Friday, 25 May 2007

The Slow-Burning Issue

DURING his scheduled visit to Tirana on June 10, US President George W Bush may voice support for a Nato invitation to Albania, Croatia and The Former Yugoslav Republic of Macedonia to join the alliance as early as next year. 

Their candidacies would have to receive unanimous approval by the existing 26 members, which include Greece. That makes Nato's sixth expansion a potentially problematic one. Greece does not recognise the last of the three candidates with its constitutional name, Republic of Macedonia, while other Nato members - the US, Turkey and Britain - do. 

The subject came to the fore in the Greek media last week because it was (erroneously) suspected that the name issue would have to be settled for Fyrom, as the former Yugoslav republic is inelegantly known, to enter Nato. Greece fears it may come under renewed pressure to accept Fyrom as the Republic of Macedonia, to which public opinion in Greece is overwhelmingly opposed.

Greece has not so far threatened a veto in Nato nor, it seems, will it have to. The republic is currently entered in Nato's Membership Action Plan (an antechamber to membership) as Fyrom, with an asterisk footnoting Turkey's recognition of its constitutional name. The same system has allowed the republic to conduct its business in the United Nations since 1993, pending a final resolution. In theory, Fyrom could become a full Nato member with its temporary name.

In fact, as many as two-thirds of the world's countries may have already recognised Fyrom as the Republic of Macedonia in the absence of an agreement between Athens and Skopje. Greece continues to have an unobstructed relationship with them and is the biggest foreign investor in Fyrom. So it would appear that the status quo is a good enough non-solution for Greece, Fyrom and everybody else.

Unfortunately, that is not the case. When rivals follow separate versions of reality, they become emboldened in their own version of it. Sooner or later opposed views threaten armed conflict, because entire populations - not just overzealous generals - find themselves without any common understanding. As soon as a shift in the balance of power allows, one will impose itself on the other.

The Greeks rightly fear a growing irredentism in a 'Republic of Macedonia', which implies a claim to all of geographic Macedonia, most of which lies in Greece. It also rightly objects to the ethnic invention that must follow the political one, claiming descent from Alexander the Great, whose palaces were unearthed in Greek Macedonia.

But Fyrom also rightly fears breakup if it fails to find a national identity. Its Albanian population, which has an ethnic identity, has already carved out autonomy for itself in the northwest. Deprived of the epithet 'Macedonian', it is doubtful that two-thirds of the country would really know what else to call themselves.
The Macedonia question has been fraught with missed opportunities for a settlement since December 1991, when a disastrous European Union decision - engineered by Germany and supported by the US - to recognise the republics of Croatia and Slovenia triggered the breakup of Yugoslavia.

By a hair's breadth, Fyrom was spared ethnic war of the kind that engulfed Bosnia-Herzegovina, but it immediately appeared on the world stage touting itself as the Republic of Macedonia, sparking the ire of Greeks.

Greek nationalism was a match for Macedonian. In 1992 the Greeks made it impossible for the government in Athens to reach a compromise with Skopje using any composite of the M-word. Proposals included Dardania and Peonia, after ancient tribes that had inhabited Fyrom in antiquity, and even Vardarslavia, after the river Vardar that crosses Fyrom. On the more sober soil of the European Commission, Greece's foreign minister, Antonis Samaras, rejected a proposal of 'New Macedonia'.

Privately, Greece agreed to 'New Macedonia' the following year in back room negotiations on how to admit Fyrom to the United Nations. But as soon as the news was leaked in Athens, Prime Minister Constantine Mitsotakis was threatened by members of his own party with a vote of no confidence.

Now the issue has moved on from bilateral recognitions, which Greece has failed to prevent, to recognition in international bodies. It is in Nato that the next battle will be fought.

Today, either New Macedonia or Slav Macedonia - particularly if they are Latinised in their Slavic pronunciation, Novamacedonia and Slavomacedonia - constitute proposals to which Greece could officially agree. They would still run against public opinion, but they would not be politically ruinous.

But now it is Skopje that is playing for time. In 1992 it was internationally unrecognised, trying to stay out of a Yugoslav civil war and internally unstable. Today it is a UN member, a candidate for Nato and, more academically, the European Union. It has learned to play the card of its internal instability as a negotiating strength with nervous Europeans, who would rather provide Greece with another foreign policy problem than the entire European Union with another Balkan conflict. Fyrom has no reason to hurry, and neither has anyone else.

The conventional path for the international community will be to allow Greece and Fyrom to make all the diplomatic progress they can internationally, but essentially to ignore the substance of their problem. Greeks have fought politics with history before - in seeking the centenary Olympics - and lost. They are unlikely to do better with the same strategy now.

Friday, 18 May 2007

Why Greece's Closed Political System No Longer Works

In an recent Sunday newspaper article, a former prime minister writes the following:

"In all the major issues of the age, such as education and social security, 'reform' is restricted to a few interventions, under the pressure of interested social groups...Party language specifies as little as possible. The so-called 'crisis of democracy' has to do with party efforts to restrict citizens' political involvement to a field they control."

That incisive assessment comes from Costas Simitis, who ran the socialist party and the government from January 1996 to March 2004. His first four years were productive. He put Greece in the eurozone, established a new foreign policy towards Turkey, laid the foundation for bringing Cyprus into the European Union, privatised four banks and began the privatisation of OTE, Eydap and Hellenic Petroleum.

But his last four years were marked by a stock market slump, reform stagnation and pessimism. After massive street protests in 2001 against a proposed raising of the retirement age in the Yannitsis plan, the government never seemed to recover its head of steam. Simitis was never able to use the credentials of having strengthened the welfare state to reform social security, labour, healthcare and education. Now it is clear that the conservatives are just as intimidated by these social areas.

Preserving the human face of capitalism in the next generation is not a peculiarly Greek problem, but a broader European and North American one. The answers will take enormous amounts of discussion, experimentation and risk. But as Simitis points out, the Greek political scene is depleted of substantive discussion. Both parties have taken an armchair attitude to winning the next election, when they ought to be in the laboratory.

Simitis faults the cohesiveness of Greek society. He seems to suggest that once a certain proportion of society is satisfied with its lot, a sort of chemical balance is achieved that makes change impossible. But vested groups who stand against the interests of the whole are only a part of the problem. The woodenness of Greek politics has several other causes.

1. Communication with the people is no longer through town hall meetings or parliamentary appearances, but television. That efficient but theatrical medium values impressions above substance. The rules of public debate invented by the ancient Greeks - apportioned time rather than a free-for-all, equal treatment for opponents, rebuttals - could be duplicated in the studio, but are not. Journalists' tendency to promote themselves further hampers their role as mediators.

2. The country is not well equipped to carry out research into its social problems, dehydrating governments of facts as well as ideas. We have not built public institutions with intellectual depth, such as the UK Department of the Treasury, which last year conducted an independent cost analysis of inaction on global warming. When Greece needs analysis, it purchases it from the private sector and, usually, from abroad. Our university system and the party thinktanks cannot undertake the factfinding and analysis that might underpin public policy.

3. A thinking electorate must be an informed one. Merely making information available to the public and asking for feedback could spark debate.

4. It is true in every society that professional politicians take a lifetime to reach power. When they do so, they are loath to wed ideas that may sink them. But people who do not profess ideas cannot mould society, and Greece now needs conviction politicians.

5. The leaders of the two parties capable of achieving power are both dynasts, who must preserve the legacies of their ancestors and pave the future for their descendants. Those may be good continuity values for heads of state, but poor executive values. Further hemming them in are lesser political aristocracies, which sometimes cultivate their closeness to the ruling family over generations. The contrast between this and western Europe's two dynamic party outsiders - Tony Blair and Nicolas Sarkozy - could hardly be greater.

6. In the United States, any man or woman may run for office under the banner of Democrat or Republican. The candidate chooses the party, and alters it. In Greece, the party chooses the candidate, meaning that it is not open to alteration. But in this way it closes the field to new talent, and misses an opportunity to allow outsiders to test new ideas on its constituency.

Greece's political system has proven fairly effective under both socialists and conservatives at generating economic growth (though even that achievement will be tested once EU subsidies wither in 2013).

What it has proven inept at is tackling the inherent conservativeness of Greek society, which is made up of closed systems unaccountable to each other. The armed forces, the church, the judiciary, universities, labour unions and the parties themselves are all closed systems. They can survive corruption and misconduct because they are monopolies or duopolies on various kinds of power. But society as a whole eventually suffers from the weakness of its institutions.

It is the mark of leaders that they re-engineer the fabric that elects them. If Karamanlis and Papandreou decide to run low-risk campaigns in the coming elections, we shall be assured that whoever wins, nothing of substance will change.

Friday, 11 May 2007

Is It Really Election Time?

NEW DEMOCRACY hardly resembles a party that is gathering its strength for elections. At the beginning of the year the finance and development ministries, which have driven economic reform, were planning to pass more than a dozen bills between them by May. OTE, the Postal Savings Bank and the Piraeus Port Authority were to be well on their way to privatisation by now.

Yet hardly any of this has happened. Privatisation has stalled on all fronts. Most of the bills have not gone to parliament. The development ministry, which was arguably the most productive in 2005, has not promoted renewable energy or liberalised the electricity market. (It did achieve a final signature on the Burgas-Alexandroupoli oil pipeline, but that is due mostly to a Russian decision, not a Greek one.)

The government and the state are at risk of entropy. Employment Minister Savvas Tsitouridis paid the ultimate political price for a high-risk government bond being sold at par to four pension funds. But opposition Pasok is now gunning for a much bigger prize, the finance minister.

Finance Minister George Alogoskoufis has effectively been the prime minister so far. He has shepherded the development and transport ministries and faced down the labour and public works ministries when necessary. Losing him would be ruinous to New Democracy. And yet to suspect him of at least not controlling his own ministry more tightly is not entirely unreasonable.

This week we estimate the bond's likely course over the ten years when it will float. Although it will likely not perform so poorly as to deprive the funds of their principal, it will probably perform a couple of percentage points worse than most other financial investments would have done. So even if the funds do not need to liquidate the bond early and lose money, it represents an opportunity cost to them.

The government has placed the blame for the investment squarely on the shoulders of the fund managers, who, it said, ought to be savvier about financial markets. The bond's issuer, the finance ministry, is kept in the clear on the basis that it could not possibly have known who the bond's ultimate buyer would be.

Still, it is suspicious that the government-appointed broker for the bond, JPMorgan, would directly re-sell it to a Greek brokerage. It is even more suspicious that the biggest of the four funds who were the final buyers, the civil servants' pension fund, was headed by the son of a recent New Democracy party manager. And it is scandalous that the middlemen absorbed the bond's entire profit margin, leaving the funds to eke what they could from its floating interest over a decade.

Not only have New Democracy's claims to transparency and honesty been severely damaged; there is now a looming crisis in law and order.

During the party's term in office a new terrorist group, Revolutionary Struggle, has risen to claim the succession to 17 November. It has carried out three high-profile attacks and is suspected of being behind the disarming of several police guards of their MP5 semi-automatic rifles. The group used one such weapon to spray the exterior walls of the Nea Ionia police station on April 30.

It now threatens a "more than symbolic" strike against parliament, and has hinted that three ministers are in its sights. One of them, Public Order Minister Vyron Polydoras, who ought to be working to protect himself and the others, recently told parliament he was "serving a sentence" in his post. A few days later he told a Sunday newspaper he could not understand any more than his interviewer why police are unable to arrest hooded troublemakers who torch cars and banks on the sidelines of protest marches.

The judiciary is now in the spotlight. Supreme Court Chief Justice Romylos Kedikoglou, a conservative appointee, is being investigated for a land development in the name of his son, who cannot justify the income for it.

New Democracy was elected because it was believed to be the outsider party that could wash the state of years of nepotism and cosy relations with the private sector. And it is clear that Costas Karamanlis and at least most of his ministers came to power with the right intentions. The polls show that New Democracy can still sustain that image - but it has to press forward with reform and, to do that, transparency.

Some steps have been taken in the right direction. Tsitouridis made the apocalyptic step of posting social security funds' real estate assets on a website, and planned to add their financial holdings when he left; a much needed higher education reform was passed at enormous political cost; two tax bills are making life easier for companies and individuals; reforms extending part-time labour and looser retail hours have boosted the economy.

Alogoskoufis has managed to reduce unemployment and turn the economy towards sustained growth in his time. Under a well-picked manager backed with political support, OTE has shed excess workers and doubled its share price in two years, showing other publicly held companies what can be achieved. Since 2006 all state-owned companies hire without promise of tenure.

All of these positive steps are supposed to be followed up, if the government is believed. The development ministry has listed more e-government and e-procurement as priorities. If they materialise, they will enable people to watch private contractors bid online to sell the government goods and services. Purchasing decisions will be open to scrutiny. A social security fund consolidation is the government's preferred first step towards securing their future, followed by incentives to remain in the job market past retirement. Secondary schools are the next priority in education reform.

But a lack of meritocratic behaviour and transparency is costing the government so much politically that it cannot muster the credibility to press ahead with its plans.

Greeks evidently think Pasok is not ready to rule again. The government should not rest on those deciduous laurels. The country needs reform, and it therefore needs politicians and managers who don't fritter away their reputations on favours to party, friends and family.

Friday, 4 May 2007

New Democracy's Firing Policy

HAS Karamanlis' handling of Employment Minister Savvas Tsitouridis been a success? 

Roundly, no.

In firing Tsitouridis on April 28, the prime minister said it was solely on account of the shadow cast on the latter's honour by having an aide under investigation for stock market misdemeanours. Costas Karamanlis has never admitted that the sale of a high-risk bond to pension funds, which has tenderised the ruling conservatives for two months, had anything to do with it. That, he says, is purely a matter for the judicial authorities to investigate.

Yet three opinion polls taken after the dismissal found that roughly three-quarters of Greeks (and, more significantly, of New Democracy voters) say the bond was at least part of the reason for the dismissal. A similar proportion thinks the firing was long overdue.

Large majorities in two of the polls are unsatisfied with the Tsitouridis dismissal on the grounds that it serves to protect the government rather than pull out the root of corruption.

Most worrying of all, one of the three polls also found that the dismissal actually cost the government a bit of its edge over Pasok - voter intent shifted over the last weekend in April from a 1.7 point lead in favour of New Democracy to a less reassuring 1.1 point difference.

None of this seems to have altered a steady conservative polling advantage on key questions. Sixty percent of Greeks (and half of Pasok voters) continue to think that Pasok will lose again at the next general election. A similar proportion thinks early elections are a bad idea, an indirect vote of confidence in the government. Perhaps most importantly of all in a country where party political fortunes hang on faith in leaders, Karamanlis enjoys a 16 point lead on suitability for the country's top executive job.

This schizophrenic view of things is typical of polls. Respondents want to threaten an incumbent they will support. The key figure is suitability for the prime ministership. Costas Simitis held a wide lead over Costas Karamanlis while the latter led the opposition. Only shortly before Simitis' election defeat did this crucial number slip.

This prime minister has thrice before ousted top portfolio men. In October 2005 Deputy Finance Minister Adam Regouzas left after admitting to spending government euros on airtime from a network whose owner was on trial for felonious fraud. Then in January last year Deputy Public Order Minister Christos Markoyannakis left after calling a prosecutor illiterate. The prosecutor was probing alleged police abductions of Pakistani immigrants after the July 7 bombings in London, and botched policework. And Tsitouridis was once before sacked for using his influence to transfer his son from one university to another.

But these sackings have hardly coincided with the biggest scandals. Markoyannakis' boss, George Voulgarakis, for instance, never really suffered for the alleged abductions of Pakistanis; nor did he suffer when it was revealed that an unknown agency used the Vodafone mobile network to conduct the nation's largest ever espionage on the government. Voulgarakis, along with Justice Minister Anastasios Papaligouras, had tried to sweep it under the rug. Voulgarakis was merely punished with the culture portfolio. And no political heads rolled when police uncovered an apparent effort by the head of the Competition Committee, Panayotis Adamopoulos, to earn a 2.5 million euro bribe in return for dropping fines worth ten times that against a dairy company. Even Adamopoulos has not yet been tried.

Karamanlis has tried to draw a middle line between admitting to his government's gravest misdemeanours and ignoring them all. He has fired at the lowest level possible, as late as possible and over the smallest possible scandal. The aim is to admit culpability for scandals it is not worth fighting over and to reap the greatest possible reward for accountability.

But that strategy is now beginning to show. Karamanlis has denied political responsibility on large matters of governmental honesty four times: in the espionage scandal, the alleged Pakistani abductions, the dairy scandal and the recent bond scandal.

A couple of those were probably not homegrown. The US is the likely spy on the government and Britain is the likely instigator of the Pakistani interrogations - both cases of those countries' war on terrorism. But the financial scandals do not have foreign provenance and demonstrate a worrying nepotism. Two middlemen in the dairy bribery had New Democracy connections. So does the broker who sold a risky bond to four pension funds. If the conservatives want to make a clean break from the past, they need to make meritocratic appointments. That may run counter to the Greek idea of democracy, but it makes for a stronger system.