The new cabinet

Prime Minister Costas Karamanlis’ expected January 7 reshuffle is an attempt to start his second term all over again, and perhaps go for a third. After the scandals, mis-timed new taxes and false starts at reform in 2008, the 15 month-old government had all but lost its authority along with two senior ministers.

The reshuffle purged the cabinet of the last people associated with the Vatopaidi Monastery land exchange scandal – Deputy Foreign Minister Petros Doukas and Agriculture Minister Alexandros Kontos. Doukas’ signature had appeared on documents authorising the exchange in 2005 of valuable public land with less valuable land owned on shaky grounds by the monastery. Kontos had initiated a search for public properties suitable for the exchange.

That completed a purge begun in September last year with the loss of then merchant marine minister George Voulgarakis, whose wife, father-in-law and brother-in-law had earned hundreds of thousands of euros acting as legal counsel and notary public in the exchanges. The following month then government spokesman Thodoris Roussopoulos was shed on suspicion of brokering the deal.

Also shed in the January 7 reshuffle were Mihalis Liapis, the prime minister’s cousin, who left no record of achievement in two ministries and can best be described as a safe pair of hands; and Christos Folias, development minister, who was on his second tour of duty.

There was a slight demotion out of the inner cabinet for the precipitous outgoing education minister. Evripidis Stylianidis made two faux pas in 15 months; he passed a law to regulate private universities, which the European Court struck down three months later; and he left 43,000 pre-schoolers without daycare when he changed licensing rules for daycare centres without warning.

The biggest shock, though, was the dropping of Finance Minister George Alogoskoufis, who has enjoyed the prime minister’s unwavering support for four years, often acting as whip for other ministers. He famously prevailed over then transport and telecommunications minister Mihalis Liapis in 2005 to back down from his vocal opposition to a voluntary redundancy scheme for OTE, which was designed to pave the way for full privatisation. The following year he prevailed over the ministers of labour, defence, development and transport to cap salary raises at state companies they oversaw at three percent in 2006 and four percent in 2007.

Alogoskoufis’ star began to set with a bond scandal at his ministry in 2007. Though he was not implicated directly, a structured bond his ministry issued became the government’s biggest liability at that time because it enriched party-connected middlemen more than the final recipients, which were several pension funds. Alogoskoufis’ star then dimmed rapidly with his rushed tax bill in August last year.

Throughout his tenure Alogoskoufis worked in two directions - to restore fiscal discipline at the expense of populist spending, and to boost competitiveness through structural reform. His 2005 phased tax cut of 10% for businesses and individuals was a key measure.

Yet Alogoskoufis’ inability to collect taxes owed without over-borrowing ultimately undermined him. In 2005 he got away with raising VAT by a point to 19 percent in order to make good a three billion euro budget revenue shortfall. By last year, however, the economic climate made his 1.1 billion euro tax hike, announced in late August, seem insensitive. It set a gloomy and ungenerous mood ahead of the prime minister’s keynote address at the Thessaloniki International Fair, and gave opposition leader George Papandreou an opening to criticise the government’s poor record in transparency and accountability at a time when Greeks were beginning to feel the pinch of the international credit crisis. Alogoskoufis’ lack of judgment in raising taxes as recession loomed was a key factor in his unpopularity and subsequent sacking.

His successor, Yannis Papathanasiou, appeared to continue the Alogoskoufis legacy with a new face, announcing that he would avoid new handouts, pursue cost cuts in the public sector and structural reforms in the economy.

The key development ministry went to Kostis Hadzidakis, who proved a quietly effective transport minister. He did not oppose government policy on OTE as Liapis had done, established an EU-approved rescue package for Olympic Airways and began a new tender process. His biggest political challenges will now be the competitiveness committee, which has proven an imperfect regulatory tool, and the Public Power Corporation, which is in open rebellion against management.

Most of the Greek press interpreted the new cabinet as a pre-election one, which is not an outrageous hypothesis. Greeks go to the polls in June to choose new Euro-parliamentarians – a largely inconsequential election that serves as a lightning rod for the protest vote. A Pasok victory over New Democracy would be its first under George Papandreou and help cement a psychology of defeat in the already demoralised ruling party. Were a general election to follow, the chances of a Pasok victory would increase with the number of people believing in one.

Karamanlis may choose to roll the dice in a simultaneous general election, hoping that voters will give him a third mandate while awarding Pasok the Euro-parliament.

Also favouring the election scenario is the fact that this cabinet seems to aim at not giving further offense. Apart from Foreign Minister Dora Bakoyannis, it does not seem to contain strong personalities. With the departure of Alogoskoufis there are no outed reformists (Kostis Hadzidakis spoke powerfully for education reform as a Euro-MP in 2005-6, but has since learned to work for reform discreetly). And the inclusion of Antonis Samaras aims at winning stauncher conservatives.

Karamanlis may have done enough to re-launch his second term, but the legislative agenda will show whether this cabinet is aimed at doing anything more than getting through another election.