Since taking office in October of last year, Greek Prime Minister George Papandreou has already faced a decade's worth of troubles: near bankruptcy, a hard-won bailout, and anger over pension reform and an austerity program that has resulted in mass strikes, violent riots, and even domestic terrorism. But, he says, the trials of his grandfather and father -- both former prime ministers -- have prepared him for this moment in history. And, it could have been worse.

FP senior editor Benjamin Pauker caught up with the prime minister for a wide-ranging conversation on the severity of Greece's troubles, the future of Europe, and the dangers of treating global markets as gods. Excerpts:

Foreign Policy: You have said that your country was "in a battle for survival." And violent protests in the streets of Athens seemed to bear that out for a time. But things have quieted down somewhat, even with the passage of the controversial pension reform. Where does Greece stand now?

George Papandreou: Well, yes, there was at times some violence, and though it gets a lot of media attention, I would say that it was the exception. But, obviously there's pain, and people are unhappy. But I would say the wide majority of the people realize that we needed to make changes that were long overdue in our country -- to make governance much more responsible, and the running of the country much more transparent. We all have to live up to our own personal responsibilities to this country.

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I think that's a feeling that's quite pervasive, even though it's very understandable that there were demonstrations. A large number of citizens have to bear the burden, even though they were least responsible for the crisis. It was a crisis born of bad management and governance over the last six years: a lack of transparency, patronage and clientelism, even corruption. This, of course, was highlighted by the international financial crisis.

FP: You were born and educated, in large part, in the United States. And many of your closest advisers are American. Do you think the U.S. model of capitalism was in some way to blame for the crisis that Europe and Greece face today?

GP: Obviously, the problems began in the financial sector, with commercial paper being put on the market -- structured bonds and special vehicles, which were very simply fraudulent, even though they did have a triple-A rating. I think we see that markets are fallible, and we should not worship them as gods. Now, we have to see how to put them to best use to help our economies and our societies. But this is a question of, again, bad governance. Why wasn't this regulated? Why wasn't there transparency?

But this was not simply within U.S. borders but around the world. Europe too was hit, having bought up so much of these toxic bonds. The developing world was hit; emerging markets less so. But this shows we need much more coordinated action in the world, and more world governance. The G-20 may not be the best of institutions, but the fact that there is an attempt now to coordinate action is, I think, important -- as long as we move to implementation and not simply pronouncements.

FP: A number of analysts, Nouriel Roubini among them, have argued that Greece still faces an unsustainable public debt-to-GDP ratio, and that emergency loans and austerity measures are just prolonging an inevitable debt restructuring -- bankruptcy, in a word. Why not liquidate the debt burden, punish the institutional investors who played down concerns for so long and who profited, and force financial rigor on the state sector?

GP: There were two options -- one was to default, the other was not to default and take a different path. The latter is what we have decided -- not only Greece but also the European Union. There are many negatives in a default situation. Our banks would have been hit; not only ours, but also in Europe. This could also have been a self-fulfilling prophecy of a contagion to other countries. And that would be a much worse situation.

We have this big support mechanism of loans, which we have to pay back, but loans at a better interest rate than we could have got at that time on the market. That has allowed us the time to make the necessary reforms. Secondly, we have the problem of a large shadow economy, or underground economy if you like -- tax evasion, corruption, and so on -- which I believe could also alter the outlook for Greece's future. This will take some time to fix but we're committed to this. My government, for example, has now brought in laws such as total transparency in all signatures in the public sector, putting more and more tax reform resources and contracts online. This will make things much more transparent, and I believe this will help bring the shadow economy out into the open. That will bring an important sense of confidence that we can deal with this long-term debt.

FP: On a personal level, what has it been like to lead this nation in a time of crisis? I imagine you could not have anticipated the severity the problems when you entered office.

GP: First of all, we knew there were problems, chronic problems, and we had actually pinpointed their basic nature even before the elections. We said that our country was not well-run: There was a lack of transparency; there was a lot of money that was lost, wasted, through huge bureaucracy, a clientelistic system, patronage, money put to the wrong purposes, and then of course the problem of graft. We knew these things would have to change, and changing them would make our economy much more efficient and competitive, particularly in the public sector.

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