Friday, 24 October 2008

The truth will set us free

The government of Costas Karamanlis can fairly be said to have reached the lowest point of its fortunes. Not only has it shed two ministers in six weeks whose standing with the prime minister was high; it now faces a parliamentary committee of inquiry - precisely the tool it used to humiliate Pasok just months into its tenure in December of 2004. If life employed symmetrical plots as often as art does, this one would suggest a certain proximity to the final curtain.

The departure of Merchant Marine Minister George Voulgarakis on September 12 was for understandable reasons; his wife acted, inappropriately, as notary public on documents exchanging land between the state and Vatopaidi Monastery, favouring the latter by an estimated 100 million euros.

The departure of Government Spokesman Thodoris Roussopoulos, however, remains a purely political move. He signed no documents relating to the land deal. As he himself said in parliament the day before his resignation, the opposition had mobilised a mood against him on the basis of his close ("spiritual", in his own terminology) connection with Vatopaidi. Guilty of brokering the deal by suspicion he may have been, but two thirds of Greeks agreed that he should go.

The political climate has turned so acrimonious, that Roussopoulos attacked opposition leader George Papandreou in highly personal terms seldom heard even in Greek parliament. "In all these years, the president of Pasok never found his political voice or articulated serious political opposition; laid down a serious [policy] proposal for the country... where there are no policies, there are lies. Whoever cannot walk the difficult road of politics adopts the slippery path of mendacity."

In retrospect, the violence of Roussopoulos' speech and the finality in its summation of his political career seem prescient. The question now is whether his going will do any more than Voulgarakis' did to quell the scandal, given that he had become a lightning rod.

Beyond Roussopoulos, the government seems to be imploding under its own ineptitude both at conducting business transparently and seeming to do so. Anger among ruling party MPs is at an all-time high. Nothing bespeaks New Democracy's fear of itself as much as its prohibition to MPs from attending an October 24 vote on a preliminary criminal investigation proposed by Pasok. Such an investigation would have direct powers of prosecution against past ministers; by virtue of their majority the conservatives could scotch it but, fearing their backbenchers, deemed the usual exhortation to vote along party lines insufficient.

Such investigations were launched in 1989 at the expense of both Pasok (over the Bank of Crete scandal) and New Democracy (over the Aget Herakles cement company privatisation) because in the absence of clear majorities, governments of national unity had been formed that included the smaller parties of the left. Disciplining cross-party parliamentary blocs proved impossible. This time, a parliamentary criminal investigation could only be launched with the aid of two conservative MPs, who would offer their votes openly, so expectations should be kept low.

Crises force change. Just as the global financial crisis is causing people to question the wisdom of speculation, so the Greek crisis in political accountability is causing them to question the law (and constitutional article) that protects those in government.

As this newspaper recently pointed out, laws that protect MPs and ministers from criminal investigation and prosecution set a double standard. That is now being shaken.

"Should ministers be protected? " ran the title of a commentary in the Sunday edition of centre-left flagship To Vima on October 19. "Do we, perhaps, have limited liability ministers?... as to political responsibility, the answer is, unfortunately, in the affirmative, " wrote the author, George Sotirellis, a professor of constitutional law at the University of Athens.

On the other end of the political spectrum, conservative Estia made a similar point. "For every supposed misdemeanour by a minister or deputy minister in Greece, there has to be a general political uproar... That's what our irrational political system has achieved with the law on ministers' liability, " read the front-page editorial on October 21.

The law, voted in by a socialist government, offers ministers a five-year statute of limitations on prosecution for anything they did in office. It is based on article 86 of the constitution that gives parliament exclusive authority to prosecute past ministers or their deputies for criminal acts committed while in office. Any evidence leading to such charges is to be conveyed to parliament, where an absolute majority is needed to elect a criminal investigation.

The Vatopaidi scandal shows that both the political and legal ends of this process are failing to work, even within the generous protection the law offers politicians. New Democracy is railroading its MPs in the most officious manner, while George Sanidas, the Supreme Court prosecutor who launched the Vatopaidi investigation, seems to have lost his stomach for justice. He has spent the past month interpreting the evidence of ministerial signatures on land exchange documents as not amounting to political liability. Two of his investigators resigned from the judicial profession citing the clear legal requirement to send the matter to parliament for prosecution.

When he sent the case files to parliament, Sanidas sought to avoid the appearance of passing up the case. He justified the move as satisfaction of individual MPs' legitimate legal right to see the evidence.

Sanidas is the prosecutor George Zorbas bitterly complained against when his money laundering authority was abolished last summer. Sanidas, Zorbas said, failed to issue a legal request for evidence into North Asset Management to British authorities who were willing to share it, but for a formal request. The evidence would have furthered Zorbas' investigation into questionable government bonds.

The conclusion is inescapable that New Democracy and its judicial allies are continuing to make a pig's ear sandwich out of the transparency and accountability they claim to support. Far from strengthening the political machinery with honourable precedent, they are grinding its gears to breaking point.

One interesting lead has emerged out of the conflict between the parties, however. In his prescient speech, Roussopoulos listed six endowments of state money made to Vatopaidi Monastery by Pasok ministers. Those endowments amount to no less than 4.6 billion euros - all but 150,000 of that sum paid in 1999.

One doubts that any monastery in Europe has received such largesse, and even Vatopaidi's building boom could not possibly make use of more than a fraction of it. The true test of the committee's integrity will be to open up Vatopaidi's bank accounts and investigate the movement of monies donated under both power parties in the last decade. The committee should follow the money trails wherever they may lead, whether to individuals or organisations - particularly those that enjoy special protection from financial probing, such as political parties. Does any MP have the courage to go that far?

Friday, 10 October 2008

An opportunity in disguise

The monetary and financial crisis now entrenched in the global marketplace has already metastasised into a stock market crisis as investor confidence has fallen (the Dow Industrial Average slipped below 9,000 points as this edition went to press, shedding a third of its value since January). A business crisis is expected as consumer confidence fails, and eventually a fiscal crisis as jobs are lost, business profits fall and interest rates rise. Not only will state revenues fall, but governments will also have to borrow more to finance social policy and business bailouts.

A recession is now seen by most analysts as inevitable, with pessimists predicting it will last until 2012 (see our coverage of the Central and Eastern European Banking Conference on page 20). The crisis is even being seen by some as the end of the era of Monetarism - the economic principle that a healthy money supply ensures a healthy economy.

That is because a healthy money supply helped create an oversupply of cheap credit, resulting in bad loans. Those were re-sold as paper of questionable worth, making such inroads into the portfolios of investment banks that they collapsed when borrowers defaulted and their main collateral - their homes - fell too far in value to cover their debts.

This overextension of credit was undoubtedly the result of greed on the part of the retail banks; but there was also greed among investment banks, whose giddying failure to assess risk on the paper they were buying is only gradually coming to light.

In one of the most revealing testaments so far, a risk manager wrote in The Economist on August 9: "We trusted the rating agencies... the reputation of outside bond ratings was so high, that if the risk department had ever assigned a lower rating, our judgement would have been immediately questioned." Worse, the trading desks saw risk assessors as an albatross. "Most of the time the business line would simply not take no for an answer."

Undoubtedly, there was also greed on the part of many consumers, who kept refinancing their mortgages to live beyond their means. Even governments were seduced. Greece's finance ministry sold two structured bonds to pension funds that were diabolically difficult to evaluate, and marked a departure from the classic, fixed-return bond public treasuries usually issue. The findings of two reports on those bond issues have been buried through extraordinary political manoeuvring.

Both bankers and consumers have sought government protection. As a result, national economies around the world have swung impressively into statist mode. There is no more talk of privatisation, deregulation or liberalisation - the catchwords of the past decade in the European Union. Even in America, free marketeers are singing a different tune.

Republican US Senator John McCain, who just a few weeks ago told voters that the American economy was sound, has upped the ante on his Democratic opponent for the presidency by advocating a state buyout of troubled mortgages rather than just troubled institutions. The US Federal Reserve has already spent hundreds of billions of dollars propping up major US lenders, and the taxpayer has been asked for $700 billion more. National bailout plans have followed in Spain, Britain and France. Ireland and Greece became the first European Union members last week to guarantee bank deposits.

The main vulnerability of the Greek position is not overexposure to bad paper, but the fact that consumers, banks and the state itself are over-borrowed. In the game of financial musical chairs, borrowers have been left standing.

Households and businesses borrowing on floating interest rates will pay more to service their debt, estimated at just under 200bn euros. And the signs already are that they are defaulting at higher rates. Non-performing loans rose this year, particularly for households.

Moody's and Standard and Poor's, the ratings agencies, downgraded three of Greece's biggest high street banks on October 7 because of their high ratio of loans to deposits. The government has guaranteed deposits to 100,000 euros, but that may not deter many account holders from stuffing money into the mattress.

Servicing their public debt will also cost the Greeks about 1.4 billion euros more than planned this year and next. That effectively swallows the extra cash Finance Minister George Alogoskoufis hopes to raise in 2009 through unpopular tax hikes announced in late August. Put differently, it is as if the Greek taxpayer had another two Olympic Airlines to support (the national carrier is estimated to cost about a million euros a day).

There is a silver lining, however. As the frenzy of consumerism that has gripped Greece since the deregulation of banking in the 1990s dies down, in line with the rest of the world, we are likely to see a drop in the price of oil. That will have a cooling effect on inflation, which in our country has remained above the eurozone average. It will also have a beneficial effect on the environment, which has suffered from a depletion of primary resources and production of greenhouse gases.

Lean times could help sort out the wheat from the chaff in the public and the private sectors. As voters and consumers focus on what is truly important to them, there is less room for flim flam. Now is the time to trim 1.2 billion euros the taxpayer spends each year propping up state enterprises bloated with political appointees. Now is the time to scrutinise public procurements and lower the debt, which sucks up all tax revenue from individuals and businesses each year.

The lack of competitiveness in the private sector also needs to be addressed. In the oligopoly that is Greece, the many can no longer afford to overpay to enrich the few, and in areas such as refined petrol, banking services and dairy products, to name a few, they have been overpaying egregiously.

But not all of these benefits will come by themselves. The political barometer needs to set to Transparency, Accountability and Meritocracy, the goddesses Greece now needs more than ever.