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.

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