the crisis of the euro and then end up with Observations about the country that I know best as they say in Brussels Let me remind you first of all that it is now almost three years Since what had begun as the biggest financial crisis of the West transformed itself into a European crisis and And it was that time that people realized What a currency without a state implies? Many unthinkables have happened in terms of policies since then In terms of bailouts that were not supposed to happen restructuring of debt that will be only imagination of anybody huge refinancing through the European central bank new forms of Closed bilateral cooperation in terms of fiscal and economic policy that bring us into new and uncharted Territory in the European Union new firewalls that were supposed not to be there Because people were afraid of horror of moral hazard and so on and so forth But yet despite all this series of unthinkables in the last two and a half years We are not near the end of the crisis of the Europe and While the economic situation especially in large parts of the European periphery is steadily deteriorating Now it seems that the majority of economies and policymakers I insist the majority of course not everybody agree what a solution would more or less imply in broader and Now we have ended up agreeing that one of the things you require is a banking union The other is a more advanced form of a fiscal union and most people then add up the political union Dimension to the first two now you might say that the devil lies in the detail We agree in principle although many of us do agree in principle about the need For all those three things yet. We find it extremely difficult to implement the measures that go along There is disagreement about the detail there is disagreement about the sequencing and And If I may go through a list of three or four simple reasons it seems to me Why we have such difficulty in agreeing The first of all first of all there is economic divergence which has widened inside the European Union Because of the crisis so the crisis has increased economic divergence inside the EU and the eurozone in particular What is happening? In fact if you think about it is that The periphery has been hit much harder than the center so now we are experiencing in the last few years a reversal of the old process of European integration as a convergence machine now This is divergence machine and In fact it can actually go on for a few years to come So if you have economic divergence You perceive and you live the crisis very differently Depending on whether you live in Germany, Finland, Austria, Greece, Ireland and Portugal So that makes it very difficult to agree There are also differences in terms of economic perceptions For example, there are differences between economists and policymakers as to where you place yourself on the spectrum Starting with stabilization on one end and growth on the other And that's very difficult, but of course your perception is colored to a very large extent by where you sit or stand The third point is that the stakes are very high Which means also that the bill For solving the crisis is potentially very high and if the bill is very high the question that follows is who pays the bill and How do you distribute pain and this is in fact one of the most difficult things We are facing in the European Union today when we were discussing about a European guarantee for bank deposits We assume that those who have Qua credit worthy will be under sign underwriting a check which Hopefully will never be cashed, but if it is cashed then the bill is huge And then you try to explain to Germans Finns, Austrians and others that this is a check They should sign for the benefit of other Europeans and that's not easy But there are two other reasons which I think are political reasons which make an agreement on the solution To the crisis very difficult One is that there is declining support for Europe Europe wide solutions inside countries Because there's growing populism there's growing nationalism as a result of the crisis and therefore Popular support for potential European solutions is much weaker now than it used to be three four five years ago and Then if you add to that something else and this is there's been a decline of trust between countries So European support is declining inside countries and trust between countries is also declining The combination of all those things make Europe agreements very difficult indeed Now the only thing that is keeping our Show on the road still is the realization by everybody concerned that the cost of failure May be beyond our capacity to imagine what it's going to be like Not only the cost of failure in economic or financial terms But also the cost of failure in political terms for European political integration as a whole So if I were to summarize the situation perhaps we are in today, I would say that economics dictates more integration But the political appetite is lacking and Which of the two Wins in the end is still an open question My guess is that if I were to take a bet is that we will end up with more integration Economic financial and political as the necessary price to pay for saving the euro But this is by no means to be taken for granted. It is still an open question now if we do end up with more integration and with euro intact then The next question that arises or arises at least in the minds of several people is whether we are likely to exit the crisis in one piece or whether there will be bits and pieces that fall off and When people talk about bits and pieces that fall off They usually have my first my count my own country in mind So there's been quite a bit of speculation Over the last year or so as to whether Greece would remain a member of the eurozone or not let me start with The good news and then move on to the bad news again good and bad Depends very much on what your interests and perceptions are of course But assuming that we all have the same interests and perceptions. Let me go through the good and bad news now Greece Was as you know the catalyst for the transformation of the international financial crisis into a European crisis in the end of 2009 Because at the time when markets began to realize that the next phase in the crisis was sovereign debt And also internal eurozone problems Greece appeared as the country with the worst combination of 30 deficits namely a budget deficit a current account deficit and the deficit of credibility Now the deficit of credibility we caught in Greece because our politicians more than they are counterparts in other countries had proved to be extremely economical with the truth and Very creative in the use of statistics. That's my diplomatic way of presenting the Greek problem Okay, so Greece became the catalyst for the crisis The reaction of most of its European partners at the time was that It was not a problem for the rest of Europe It was a problem for Greece to deal with in the same way that Germany's first reaction in 2008 and 2007 was that this was a crisis that did not affect Europe it was a problem for Americans to deal with then when the creek Problem erupted that again the first reaction was that not my problem yours So deal with it now both my compatriots and the rest of Europe did it for quite a while and Then when we finally ended up with the first bailout mechanism So Greece opened the way for new bailouts to be decided for other countries So in that respect we are pioneers if you wish Then The attitude I mean you read the communicates The attitude was that Greece was unique So it was a unique problem that required unique treatment nothing to do with our country Now of course soon the European Union discovered that there were other countries that had problems So the crisis was not confined within the boundaries of the Greek state But still many people Insisted that if Greece was not unique at least it was very different and more difficult than the others Which is perhaps true now. What's the good news? The good news is that? Greece has delivered a Much has much in terms of fiscal consolidation in the reduction in budget deficit that Greece Managed to get in two years is the biggest reduction in budget deficit that any OECD country has delivered for decades It was more than six percent of GDP in two years With GDP declining fast now we have cut down about eight percent of GDP deficit We are about one one and a half percent of primary deficit in our budget So fiscal consolidation Pretty remarkable. I think success if that is success Greece has also delivered in terms of internal devaluation which is what the IMF and the Commission was preaching So depending on how you measure things, but there's been an internal devaluation in terms of wages and salaries of the order of about 15 percent in the last two and a half years, which Not much for in a short period of time The other good thing is that Greece now has a coalition government, you know Coalitions and compromise are almost dirty words in Greek political vocabulary. We're not used to compromise compromise Is in fact a dirty word in Greek as it is for example to a large extent in French But it is not in German and it's not I think in English Compromise if you write on a Greek headline compromise that means bad you have done something wrong Because compromise means giving in So compromise and coalition now we have a coalition government consisting of three parties We haven't had coalition governments for decades. So we are trying to learn this game Which is not easy to learn in a short period of time under duress but We're making some progress and now we have a government That seems to be also more determined than its predecessors to move ahead not only in terms of fiscal measures But also in terms of structural reforms Structural reforms the problem in Greece of introducing structural reforms Especially reforms that affect the role of the state is that they will be Undermining the clientele basis of Greek quality and that's why it's difficult politically So the people who run a clientele system you are asking them now to dismantle it and they don't like it naturally, right So but we are making progress on that score as well And there is another piece of good news which is important and this is something that has changed in the last I would say three months in Europe until about June July a Significant part of the German political establishment to a much lesser extent in other countries were convinced That an exit from Greece from the Eurozone was a good thing Either because it was a lost cause they thought so you get rid of the weakest pupil or because an exit from Greece would Help to tell others how to behave because punishment may follow to others This has changed So in the last two or three months, there are very few people who argue along those lines So the predominant view now again with exceptions But the predominant view in Europe is that the exit of any country Greece or any other Risks creating domino effects that will lead to the end of the show So these are the good news. This is a good news the bad news is That the Greek economy more than the Spanish economy the Italian economy the Portuguese economy And you tell me whether it is also the Irish economy, but I think less so It's caught in a deadly trap of austerity and recession And it can't get out Then Greek GDP will have declined by 20 percent by the end of this year since the beginning of the crisis and It is and recession is expected to continue of the order of between four and six percent next year So, I mean this is Unprecedented scale this has not happened for 60 years Anywhere only Latvia the head. Yeah, the funny thing is it coming up in parentheses several commission officials with whom I have the pleasure of exchanging views Use Latvia as the example to follow and they say that Latvia turned over in two years Of course, I mean the price was 25 percent cut of GDP in two years and also a loss of about 10 percent of their population through a migration But it's supposed to be a successful story and they said you know the Latvians Took it without much Protest and I rushed to remind them that you know after 50 years of Soviet rule you know people are prepared to take anything peacefully and Luckily or unluckily Greece and Spain are not Latvia so The bad news for me is that Greece Is a country where the economy is imploding and Society may be at the brink of exploding and this is the big risk That unless the overall strategy Followed in trying to deal with the problem Changes My fear and I would stop there is that Greece may be leading the way to hell in Europe Followed closely by other European countries of the periphery and this is as far as I'm concerned the biggest risk We are facing today