Greece’s Minister of National Economy and Finance and Eurogroup President, Kyriakos Pierrakakis, gave an interview to CNN and journalist Richard Quest on the sidelines of the Annual Meetings of the International Monetary Fund (IMF) and the World Bank in Bangkok.
The full interview follows:
Richard Quest: Let’s focus on the debt crisis. Bond yields are rising. Italian and French bond yields are significantly higher than their German counterparts. Christine Lagarde said yesterday that the solution to France’s debt problem, or its debt crisis, lies in France. We interpret that as a sign that the European Central Bank will not need to buy French bonds or bail out France.
Kyriakos Pierrakakis: First of all, I agree with what Christine Lagarde said. Emmanuel Moulin, the governor of the Banque de France, made the same point. But the situation we are seeing in the bond market today is, to a large extent, global in nature.
Ten years ago, the average bond yield in Europe was 1.1%. Today, the average yield on 10-year bonds is 4.4%. Globally, we are seeing inflation expectations rise. Energy, artificial intelligence and many other factors have changed the landscape.
Richard Quest: So higher yields will create problems for European governments in financing their budgets.
Kyriakos Pierrakakis: The era of cheap and abundant capital is over globally. We are now in a different environment, with higher bond yields. Clearly, this adds to the existing fiscal pressures.
I referred earlier to the comparison between bond yields today and those of ten years ago. Let’s also look at the average fiscal deficit in Europe then and now. It was 1.7%, while today it is more than twice as high. In the meantime, however, Europe has put its public finances in order and developed capabilities that are now embedded in its fiscal institutions.
Richard Quest: So you are saying you do not foresee a debt crisis? I am not suggesting anything like what we experienced ten or twelve years ago. Are you saying we will not see a debt crisis in major European countries?
Kyriakos Pierrakakis: I would say the situation is entirely different from the one we faced then. And that is coming from Greece’s finance minister.
I would say we are monitoring the situation carefully, but we are not overly concerned. And yes, markets are scrutinising each country’s fiscal trajectory very closely. The more credible a country’s fiscal policy and political system, the more that is reflected in its bond yields.
Europe has a very strong fiscal framework, which we are applying now.
Richard Quest: But there is a contradiction here. First, European governments, including your own, have asked the European Commission for more fiscal space. In effect, you are asking for the rules to be loosened now. At the same time, the IMF says in its World Economic Outlook that governments need to rein in fiscal expansion. You cannot do both at once while bond yields are rising.
Kyriakos Pierrakakis: First, this is a balancing act between the growing energy needs we face and the support we need to provide to citizens. Second, there is clearly the current situation in the bond markets. Third, I do not think there is an inherent contradiction between these goals, because flexibility can be built into the system within the existing fiscal framework and its provisions for escape clauses, without fiscal expansion.
So I believe both goals can be achieved at the same time.
Richard Quest: I think you are painting an overly optimistic picture. We have governments asking to spend more and the IMF telling them to spend less.
Kyriakos Pierrakakis: In fact, our proposal was for a different spending mix within the existing fiscal agreement. It was not about spending more, but about allocating spending differently. As we know, there is an escape clause.
Richard Quest: You will need it.
Kyriakos Pierrakakis: The defence escape clause, which included energy investment, and there is now a discussion about how it can be used in the most effective and targeted way.
Richard Quest: So you do not see a crisis?
Kyriakos Pierrakakis: I have already answered that. We are monitoring the situation carefully, but we are not overly concerned.
Richard Quest: You are monitoring the situation carefully, but you are not overly concerned. Let’s talk about how you see the energy crisis unfolding. Prices are not going to come down any time soon. We are facing a difficult period that will last for quite some time.
Kyriakos Pierrakakis: That is precisely why we need to support citizens.
Speaking now as Greece’s finance minister, we have announced a €1.4 billion package of measures this year to support citizens and businesses. And we are able to do so precisely because we have put our public finances in order.
At European level, we recognise that Europe needs to support its citizens through a difficult period while maintaining fiscal stability.
I believe that is achievable. We are certainly in a much stronger position than we were when Russia invaded Ukraine. We have invested more in energy and diversified our energy sources.
We certainly need to do more. We need to invest more in energy storage, networks and interconnections. And Europe is moving in that direction.
Richard Quest: Banking union. I read your speech. It was a good speech, except I have heard the same thing five times from different Eurogroup presidents and the president of the ECB. Banking reform will not be completed in our lifetime.
Kyriakos Pierrakakis: I disagree. I believe it will be completed. And you are absolutely right about politicians giving speeches. I agree with you.
The key is delivery. Our motto should be: delivery, delivery, delivery.
Richard Quest: There has been almost no progress on banking reform in the past five years.
Kyriakos Pierrakakis: Let me disagree, in the following sense: there is progress on Europe’s reform agenda. Look at MISP, to use yet another European acronym; look at capital markets and their integration.
How long have we been discussing this? Ten years? In the past ten months, we have seen more progress than in the previous ten years.
Indeed, we reached an initial agreement in the Council on capital markets supervision. That is where the most immediate opportunities lie.
We can quickly channel more investment into the European economy. You will see the same thing happen in the banking sector.
Richard Quest: The report by Mario Draghi is cited very often. But it still needs to be implemented further.
Kyriakos Pierrakakis: That is precisely why the key is delivery. I agree.
More does indeed need to be done to implement it. We already have the diagnosis from Mario Draghi and Enrico Letta. We know that we need to pool resources and achieve greater scale.
Richard Quest: You mentioned banks. What do European banks need to do? We need bigger banks. They need to achieve greater scale.
Kyriakos Pierrakakis: They need to grow and invest more in Europe. I believe that is possible if all these remaining barriers are removed.
Richard Quest: Ah, if, if, if!
Kyriakos Pierrakakis: We have already started doing that.
We are here at the IMF’s Annual Meetings in Bangkok, right? The IMF did a calculation and valued the barriers in Europe’s services sector as equivalent to a 110% tariff. In manufacturing, the equivalent figure is 44%.
European banks need to achieve greater scale. The same applies to large European companies, the so-called “European champions”. You mentioned Christine Lagarde.
Richard Quest: So that requires...
Kyriakos Pierrakakis: One-third of the productivity gap with the United States is due to the fact that we do not have companies of sufficient size.
Richard Quest: That requires European governments — and this applies to banking, artificial intelligence and telecommunications — to accept that not every country can win. Pan-European giants will have to be created.
Kyriakos Pierrakakis: I would argue that if we create pan-European giants, every country can win.
Richard Quest: You know what I mean. We are already seeing it in defence. You have to choose who wins and who loses.
You have to choose winners and losers across Europe. In specific countries. In specific sectors.
Kyriakos Pierrakakis: I would argue that if we do precisely what you are suggesting, we will achieve growth on such a scale that...
Richard Quest: But you are not doing it. My argument is that national policies and the attitudes of European governments prevent them from doing so. Everyone wants to have everything.
Kyriakos Pierrakakis: That is the historical observation. History shows that we agree in theory, but in practice we raise our hands and say: “Yes, but there is this one small national exception.” But that is changing. And it is changing because the international environment has shifted. The era of geopolitical innocence is coming to an end. We are facing geopolitical fragmentation.
There is a need to diversify energy sources. The world is changing very rapidly. European governments, regardless of their political persuasion, are fully aware of this changing reality.
And that is why I would argue — and this is not an optimistic assessment, but a realistic one — that we will achieve the results required.
It is not a black-and-white issue. It is not an absolute “yes” or “no”. It is a question of how much ground we will cover.
You will see that we will have covered significant ground in the period ahead.