In an insightful interview with The National Herald, Charles Dallara, a key figure during the Greek financial crisis and author of ‘Euroshock,’ shares his nuanced perspective on the tumultuous events that reshaped Greece and the Eurozone. From the prelude to the crisis characterized by collective oversight and complacency, to the restructuring of Greece’s massive debt and the varying political leaderships’ approaches to economic reforms, Dallara provides a comprehensive overview of the challenges and milestones. Reflecting on his personal journey through this period, he emphasizes the importance of sound economic management and the critical lessons learned.

Furthermore, Dallara discusses the implications of Greece’s reliance on external assistance, critiques the negotiation dynamics, and contrasts the leadership styles of SYRIZA with that of Kyriakos Mitsotakis. Despite his optimism for Greece’s future, he maintains a note of caution, acknowledging the substantial hurdles that still lie ahead. Dallara’s call for the repatriation of Greek citizens and his reflections on the euro versus the drachma debate underline his deep engagement with Greece’s economic and social revival. Through ‘Euroshock,’ he aims to not only recount the events of the crisis but also to inspire a vision for Greece’s resurgence on the global stage.

The Unnoticed Crisis

TNH: The financial turmoil that engulfed Greece in 2011 was years in the making, yet there seemed to be a collective blindness to the impending disaster. How do you account for this widespread oversight? Did the complacency surprise you?

Charles Dallara: You are correct in your view that there was collective complacency during the decade leading up to the crisis which erupted in Greece in 2009. This complacency existed among market participants, Greek officials, the leaders of the Eurozone, and even the IMF. It is disappointing but not very surprising. Entry by Greece into the Eurozone in 2002 gave all parties a false sense of comfort that should Greece run into difficulties Germany and other strong members of the Eurozone would bail them out. This happened despite clear statements by Germany to the contrary. There needs to be much greater oversight over sovereign borrowing within the Eurozone in order to mitigate the risks of this happening again in another country.

The Crisis that Never Fully Hit

TNH: There was a belief in Greece that only a severe crisis could catalyze the necessary economic reforms. Yet, the anticipated level of transformation didn’t fully materialize. In your view, what prevented the profound changes that were needed?

Dallara: In my view, Greece has inaugurated a series of important economic reforms. Beginning with the programs under the IMF, especially the one launched in early 2012. These reforms cover labor markets, administrative inefficiencies, barriers to entry in critical sectors of the economy, and tax reform. More recently, we have seen the current administration deepen these reforms, such as in the arena of education, and add important elements of transparency through the digitization of government services. It is important to keep in mind, however, that during much of the early period of the SYRIZA government, reforms were put on hold. In addition, it must be recognized that many of the inefficiencies of the Greek economy are deeply rooted in clientelistic practices that have grown in the political system, as well as structural weaknesses embedded in the economy. In order for Greece to realize its full potential in today’s competitive global economic landscape, reforms should be pursued consistently for at least a generation.

Reflecting on the Restructuring

TNH: You’ve described your book ‘Euroshock’ as the story of the largest debt restructuring in history, with significant consequences for Greeks and Europeans alike. Looking back, how would you evaluate the outcomes of these decisions? Is there anything you’d have done differently?

Dallara: Looking back on the restructuring of Greece’s debt implemented in 2012, we are only now beginning to see the full benefits of this historic event. In March of 2012, over 100 billion euro of Greece’s debt to private creditors was eliminated, equal to approximately 50% of the size of Greece’s economy. At the same time, repayments were suspended for 10 years and the remainder stretched out over a 20-year period. In addition, the interest charges on the new debt were to be well below market rates. The positive effects of these changes were obscured for many years by the profound weakness of the Greek economy that resulted in part from a somewhat misguided IMF reform program and from the ineffectual government of the SYRIZA period.

Once Greece began to embark on a new round of reforms in 2019, markets began to regain confidence in Greece’s future. At the same time, the IMF belatedly recognized that although Greece’s debt remained rather large, that the low interest payments owed to both private and official creditors provided Greece with a sustainable debt position.

Of course, there are always things one would do differently. I would have preferred that funds made available by Europe – a substantial 30 billion euro— to be used to collateralize new Greek debt rather than to pay off 15% of the existing claims held by private creditors. This would have, in my view, accelerated Greece’s return to the capital markets.

Personal Impact

TNH: As a pivotal figure in this critical period of Greek and European history, how has this experience influenced you personally?

Dallara: This experience has had a number of effects on me personally. In particular, it has underscored for me the critical importance of sound economic management, even when markets are willing to lend substantial funds to a sovereign borrower. The costs of mismanagement to the Greek people were vast.

The Irony of Assistance

TNH: You note Greece’s reliance on the United States, yet during the crisis, Europe chose to exclude American help, viewing it as a European issue. How do you interpret this decision, and what implications did it have for Greece and Greek-American relations?

Dallara: Europe’s strong desire to exclude American support in resolving the euro crisis was in my view a serious mistake. Because the crisis involved issues fundamental to the operation of the eurozone itself, European leaders considered this a proprietary issue. It was, of course, never feasible to resolve the problem without IMF support, and therefore the U.S. was involved indirectly. However, the effort to exclude more direct support clearly had costs in terms of the depth of the Greek recession and the extraordinary levels of unemployment.

Assigning Blame

TNH: You have notably critiqued the Greeks for being absent from the table of negotiations and for its inability to defend its interests during negotiations. Could you expand on this observation? Are there specific individuals or collective attitudes you found particularly striking?

Dallara: My observation of the Greeks from being effectively absent from the negotiating table is not a criticism of any Greek individuals, but a commentary on the way in which Europe organized the negotiations. The eurozone decided to put the negotiations in the hands of a group of deputy finance minsters. When Lucas Papademos became Prime Minister, however, he was able to assert greater Greek influence. Greece was so dependent on European and IMF support that it was very difficult for Greek mid-level officials to take ownership for the negotiations.

The SYRIZA Years vs. Mitsotakis’ Leadership

TNH: How do you contrast the years under SYRIZA with the current leadership of Kyriakos Mitsotakis? What aspects of Mitsotakis’ approach to Greece’s economic challenges stand out to you?

Dallara: I believe that SYRIZA’s approach to the crisis contracts dramatically with that of Mitsotakis. SYRIZA appointed a highly confrontational finance minister which reflected their lack of understanding of how to negotiate with Europe and the IMF. They tried to deny the severity of the problems and failed to recognize the need for continued economic reform.
Mitsotakis, on the other hand, has understood the need for fundamental reform of the Greek economy as well as the requisite of working cooperatively with Europe’s leaders and Greece’s creditors. Mitsotakis clearly comprehends that strengthening the underlying competitiveness of the Greek economy requires persistence over many years.

Optimism Tempered with Caution

TNH: While your narrative conveys a love for Greece and optimism for its future, there’s a note of caution in your prognosis. What factors contribute to this hesitancy? Are there specific challenges you believe Greece needs to overcome to secure its future?

Dallara: I am optimistic about Greece’s future but the note of caution is a reflection of the reality that the Greek economy still faces a number of challenges. Greece is still burdened by a bloated public sector and by many policies and regulations which inhibit private investment and entrepreneurialism. The reality is that these and other challenges will require considerable fortitude in order for Greece to realize its full economic potential.

The Call for Repatriation

TNH: A significant proposal in your book is the repatriation of Greeks who left during the crisis. Do you feel this idea is gaining traction in Greece? Are there visible steps being taken in this direction?

Dallara: I believe that Greek citizens are beginning to come back to Greece as new opportunities emerge in the Greek economy. I am encouraged by this trend and applaud the government for taking some steps to encourage it. At the same time, I would call upon other Greeks who have the flexibility and the opportunity to consider coming back to Greece or involving themselves directly in the brighter horizons which Greece now has to offer.

The Currency Question

TNH: In hindsight, would Greece have been better off retaining the drachma instead of adopting the euro?

Dallara: I believe the debate over whether Greece should have retained the drachma is now a sterile debate. Greece has cast its fate on the Euro and ultimately, with sound policies, this will benefit Greece.

The Motivation Behind the Book

TNH: Lastly, what drove you to write ‘Euroshock’? What do you hope readers, especially those from Greece, take away from your account?

Dallara: I was motivated to write ‘Euroshock’ because of the extraordinary tumult and pain which the crisis created for Greece and its citizens, and I wanted to share not only my experience but my thoughts for the future of Greece and the Eurozone. I now hope that Greek readers of my book will recognize that the remarkable legacy created by Greece during the classical period can be seen as a harbinger of a renewed central place in today’s world for Greece and its people.