Papandreou introduced austerity measures on coming into power after he was left with a hangover deficit of 12.7 percent of GDP, a public debt of $410 billion from the previous government and unemployment of 10 percent.
Despite introducing austerity measures, he was faced with national strikes and criticism from both the EU and Eurozone finance ministers that the measures fell short of its goals.
In April 2010 Papandreou asked the EU to activate the ‘support mechanism’ (whereby the IMF helps provide conditional finance over a three-year economic program), which they did and were given a €110 billion bailout package. It was the first time this had been done in the history of the EU.
Despite attracting a lot of criticism during his tenure, Papandreou faced an uphill battle to try and stabilise a country that was seemingly corrupt and suffering enormous debt.
He now travels the world giving talks on democracy and is working to set up a training centre in Greece for young leaders.
Papandreou talks to Rebecca Hampson, European Editor, about his time as Prime Minister, what we can learn from the Greek crisis and why we may now be expecting too much from the Fed and ECB.
ETF.com: Do you think Europe is now in recovery?
George Papandreou: I would say that we are obviously seeing stabilisation after the crisis and we are seeing some positive growth, however I would also say that at the moment the metaphor “a rising tide raises all ships” is not exactly appropriate. You can now see the imbalances inside Europe, the differences of the inequalities that are growing between the European core and the periphery. This is because, of course, some of the peripheral countries, like Greece, have had six years of recession and a huge unemployment problem. The economic adjustment is not simply an adjustment; it has impacted growth and our ability to grow as well.
There are policy changes that are needed if we really want to move out of this slow growth, which may look more like the Japanese recovery did over the previous 10-20 years.
ETF.com: What are the three biggest challenges for the EU?
GP: Firstly, on the economic side the IMF is saying that deflation is causing a number of problems.
Secondly, the high unemployment in many of the countries is unmanageable. We are facing the possibility of a lost generation because this group of younger people who are unemployed are out of work for a longer period of time. It has been very difficult to get them back into the market and I think we need specific measures to fix this.
Thirdly, there are political challenges in Europe. We are at a time when we need a very different policy and approach to Europe, which is more of a co-ordinated and concerted effort of coming together. Instead, we are seeing the opposite in the political sphere. We are seeing more of a splintering, nationalism, entrenchment, populism and scepticism. I would say that this is a reaction to the fact that people expected Europe be able to deal with the challenges of globalisation and maintain some of its basic core values. It has created a lot of insecurity in both the European core and periphery. It means that it is going to be politically difficult to see everyone get together and see institutions improve their strengths, dealing with the challenges ahead, that are not only European but are global.