BLOOMBERG: Papandreou Defiance of Default Inspired by Gun-to-Throat Seizure in Greece

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By Alan Katz, Ashley Lutz and Maria Petrakis

Jun 25, 2010

As a child in the U.S., Greek Prime Minister George Papandreou’s family bunked in roadside motels during their week-long cross-country car rides from California to New York.

He dispensed street justice as a young man in Greece, using his martial arts skills to level two men who had smashed an ice cream cone in an old man’s face. He and his siblings took odd jobs, including as gas station attendants and window washers. A dreamer known to strum Bob Dylan songs, he wooed Ada, his wife, with Greek love songs in a late night window serenade in Athens, according to his brother, Nick.

Now Papandreou, 58, must draw on all three traits -- a work-a-day sensibility, a drive to do the right thing and seduction -- if he is to achieve financial stability for Greece and ultimately the euro-zone, Bloomberg Businessweek reports in its June 28 issue. At the heart of a sovereign debt crisis that’s shaken the foundations of the European Union’s common currency, the euro, the scion of a political dynasty argues it is every Greek’s duty to accept wage cuts and higher retirement ages while fighting ingrained corruption and tax dodging in a battle to keep Greece from defaulting.

Saving Greece

“We saved Greece from default,” he said in a June 20 interview in New York, where he was heading a meeting of the Socialist International, the organization of social democratic, socialist and labor parties he heads. “Now we have to change Greece because if we don’t change Greece, we’ll be back here at the edge of the precipice again some years down the road. And I think that’s something people really understand.”

Greece disclosed in October that its budget deficit was likely to be more than four times the level allowed under rules protecting the euro, the common currency shared by 16 European countries. In May, Papandreou clinched a rescue package totaling 110 billion euros ($135 billion) in loans from the European Union and the International Monetary Fund.

Papandreou “gives people the feeling and the trust that they can invest in helping Greece because there is somebody trustworthy,” said Yossi Beilin, former justice and economy minister for Israel, and president of Beilink Business Foreign Affairs, who has known Papandreou for about 20 years.

“He is a guy who would like to solve problems and compromises and find solutions, without compromising himself.”

Convincing Ackermann

In a Viennese palace decorated with frescoes of the deeds of Hercules, Papandreou surprised a roomful of skeptical bankers this month. Over a dinner of wild char, filet of beef and Welschriesling wine on June 11, more than 400 bankers, lawyers and regulators listened as Papandreou promised to bring Greece through its debt crisis even if it cost him his job.

At the end, the group rose to its feet with an ovation. And Deutsche Bank AG’s chief executive officer, Josef Ackermann, who last month said he doubted whether Greece would be able to pay back what it owes, reversed himself, telling the room he had changed his mind because of Papandreou’s personal commitment. Papandreou, in the New York interview, said losing his job for making unpopular decisions would be a small sacrifice compared with the persecution endured by his father and grandfather, both Greek prime ministers, to keep the Mediterranean country free for democracy. His view fits a sense of public responsibility that advisers, family and longtime friends say led Papandreou reluctantly into politics.

Family Tradition

“My father was in jail twice in his life for fighting a dictatorship, my grandfather six times, and exiled a number of times,” Papandreou said. “He was almost executed basically fighting for democracy. So, you know, this has been part of the tradition.”

As a young teenager, Papandreou was threatened at gunpoint when the army seized power in Greece in 1967 and came to the family house looking for his father, Andreas.

Papandreou’s maternal grandfather, a tough, World War I veteran from Chicago, refused to let them in, Papandreou said.

“He said ‘Get out of here,’” Papandreou recalled. “And he closed the door on them, as a good soldier would. So they broke the door down.”

George, armed with a shotgun, raced with his father up to the veranda on the roof. Realizing they were surrounded, he cached the weapon and his father hid. Then one soldier came through the veranda door and held a machine gun to 14-year-old George’s throat, asking the whereabouts of the father.

Getting Over Trauma

The senior Papandreou emerged from hiding and surrendered. He was beaten with guns and rifle butts, recalls Papandreou’s brother, Nick, 53, a former World Bank economist turned writer who lives in Athens.

“That was the moment that turned George from an extrovert to an introvert,” Nick Papandreou said. “It took George a long time to get over the trauma. He was more quiet after that. He seemed to think of the world differently.”

The firearm motif has played prominently in Papandreou’s hectoring of the EU to provide support for Greece. He called in March for a “gun on the table,” or tangible measures from the EU, to halt a rise in the country’s borrowing costs.

On April 23, he used a televised address to call for the activation of a financial lifeline of as much as 45 billion euros in what was an unprecedented test of the euro’s stability and European political cohesion.

Speaking from the island of Kastellorizo, the most distant Greek outpost, population 430, Papandreou also called on Greeks to make it a national priority to turn around the country. Under a bright sun, with a small fishing port and blue sea and sky in the background, he evoked Odysseus, the hero of Homer’s epic poem, who battled monsters and vindictive gods to return to his island of Ithaca, and said Greece was “on a new Odyssey.”

‘Forced Hand’

Papandreou still must navigate difficult political terrain to bring Greece’s economy and debt into balance. While he now has Ackermann’s support, more than half of Greeks surveyed in June say they believe the country could go bankrupt, according to a poll by MRB for Mega TV.

“There’s a saying that politicians are made by events,” said Stefanos Manos, a former economy minister. “The events have forced Papandreou’s hand to do things I am dead certain he would never have done on his own.”

Those events include violence. A bomb blast at the country’s police ministry in Athens killed one person yesterday. “At a time when our country and people are battling daily to exit a crisis, cowardly murderers want to harm normality and our democracy,” Papandreou said in a statement. “The terrorists’ goals won’t be achieved.”

Long Political March

Papandreou himself endured a long political march between 2004 and 2009. During that period he ran for prime minister and lost twice, scoring the lowest vote total for his party in a quarter century in 2007 against Kostas Karamanlis, another scion of a political dynasty. He had to fend off an internal challenge for party leadership. Papandreou’s victory ushered the Panhellenic Socialist Movement, or Pasok, the party his father Andreas founded in 1974, back to power after five years in opposition.

“This guy is very resilient and people tend to underestimate him,” Finance Minister George Papaconstantinou, said. “In 2004 when we lost the election and in 2007 when we lost again, very few people were betting on him becoming prime minister.”

Returning to Greece has always figured prominently in Papandreou’s life.

When the family lived in California, and before planes became affordable, Papandreou’s father took advantage of fellowships away from university teaching to take the family on an American Odyssey. They drove from Berkeley to New York, traversing the country in a new station wagon that they would sell in New York before boarding a ship for a two-week trip to Piraeus, Greece.

American Roots

His strongest memory: “Those boring plains that I would see for hours and hours when you got to the Midwest of the United States, which I’m also from, of course, not only because of Minnesota. But my mother’s a Chicago girl,” Papandreou said.

Born in St. Paul, Minnesota, where his father was an economics professor at the University of Minnesota, George Papandreou lived in the U.S., Canada, Sweden and Greece for much of his early life, attending eight different schools in four countries over 12 years.

In Minnesota, he said his father campaigned for civil rights pioneer Hubert Humphrey, a senator for the state until his election to the Vice Presidency in 1964 under Lyndon B. Johnson.

Studied Sociology

With a father who earned a Ph.D. in economics from Harvard, Papandreou said he consciously chose to break with tradition and study sociology, gaining degrees in the field from Stockholm University, Amherst College in Massachusetts and a master’s degree from the London School of Economics. “I think it was also a normal reaction you know, I might do something different, although in the end I followed politics,” Papandreou said.

His sociology training has helped him in the political world by acquainting him with a wide breadth of problems, he said.

“Economics is much more mathematical,” he said. “Maybe that’s one of the problems with economics now - too much mathematics, too many models.”

“Sociology brings to you a little bit less of a hubris, let’s say, about what you can do and what you can’t do.”

Years in Sweden

Papandreou’s years in Sweden also attuned him to northern European goals for social dialogue and consensus, both in his management style for cabinet meetings and his political philosophy, said Papaconstantinou, the finance minister. “He’s one of these people who actually believes in the process of dialogue, not just as a means to an end, but that it’s an educational process, which sometimes is very tiring,” Papaconstantinou said.

At the end of the day, however, the process is extremely worthwhile and productive, Papaconstantinou said.

In Sweden, and then in Canada, Papandreou also got a first- hand look at functioning, if costly, welfare states.

“I think vilifying the welfare system -- and that’s one thing I would say here in the United States -- as the culprit for sovereign debt is wrong,” Papandreou said in New York. He added that Greece was paying too much for health care and for education even though families pay for 40 percent of the costs themselves. “There are countries that are very competitive with very strong welfare systems, the Nordic countries or Canada, Australia, just to give a few. They don’t have generally the problem of sovereign debt.”

Two of the Nordic countries Papandreou lauds do pay the highest taxes among 30 of the member-countries of the Organization for Economic Cooperation and Development. Total tax revenue was estimated at 47.1 percent of Sweden’s economic output, while Denmark’s was equal to 48.3 percent, according to the OECD. The U.S. was at 26.9 percent and Greece at 31.3 percent.

Talking Vietnam War

During his time at Amherst, George would hang out with friends after dinner drinking a little ouzo, talking about Watergate and the Vietnam War, according to dorm mate and friend Henry Boom, a medical professor and director of the tuberculosis research unit at Case Western Reserve University in Cleveland.

The two bonded over their shared experience of having an American mother and foreign father, said Boom, whose father is Dutch. As Amherst had yet to go co-ed, they and their friends would often hang out with Italian and French women who went to nearby Smith College, he said.

Boom said he still sees Papandreou occasionally and talks to him several times a year. “He really values his old friends because at that level you don’t know who your friends are and like to remember simpler times,” he said.

Lapses in Grammar

While the years outside of Greece allowed Papandreou to master multiple languages, including English and Swedish, he has been ridiculed in parliament and in newspapers for lapses in Greek grammar. On May 6, when he was again derided for clumsy speech during a debate over the European rescue package for Greece, Papandreou fired back: “I am a Greek of the diaspora not because I chose it but because my father found himself exiled twice.”

It was a rare moment of anger for a man whose family and friends describe him as calm and cool.

“He is always soft-spoken, pensive, has a gift for listening to others,” said Richard Parker, an economist at Harvard’s Kennedy School of Government who talks with Papandreou several times a week as an informal adviser.

Papandreou’s affinity for the 1960s grates on some observers.

“He seems to believe that no man is evil, every man is good, provided you help him to see the good,” said Stephanos Kassimatis, a political columnist at the Greek daily Kathimerini. “‘Love will find a way.’ Spare us, please.”

Papandreou’s winning campaign last year seemed to take its cue from the U.S. “Roll up our sleeves” was a motif of his campaign, while one of his slogans was “Together, we can,” a nod to Barack Obama’s “Yes we can.”

Obama Comparison

“I can see why people compare the two, the quiet determination and substance they have is very comparable,” said Kemal Dervis, a former minister for economic affairs for Turkey when Papandreou was Greece’s foreign minister.

First elected to Greece’s parliament in 1981, at age 29, George only agreed to run when his brother convinced him that there was a real chance to change the country, he said in a 2001 interview. Papandreou served in the education and culture posts under his father and as junior foreign minister. In 1999, he was promoted to foreign minister after his predecessor was forced to resign over a botched attempt to harbor Abdullah Ocalan, the Kurdish rebel leader that Turkey blamed for the deaths of more than 30,000 people.

Turning Point

Papandreou used compassion to forge a turning point in relations between his country and Turkey. He built close personal ties with his Turkish counterpart, Ismail Cem, and when an earthquake struck Turkey in 1999, Papandreou was quick to send rescue teams and public condolences. When an earthquake struck Greece just three weeks later, Turkey reciprocated. The question today is whether all of the aspects of the man put him in a position to make good on his commitment in Vienna. Even Papandreou says this crisis will define his country.

“It’s a moment where people looked at the edge of the cliff and said, ‘you know, something’s wrong here,” Papandreou said.

At the end of Papandreou’s speech in Vienna, Dimitris Paraskevas, an Athens-based lawyer attending the three-day conference said the vast majority of people in the audience didn’t believe Greece would pay its debt.

Before responding, Papandreou scanned the frescoed ceiling, looking, he said, for baby Hercules wrestling snakes.

“We will honor our contracts with the financial community and, yes, we will pay our debt,” Papandreou said.