Behind Greek Confidence, Still Fears of Collapse

The conservative New Democracy opposition is discredited by the chaos in which the government of Costas Karamanlis left the economy, manufacturing statistics and padding the public payroll. It is also in disarray because of its knee-jerk obstruction of anything the socialists do. That may be changing. Kyriakos Mitsotakis, environment spokesman and also the son of a prime minister, says: “We have voted for about half the measures but the party is being pushed in that direction; I think we can reach a minimum degree of consensus.”

T hat would be opportune. Large-scale job losses have yet to hit and the really difficult tests of political will are still mostly ahead. By taking on the truckers, the government has served notice it intends to break open the vested interests of the old order, the roughly 70 established closed shops and cartels not just of lorry drivers and seamen but also lawyers and doctors, civil engineers and pharmacists, all of whom have their inflated fees and mark-ups and protection from competition guaranteed by law.

“Now we get to the tough nuts to crack, now it’s the core of the clientilist state, and these people have leverage,” says Yannis Stournaras of the IOBE, the leading private sector think-tank, who was part of the reforming socialist government of Costas Simitis that took Greece into the euro. The IOBE reckons full liberalisation of the so-called “closed professions” could add 13.2 percentage points to GDP.

The tentacles of corporatism reach deep into the bureaucracy and political elites. “Within all parties you have organised vested interests that try to ensure nothing happens and no reform is ever implemented,” says Mr Mitsotakis.

Mr Papandreou’s clearest way forward is to paint these insiders as leeches who have evaded taxes while imposing their own levy on society. That requires both conviction and tactical skills of a high order. “Only Papandreou is making the positive case for reform, the rest are apologising for it, saying this was imposed on us from outside. But we have to defend it, because this is the right way to go,” says one Pasok official.

“George is surrounded by people who produce a problem from every solution,” says another party ally. “They’re going to try to do a quick and dirty job, go for a soft adjustment” in opening up protected sectors. “There’s not even a public sector reform unit – no mechanism inside the system to feed the appetite for change.”

Mr Papandreou will almost certainly reshuffle his cabinet – possibly after November local elections in which Pasok may be hammered. But as well as more cohesion, he needs more competence, especially in financially sensitive areas from health to tax collection. Aside from the oversight of the troika, therefore, a sort of external governance is happening at ground level too. The new, independent statistics office is headed by a (Greek) former IMF statistician, with a board member from Eurostat, the EU’s data agency. Auditors from global accounting firms are establishing permanent cells in hospitals and pension funds. Foreigners will advise on the sale of state bank holdings.

“If you think about it, we are where we are today mainly because of institutional weaknesses,” says Mr Stournaras. “We have to outsource because the civil service and the central bank can’t produce the right people to manage these changes”. This is a bridging solution in Mr Papaconstantinou’s view: “We need to find by-passes wherever we can and use external competence for capacity-building.”

Yet Greece has things going for it. Unlike, say, José Luis Rodríguez Zapatero, the Spanish prime minister dealing with the aftermath of a credit and property bubble, Mr Papandreou is at the start of his term. It may prove helpful that the left is in power while many vested interests – such as the truckers placed yesterday under de facto military orders – are associated with the right. Demonstrators of all political stripes roar about burning parliament rather than roasting Pasok. As Mr Mitsotakis of New Democracy says: “People now are only going to listen to politicians who talk in a brutally explicit manner.” The road to change is open, but the more dynamic part of reform must come soon.

As Mr Karamouzis of EFG Eurobank warns, “if the average citizen does not soon see the benefits of a more open, liberal and transparent economy there is going to be trouble.”

Of that, the government is all too conscious. “We are aware of the fragility of all this,” one official says. “We know if one thing goes wrong, the whole edifice could collapse.”