On stage dialogue with Kyriakos Mitsotakis and Mariana Mazzucato

It's a real pleasure to be here with you. I'm very happy that we are organizing this conference in my home city, in this beautifully restored and very important historical building. And if I may jump directly into answering your question, yes, the previous years have been a lot about reestablishing the macroeconomic balance that was greatly disrupted during the years of the crisis. And a lot of the emphasis has been placed on restoring the health of our public finances, making sure we bring down our debt, making sure we borrow at reasonable interest rates, obtaining investment grade, and producing healthy primary surpluses because these are necessary not only to reduce our debt overhang, but also to support the public policies which are of great importance to us. But a lot of the emphasis of our second term has also been placed not just on stabilizing the economy, but making sure that we transform it. And in this vein, public investments, and I'm jumping into a topic I know that Mariana is very interested in, has played a very important role. And we are in Crete, and this is an island which has benefited tremendously from significant public investment. Let me just highlight three projects of great importance. The first, which has already been completed, is the two electric interconnections between Greece and the mainland. These are important not only for reasons of energy security, but also because Crete used to burn diesel oil in order to produce electricity, and now it can benefit from an interconnected network, and also leverage the significant renewable potential that the island has. The second incredibly big public investment has been the new airport in Heraklion. When we're looking at the potential of this island as the sort of the epicenter of the dynamic Greek tourism industry, we cannot envision an island growing to the 20th, 21st century with 20th century infrastructure. The old airport in Heraklion is struggling to meet the increased demands of people wanting to come to Crete. So building a brand new airport was a priority for us. It will be ready hopefully in 2028. 70% of the project has been completed. And the third big infrastructure project was building a new highway that essentially runs across the northern part of the island. Again, a very significant public investment in infrastructure which is necessary to drive the island forward. So for us, when we look at our agenda, public investments do play an important role alongside policies that foster entrepreneurship, bringing investment, and leverage the comparative advantages of our country. And of course, all these projects are being constructed by our big construction companies. So this is essentially a public-private partnership, given that these are concession models which in our mind work very well. So this is no longer just about stabilizing the country, improving its image abroad. I think this work to a great extent has been done. Of course, we always need to be very vigilant. This is about the new phase of growth in which public investment plays a very important role, especially here in Crete.

Well, I think what you highlighted is quite important. Greece for a decade was struggling under a regime of intense supervision. And I think one of the problems, one of the reasons why we did not exit this crisis earlier had to do with the fact that there was no political consensus to implement reforms which we knew were necessary. And we never dared to take full ownership. So I think this has really changed. This government has a strong democratic legitimacy. We were elected twice with a very clear agenda and a very clear platform. And when I look at the commitments that we made in 2023 and I compare them to the deliverables in 2026, we have met most of our commitments. For example, we tried to make our second term about wage growth and support of disposable income. You look at the minimum wage, it was at 650 euros when we came into power, it's at 920 euros now. I mean the median wage for full-time employment has exceeded 1500 euros, which was a target we had set in 2023. Unemployment, probably our biggest success. We don't talk enough about it. It was at 18% in 2019, it's dipping under 8% now. We're talking about 600,000 jobs that have been created. Greeks returning from abroad, voting with their feet. These are the people who left during the crisis and now they're returning because there are good jobs and they believe in the prospect of the country. Having said that, there are still difficulties. And in a time of general discontent with politics, we need to be aware of the fact that the increase in the level of prices, the cumulative inflation, has eroded a significant percentage of the wage increases. And there are many people who are struggling today. The affordability crisis is real. It's not something certain parties have invented. And we need to acknowledge it and we need to focus on it. But the solution is not to offer promises which we cannot deliver on. Whatever we do has to be within the confines of our fiscal space. And whatever we do needs to be laser-focused on growing the economy. We may discuss this later, but the big problem of Europe has always been growth. We're growing at double the Eurozone rate now. Am I happy with this growth rate? No, I would like to see it even higher. And when we prepare our plan for hopefully a third term, at least what we will present to the Greek people, even higher growth rates are necessary to fund public investment, to support disposable income, to fund our social state, health care, education. So this is all about growth. And of course growth is not going to come without private investment. But also through a state that leverages its role in a smart way to bring about growth. Not replacing the private sector, but playing its role whenever it can and whenever it should by creating the conditions for private investment to flourish and take responsibility for certain projects of which I would consider public goods, for example, our digital state, which benefits all.

I argue we need a competent state, and first of all a state that can support itself at the end of the day. And that requires a rethinking in terms of the operating system of the state itself. And the way it functions. One of the first things that we did in 2019 was to completely rewrite the software of governance according to what we thought was appropriate, which means you need a strong center. You need strong coordination. You need accountability. You need to set targets. You need to ensure that departments work and cooperate in an efficient manner. All this is not rocket science, but it was not happening. And unfortunately, it's also not happening in many other governments. We have the privilege, the luxury of having one party in power. I can tell you one of the big problems in terms of delivering efficient government today in Europe is coalition governments that are constantly fighting amongst each other in order to preserve their own turf. That is not an efficient way of doing business. And of course, also investing in forward-thinking know-how. And in our mind, the digital transformation has been truly groundbreaking. And of course, the next challenge is AI. And what does AI mean for a smart state? How do we retain the core competences rather than outsourcing all of them? Again, I know you're very interested in this topic. Of course, all governments work with external support, with consultants. But at the end of the day, there is know-how that we need to keep in-house. For example, our gov.gr operating system was developed essentially in-house. We have support in-house. We had a big problem with agricultural subsidies in Greece. And one of the reasons was that we never took full ownership of the system that actually distributes the subsidies. So now we're doing it in-house, and we want to make sure that this is our own system. So in our case, it is about efficient delivery of public services and making sure that we set the playing field in such a way where we meet the dual targets of sustainability and growth. And if I may just comment on what you just said, one of the most difficult reforms we're currently implementing has to do with spatial planning in Greece, especially in our more sensitive ecosystems. And I'm particularly referring to our islands, and in particular, our small Cycladic islands, where we know that we have to restrict the amount that people actually build. I'm saying this in a very simplified way, and we have to look at water and possibly placing restrictions on swimming pools. You mentioned swimming pools, but when you do the math, it's a very small percentage of the water we consume. We need to be quite, it sounds like a nice catchy phrase, and of course I would like and we can do that. This would be smart regulation. If you're close to the sea, you're forced to use sea water for your swimming pools. It's very simple, and we can do that, and we will do that. So that's not rocket science. But when we talk about water in Crete or water in Greece, we should be aware that 85% of the water is irrigation. It's not tourism. It's not the water that we spend to drink or to have showers. So what is an appropriate model to invest in water? What does this mean for the regulatory environment? How can this bring in the private sector while respecting the fundamental principles of sustainability? These are important topics and important issues to discuss, but I would argue right now that when it comes to areas such as energy, for example, which is absolutely critical, we need to balance from a regulatory point of view the green transition where Europe and Greece is a leader. We produce more than 50% of our electricity from renewables. So we're top 10 countries both in solar and in wind in the world, but at the same time we need to ensure that the green transition works for everyone and certainly works for our industry, because if we go too fast, the rest of the world is not following. We're single-handedly obsessed with reducing CO2 emissions when nobody else places the same priority, we will end up in a completely deindustrialized environment in Europe and we will not have contributed significantly towards addressing global warming. So some of these problems are Greek, some of these problems are European, because of course the topic of how do we foster innovation, how do we smartly regulate at the European level is very relevant. And there's some things to be said about Europe over-regulating and making life and doing business in Europe a very complex issue. Yesterday I participated in this amazing gathering called Panathenaia, which is a big gathering of tech startups and people interested in the startup and technology ecosystem with like 10,000 people. And we're working with a group of European entrepreneurs in setting up what we call the 28th regime. This idea that you can set up and register a company, a startup in any European country and you'll be able to do business. You still have to respect, for example, labor rules of the country in which you do business, but finding a simplified way to allow our startups to operate in the single market. This is smart regulation rather than regulation for the sake of regulation. So I would advocate for the same mentality not just as far as Greece is concerned, but as far as Europe is concerned when we look at all the problems that we have and we realize that at the core of our deficiencies is the loss of competitiveness and a low growth rate vis-a-vis China and the US.

I would be very happy if we could adopt 100% of the Letta report and 100% of the Draghi report tomorrow, even if I don't agree with everything. Why am I saying this? Because it's very easy to cherry-pick. You read the Draghi report, you say, 'Okay, I like this, this, and this, because I also wear sort of my national hat, and I have to balance between my national and my European priorities.' But the diagnosis is correct, and the recipe is correct. Let me just give you two very specific examples. The first is what we call savings and investment union. When you look at where do the European savings go? They go abroad. When you look at the liquidity of the US capital markets, there's just no comparison. So we need at some point to pool resources, and some of the countries need to agree that they have to do that, and give away some of the regulatory authority that they have over their domestic capital markets. You know, I was speaking to a very successful startup yesterday. We are a European company. We just signed an MOU with them. Is it conceivable today for a successful company to list on a European stock market when the liquidity in the US is 10 times as much? No, they will say, as much as they appear European, probably no. So this is a tangible goal. It needs to happen this year. We need to overcome resistance. The resistance usually comes from member states. So it's a problem at the level of the council, not the level of the commission, or the level of the European Parliament. The second is energy. We're going nowhere with these prices of energy because we have a fragmented energy market that at the end of the day does not bring down, does not leverage the full scale of the European energy market. You probably need a European energy regulator. You need to invest more in grids. You need to ensure that if I have cheaper electricity, I can export it. And by the way, Greece has become a significant net exporter of electricity because we produce a lot from renewable and because we're cheaper than our neighbors. This is how the electricity market works. So these are just two examples of tangible priorities set out in the reports that need to be implemented. Is there a sense of urgency? Yes, I think yes, certainly around the Council tables. Is it easy to foster this consensus and have the big countries move in that direction? Not always the case. Do we need funding? Both private and public? Absolutely, yes. Do we need to take a look at the European budget and say, 'Are there European common goods that could be funded and should be funded from European money because at the end of the day, that's the whole logic of the European budget. We fund things that you cannot do at the national level.' Definitely. Is defense one of those common goods? I think absolutely yes. So I'm not someone who is in great favor of borrowing significant amount of money. My main goal is to leave a legacy where the Greek debt has become fully sustainable. But at the European level, this is something which currently makes sense because otherwise you cannot fund these long-term investments. And there are investments that have to be funded where the market is not going to do its job. If we're setting up a supercomputer for our AI ecosystem, which we're doing by the way, we're using EU money because you cannot make a return on this investment. So we're giving computing capacity to the state and to startups at a subsidized rate. So in a sense, it's a public good. So it needs public money. And then we need to figure out what's the split between domestic money and European money. But right now, many European countries are struggling with their public finances. So the only solution would be to add to the European budget and make the sort of investments that the US made many decades ago using public money that eventually had a tremendous spillover effect across the whole economy. It's not too late. There are battles which have been lost in my mind because US and China are way ahead of us. But there are other battles that we can still and should fight as Europeans. And this would require a significant amount of capital, both private but also public, that needs to be deployed.

No, because we don't have because European countries, thank God, they don't have capital controls. They don't have, they didn't suffer a 25% collapse in their GDP. The problem is a gradual erosion. If you have a sudden shock, you're forced to reckon and address your shortcomings, which is what we did. And great credit to the Greek people because they've persevered. Not many people thought that this was actually possible. The problem in Europe is that things are not as serious, unfortunately. But it's this gradual erosion that was highlighted in the Letta report that is extremely worrying. So, and of course on the political side, mainstream parties are struggling. Affordability and inflation is a big problem. And you have easy solutions offered by populists both from the right and from the left. And in that sense Greece has an advantage because we've already experimented with populists and it didn't go very well. So when the populists reemerge now with a nice new sort of rebranding strategy and they say the same things, people say, 'Okay, but last time we tried this we almost went bankrupt.' So Greece has these two advantages vis-a-vis other European countries.