Assertion and timidity: Foreign vs. economic policy

The socialist government has started its term with a daring foreign policy and a timid economic policy. On the one hand, Alternate Foreign Minister Dimitris Droutsas has grandly announced Strategy 2014, a revived plan to usher the Western Balkans into the European Union over the next five years, and carried out a whistlestop tour of the region. On the other, Greece is about to re-enter Excessive Deficit Procedure for the third time since it entered the eurozone in 2002 because it refuses to cut general government expenditure. Foreign policy is, in the long term, built on economic performance. One wonders for how long this dissonance is sustainable. What is Greece's power to persuade in Brussels, and what is its credibility with regional allies, when it literally cannot put its house in order?

Papandreou's foreign policy is actually cleverer than it sounds. Greece is using EU membership as a carrot to resolve differences with neighbours, much as it tried to use imminent Cypriot membership to achieve a political reunification of the island more than five years ago. So it is cunning and wise for Greece to take Balkan nations by the hand and say, as Droutsas did at his first press conference on October 22, “We want to be the locomotive for EU entry of all in the neighbourhood.” Translation: We want to make sure everyone enters the EU on the right terms with us. Fair enough. It is the prerogative of every member to veto prospective members, and having good terms with the incumbents is an official requirement. Greece is using the leverage that it has.

Papandreou has lost no time spelling out his terms. On his first official visit to Cyprus two weeks after the election, he told Turkey that if it didn't recognise Cyprus at least commercially, Greece's influence would be apparent when the European Council reports on Turkey's candidacy in December. He and Cypriot President Dimitris Christofias have co-ordinated their recommendations to Brussels, demonstrating unity and effectiveness.

Ten days later, Papandreou also spelled out Greece's red lines to Fyrom's prime minister, Nikola Gruevski, at a private meeting in Brussels. Greece will accept a name solution that qualifies the word Macedonia geographically and applies to all of Skopje's international and bilateral relationships. This is a pre-requisite to allowing Skopje's EU prospects to continue.

But what about the economy?

Papandreou's personal prestige as head of the Socialist International and brilliant past performance as foreign minister ensure a respectable reception in Brussels. This is not the case when it comes to economic policy. Our European partners are fed up with our statistical service lying to them and our incoming governments revising the budgets of their predecessors (the conservatives did it twice after 2005 and the socialists did it this year).

When Finance Minister Yiorgos Papakonstantinou first met with his eurozone colleagues on October 19, the experience was bruising. He revealed that the deficit this year would be not two percent of GDP as originally forecast, not 5.7 percent as revised by the finance ministry after the election, but 12.7 percent.

Eurogroup leader Jean-Claude Juncker said that Greece's revisions had to end or they would cause problems for the credibility of the entire group. “The game is over,” he said in irritation. Finance Commissioner Joaquin Almunia and European Central Bank Governor Jean-Claude Trichet echoed the sentiments. In statements, they have singled Greece out as the eurozone's worst consistent performer.

Papakonstantinou initially presented a budget that would cut the deficit to 9.6 percent of GDP in 2010, later pushing that to 9.1 percent. Our European partners are still unhappy. Their November 11 report explains why: “The budgetary policy by the Greek authorities did not comply with the Council's recommendations (permanent measures, mainly on the expenditure side) and seems insufficient to address Greece’s fiscal imbalances in a sustainable manner.”

The European Commission expects our debt to skyrocket from about 99 percent of GDP now to 135 percent in just two years, unless we take serious action now. It believes we are riding on windfall savings because state arrears to hospitals and the privatisation of Olympic Airways were chalked up to this year's budget. So were the costs of two elections. There is little in the way of permanent expense cuts, it says.

It is unhappy that Papakonstantinou has thrown the weight of budget balancing on income during a year when the economy will shrink by about 0.3 percent. He aims to raise 4.5 billion euros from higher income tax on the rich, on tobacco, on lucrative listed companies (a one-off measure), VAT and other indirect taxes. And the government's insistence on making good on its pre-election promise of giving state employees a 1.5 percent pay rise is, by the strictest standards, irresponsible.

What would make the European Commission happy? It reckons that failure to collect taxes and cost overruns unrelated to the financial crisis accout for half the deficit this year. Correct those two problems and you can theoretically reduce the deficit to six or seven percent next year, it implies. Papakonstantinou's refusal to commit to something so severe is perhaps understandable. Even Bank of Greece Governor Yiorgos Provopoulos, a whistleblower on the deficit, believes we should aim to reduce the deficit by five points over two years. The 2010 budget is consistent with that. But Provopoulos also agrees with the Commission that Papakonstantinou should save twice as much money as he raises. His failure to deliver a sharper cut in expenditures is a worrying sign that even on the stength of its landslide victory, this government is afraid to invest its political capital in painful measures while it can.

Papakonstantinou hopes that he has bought enough goodwill in Brussels by agreeing to start the dialogue on revising social security immediately (it began on November 26). But the General Confederation of Greek Workers (GSEE) has placed such strict preconditions on talks as to render them almost pointless. It will not discuss raising age limits or reducing pensions. So the only useful topics can realistically be financing methods and the revision of the arduous and unsanitary professions regime. GSEE also insists on the withdrawal of New Democracy's 2008 law, a Pasok promise. Brussels' goodwill will partly depend on the resulting social security bill, and you cannot please both Brussels and GSEE.

The world has noticed our failings. Last month, the credit rating agency, Fitch's, demoted Greece's government paper from A to A-, following the skyrocketing deficit and debt figures. A week later, Moody's said it, too, is reviewing Greece's A1 status. Provopoulos warned parliament on November 24 that as the European Central Bank draws to a close its line of cheap credit to eurozone governments and banks, Greece may find it increasingly expensive to borrow. Moreover, it could one day find its paper difficult to sell. The remarks caused uproar, and Provopoulos was accused of spreading panic. Such is the refusal, in some political quarters, to face facts.

Over the long term, the Greek battle is for greater competitiveness. Achieving that will create jobs, lower the public and private sector deficits, and even reduce corruption. In the short term, however, the Greek public sector has simply got to spend less money on itself and on those not terribly competitive bits of the private sector that have made much of their living from a single client. Are there enough people in parliament who believe this to allow it to happen? There certainly seem to be enough voters who do.

Worth reading: The FT's opinion/editorial on November 30.

November 17, 2009

November 17 marked the 36th anniversary of the night in 1973 when a colonels' junta violently suppressed an uprising at the Athens Polytechnic. The event is broadly credited with helping to restore parliamentary democracy the following year by dealing a fatal blow to the junta's authority.

Today's student generation still sees the Polytechnic as the iconic political event of postwar Greece, and longs to prove its ideals as indelibly. The slogans churned out this year spelled as much. For example:

Οι εξεγέρσεις δεν μπαίνουν στα μουσεία,
Εμπρός για της γενιάς μας τα Πολυτεχνεία.
(Uprisings don't belong in museums; onward to our generation's Polytechnics)

And the anarchically defiant:

Σ'αυτόν τον τόπο, σ'αυτήν την κοινωνία,
Οι εξεγέρσεις γίνονται, δεν είναι ουτοπία.
(In this place, in this society, uprisings are a fact, not a utopia).

Reason versus the nation

Reason and the scientific method have taken a beating in recent years. George W Bush was famously against both, but at the grassroots level, too, on both sides of the Atlantic, there seems to be a groundswell towards mysticism, religion and nationalism, and away from the Enlightenment.

Institutions are left to fight for the values on which both the US and the EU were founded. On November 4 the European Court of Human Rights ruled that crucifixes had to be banned from Italian classrooms. The Vatican said it would fight the ruling.

Here is a debate that has troubled Greece again and again. On the one hand rationalism cannot be taken for granted - it has no church to represent and reinforce it. On the other, there are non-rational things which contribute to a people's sense of identity. Italy is not the only case of a European Union member with a default religious identity. Here in Greece it would be considered a form of national betrayal for the government to enforce a similar court ruling. The Orthodox church is still enshrined as the official faith in articles 1-3 of the constitution, and forms an inseparable part of the Greek sense of nationhood.

Turning a page: Lessons from print journalism

With Rupert Murdoch's new-found resolve to make internet browsers pay for content, the suffering news industry may finally begin to turn a corner back to profitability. For a number of years now the marketplace's proposition to newspapers has been untenable: “You pay for journalists to report the news and make as much money as you can from dwindling news stand and advertising sales; and we will choose to either buy newspapers or read them free online, and even steal their content to create virtual news stands.” 

 

Newspapers accepted the proposition because they had no choice. All the media were moving online from the mid-1990s onwards, and everyone had to fight for a share of the exposure even at a loss of traditional income. The reasoning was that online attention would multiply each medium's viewership or readership (the New York Times sells about a million copies a day, but has 20 million readers online) and a way would be found to make money from that traffic eventually. But traditional revenues have dried up faster than internet advertising has grown, and US newspapers this year began to shut down or lay off staff. The result is a dying industry and fewer original articles being researched and published, but a massive duplication of them on web sites around the world. 

 

Now newspapers are fighting back. If News Corp. successfully leads an industry-wide about-turn to do the unthinkable and charge for online content, newspapers may stop the decline in their revenues. 

 

Last June I stepped down as Editor-in-chief of the Athens News after a decade at the helm. It was an exhilarating time – not every editor enjoys complete editorial independence – but also a challenging time to run a paper. The Athens News' trials during this decade are a case study in what works and what doesn't work in turning a newspaper around; they also point the way to possible future solutions for that minority in mainstream media – newspapers and magazines – that still charges for content. 

 

When Christos Lambrakis offered me the job in 1999, the Athens News was known as a venerable 47-year-old beacon of free speech whose founder, Yannis Horn, had become the first newspaper publisher to suffer imprisonment under the colonels’ censorship law in 1972.  

Under the bombardment of imported titles, new English-language titles published in Greece and the internet, we decided that the Athens News’ best chances of survival were as a weekly. The transition was stormy. We had to continue to produce a daily while conceiving, designing and engendering the new product over a mere eight weeks. To achieve this we divided the newsroom into two teams, and ultimately succeeded in leaving a gap of just one day between the disappearance of the daily and the appearance of the weekly. 

 

Normally when a new product appears it thrives off the curiosity factor for a couple of issues before settling into its true circulation furrow. The weekly Athens News did precisely the opposite. Its first edition sold 4,331 copies in Athens and Peiraieus, its second 4,517, its third 4,862 and its fourth 4,947 – an average rise of 4.5 percent per edition. Sales across the country also rose in these weeks, signalling that we had overshot reader expectations. 

 

The market responded well enough during the first four years of the weekly Athens News that we turned our balance sheet around - from 670,000 euros in losses in 2001 to 74,000 euros in income in 2004. This came at a price, though. The payroll shrank to roughly half its original size of 45, and over the ensuing years would shrink further to about 16. 

 

We rose to the challenge of the Olympics in our break-even year by creating a Special Daily Edition for the two weeks of the Games. The trick of going from a weekly to a daily for a brief period was to avoid a massive outlay in extra staff so as to keep the enterprise profitable. Just before the Games we did hire half a dozen temporary writers and copy editors to boost the time-sensitive front of the book. But the key to success was that we built up the back of the book months in advance by commissioning and pre-paginating feature material. This necessitated no extra hires. Together with permanent fixtures such as maps, travel advice to tourists, plus two pages with the latest results and the next day's programme, we were able to flesh out a 40-page daily that became highly popular with visiting journalists and readers alike. A limited bound edition of these newspapers sold out within a few days after the Games. 

 

The challenge to the Athens News after 2004 was to reverse its declining news stand sales. In the years 2001-2007 we suffered an average annual drop of 5.4 percent. Though devastating to a small newspaper, this was less than half the average circulation losses taken by major Greek national dailies and a testament to our readers' loyalty. 

 

We settled on a dual strategy. One effort was aimed at generating a new revenue stream through books based on Athens News talent. They were relatively cheap to produce because the material had already been paid for and edited; they cost nothing to advertise because they were being published by the advertising vehicle itself; and productive columnists were happy to be turned into authors with a royalty into the bargain. The 17 titles we published over the decade were, in total, a success, becoming about five percent of the newspaper’s turnover of just over a million euros. 

 

The second - and more important - prong of the turnaround strategy was to focus on new forms of distribution. While we kept honing content (a task that never ends), we felt that means of delivery was the real problem for print journalism. News stand sales still generated about sixty percent of the Athens News’ revenue in 2008, but we came to see this form of distribution as shrinking irreversibly because of new technologies such as the internet and mobile telephony. The classic print distribution model simply will not occupy the market share it once did. 

 

When it comes to niche markets such as that of an English-language newspaper in a non-English speaking country, the decline in sales is even more ominous. Publications with sales of under about 20,000 copies in Greece must print far more than the legal limit of sales-plus-20-percent to cover the nation’s approximately 14,000 sales points. Below print-runs of about 25,000, therefore, one has to distribute selectively. That is a fraught process. Newspaper distribution is a closed profession that cannot be challenged through open competition in the key markets of Athens and Thessaloniki, where about 70 percent of the population lives. Newspaper distributors therefore tend to be less than zealous about accommodating publishers' requests. 

 

Our response was to shift our focus at the end of 2006 to subscriptions and the internet. Two thirds of Athens News readers are in the greater Athens area, where competitive courier services are readily available. Print readers who buy from a news stand or periptero currently pay between 37 and 50 percent of the cover price to the distributor, whereas courier services, which are openly competitive, would give us quotations as low as 20 percent of the cover price. We decided to shift the benefit to our readers, offering a subscription package with a discount of up to 30 percent, home delivery and annual incentive gifts. That also allowed the newspaper the perquisite of coming into a direct relationship with a growing proportion of its customers, which entails enormous marketing and quality-of-service advantages over an unaccountable distribution system. 

 

An early vindication of this strategy was that in 2007, the first full year of the new emphasis on subscriptions, the Athens News made a modest one percent gain in revenue from sales solely thanks to a 31 percent gain in subscription revenue and despite a decline in revenue from street sales. It was the first year in which the weekly newspaper increased its sales revenue without a rise in cover price. 

 

Adjustments in paper distribution notwithstanding, it is clear that the internet is the tool of the future for newspapers. The Athens News was the first Greek newspaper to establish a site in 1995, and we rebuilt it twice, in 2001 and in 2009. The site consistently enjoyed 20,000 unique visitors a month, 83 percent of them from overseas and half of those from the US. 

 

Starting on that basis, we set out three years ago to electronically scan every newspaper published since 1952 using optical character recognition software. This creates word-sensitive archives and enables users to search the database. Had we succeeded, we would have created a searchable archive of over a million articles – easily Greece's biggest online news database in English. The plan was to add such value to the site through this and other standing databases that it would become possible to create a paid subscription to the website with services beyond those available to the free visitor. 

 

The task proved larger than we could ultimately bring to pass. In September 2008 the Lambrakis Press decided the close the newspaper with the scanning job only half done. We were forced to focus on the more germane task of finding a new owner to avoid closure. This was a battle the entire staff took a part in, and the newspaper survived largely thanks to an overwhelming response from its true owners – the people who read it. 

 

Hundreds of letters that poured into our office during those days told us why we had survived. Our readers appreciated our independent reporting and insightful analysis. Two things made that independence possible: the fact that our publisher, Christos Lambrakis, had allowed us to exercise an aloof, Western style of reporting that separates news-gathering priorities from political and commercial ones; and the fact that the newsroom was comprised almost exclusively of bilingual, bi-cultural Greeks who combined a love of Greece with a native grasp of English. 

 

But for all these years the Athens News stood out for another reason. In a country with the slenderest of traditions in unmanipulated journalism, it had an understanding of journalistic integrity and the need to strive for an objective viewpoint. To the extent that it had an ideological bias, this was a natural bent towards liberalism – an inevitable leaning in a newspaper that addresses itself to bi-cultural Greeks and expatriates interested in what goes on under Greece's skin. We developed strong beats in the areas of greatest social change: education, immigration and the environment. The newspaper developed strong reporting on these topics rivalling - and in some instances exceeding - the accuracy and timeliness of much larger media organisations. 

 

We focused on attempts at reform in the disappointing second term of Kostas Simitis and, after 2004, the transition to conservative rule after 23 years of almost continuous socialist government. And we built community, believing that a newspaper is at its healthiest when strengthening its readers even as it draws strength from them. 

 

What we tried to do for a decade was to provide encouragement and self-awareness to that section of Greek society that holds the key to its future – those who believe that Greece can take its place among competitive societies without losing its traditions or its identity. In a sense, we were trying to create for our children the Greek society we expected to find when we repatriated. Our editorial emphasis for greater accountability, transparency and meritocracy followed naturally. We supported economic liberalisation, greater competitiveness, smaller government and paying off the national debt, which mortgages future generations. In short, we strived to be a voice of reason and an indispensable component of a Greece that is yet to come. 

 

What worked for the Athens News can be summed up as follows:

• Lowering overheads: Newspaper publishing is a highly leveraged business. It involves enormous up-front expenses in printing plant, distribution networks, adequate newsroom staffing, contact-building and marketing. We managed to lower payroll expenses, which were under our jurisdiction, but not shared corporate overheads for services such as legal and accounting, which were beyond our control.
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
• Creating new revenue streams: Large-circulation weekly papers are now in the business of selling magazines, CDs and DVDs with news as an added virtue; hence the practice of obscuring the front page titles with the giveaways - the news is no longer the point. Those gifts are being sold at cost (each disk costs about a euro in rights and production, which is added to the cover price). The benefit is in maintaining circulation in order to remain competitive and sell advertising. So the print news industry is essentially becoming a branch of the entertainment industry with a news flavouring. 
  
  
  
  
  
  
  
  
  
  
  At the Athens News we lacked the circulation to make such a system profitable, but we also wanted to remain in the news business. The revenue streams we created were a line in book publishing, which had obvious economies of scale with newspaper publishing; and we were in the process of creating a revenue stream through a paid online subscription. (Mysteriously, both the Athens News' former publisher and its present one have eliminated the online archive, which is one of a newspaper's chief assets). 
  
   
  
  
  
  
  
  
  
  
  
  
  
  
  
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  Shifting to a subscriber distribution model: With the inexorable, industry-wide shift away from news-stand sales, publishers have to hold on to their readers. The best way to do so is to enter into direct communication with them, pass on the economy of cutting out the distributor, offer gifts and draw direct feedback. 
  
   
  
  
  
  
  
  
  
  
  
  
  
  
  
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  Below-the-line marketing: Few print media can afford the scattershot methods of television and street advertising to find their readers. Extracting needles from haystacks is best done by holding a magnet over them – in other words, organising events designed to draw out of the social mix a particular profile of reader. At the Athens News we did this through our anniversary, our book presentations, focus groups and tie-ins with other community organisations. We also made the most of free or low-cost publicity through the internet and our friends in the community. 
  
   
  
  
  
  
  
  
  
  
  
  
  
  
  
• Integrity: In the ever-more crowded field of self-observation, humanity is becoming confused about what to observe and which observers are credible. A newspaper's most important investment today, over and above marketing, payroll strength, paper and printing quality and advertising, is in its own strength of character. People will remain loyal to the media that demonstrate a loyalty to them. At the Athens News our loyalty was always to the reader first. 
  
  
  
  
  
  
  
  
  
  
  The country is awash with newspapers that consider the reader a close second priority to the business-to-business deals made between the publisher and members of the government. In such deals, the newspaper sells image-making services for state advertising, state protection and state contracts. The journalists who serve such newspapers are fully aware that their paymaster's interests will dictate the next day's front page, not the beat reporting done by them. We are so steeped in this kind of journalism that we barely notice it. But it is a flawed business model. Publishers who did well in the blackmail business in the 1980s have come and gone, or shrivelled beyond recognition. In any case, no-one, not even the government, can take a publisher without integrity seriously. The newspaper that establishes a consistent record of independent and objective reporting and analysis will ultimately win. 
  
  
  
  Related reading:
  New Europe on print media.