Friday, 21 September 2007

Greece's six great challenges

Of the many challenges Greece faces at the beginning of New Democracy's second term in office, six stand out as critical: high social spending combined with public debt; the urgent need for continued education reform; the lack of a strategic foreign policy; global warming and desertification; and a democratic deficit and meritocracy deficit.

It is inadvisable that Prime Minister Costas Karamanlis, with a reduced majority of just two seats, face them with the fanfare that accompanied some of the deeds of his first term. Revising the budgets that enabled Greece to enter the eurozone and putting socialist defence procurements on trial backfired on the conservatives, who are not great spinners even when they are right. Karamanlis, accordingly, may well choose to adopt a low-key approach that raises no flags to the opposition.

1. Social spending combined with public debt: Greece's pay-as-you-go-system requires current workers to pay for current pensioners. Accumulated reserves in pension funds offer some cushioning, but not enough. Whereas a healthy system should have about three workers to each pensioner, the Social Insurance Foundation (IKA), the country's biggest insurer, declared a ratio of 2.08 four years ago, which is barely viable. The Organisation for Economic Cooperation and Development (OECD) reckons that by mid-century the dependency ratio for Greece will plummet to about 1.7, and the employment ministry's social budget published last month thinks it has already reached 1.72, down from 2.46 in 1990.

The government already spends about 25 billion euros a year ¬ the equivalent of ten percent of GDP ¬ to support the system, and that is predicted to rise to 25 percent by mid-century. To this must be added roughly ten billion euros a year spent servicing the country's debt ¬ nearly the equivalent of all taxes collected from individuals and companies. The opportunity cost of maintaining such a heavily indebted economy is underinvestment in education, research, foreign policy, the environment and worker retraining ¬ offensive rather than defensive tools that could carry the nation forward.

We are a long way from fixing the system. An audit of the main 83 pension funds is needed to establish their health (the International Labour Organisation said last week it could not even draft reform recommendations because of a lack of data). Karamanlis has adamantly denied even thinking about raising the retirement age or lowering benefits. The environment ministry has signalled, instead, that it will offer incentives to retire late and crack down on contribution evasion; but it is highly doubtful whether those measures suffice.

Individual retirement accounts are not vulnerable to the problems of pay-as-you-go because people are better stewards of their own money than other people's. Tony Blair instituted an opt-out clause for Britons wishing to divert social security taxes to private schemes, but here there is absolutely fierce political opposition here to the idea of partial privatisation. Refusing embrace it, however, deprives the economy of innovation, and therefore the young of opportunity.

2. Education: New Democracy's great challenge will be to implement its promised revision of article 16 of the constitution to allow non-state universities. At the same time they need to implement their revision of law 1268, which introduced term limits to undergraduates, stayed their influence in the election of rectors and introduced textbook pluralism. And they must strike out on a promised overhaul of secondary education, which moulds the nation.

They also need, by the end of 2008, to have completed the first external assessment of Greece's 23 universities and 16 techincal colleges (see Paideia, our four-page education supplement in the centrefold). The assessors' success largely depends on the goodwill of faculty, so another political uprising on the streets of Athens over article 16 would raise the political cost of cooperation and could scuttle assessment.

Education reform is basic, because upon it depend the country's ability to produce people who think critically, are marketable, and can make an informed decision on how to vote. The new minister, Evripidis Stylianidis, will have to win over 28 deputies to pass a constitutional amendment. He may win some of them from Laos, but he needs to win some from Pasok, too. The socialist leadership battle may take until Christmas, offering an opportunity for stealthy coalition-building over the next months. That seems to be the only way for the government to achieve anything in time for a 2010 goal to harmonise higher education across the European Union.

3. The democratic deficit: Since the major parties are the nurseries of most of the practitioners in our democracy, they must, themselves, be democratic, or they cannot effectively channel public feeling. In fact, parties are closed shops: Parliamentary and local government candidates run under their banner by invitation and are expelled by decree. Party leaderships establish policy, and votes in parliament as a rule break down along party lines. Parties and are also autocratically run: Karamanlis established his authority in 1996 by expelling three deputies who voted their conviction rather than the party line on an opposition bill.

What justified the expulsions was that one of the three, current Public Works Minister George Souflias, had been a challenger for the leadership. By contrast, socialist leader George Papandreou has failed to establish his authority because he did not expel key opponents.

Most European democracies combine party leadership with leadership of the government, but there is an alternative model. In the US, the Democratic and Republican party leaderships are administrative. Policy and ideology are shaped by the candidates. Individuals run for a party at will, and define it.

Our feudalistic, top-down system combines with another major democratic compromise ¬ the elision between the executive and the legislature. A government arises through its control of parliament; but that ironically leads to the abolition of parliamentary democracy, because once established a government is no longer obliged to consult the opposition. The result is that checks and balances are lacking from party leaderships all the way to the president, who merely rubber stamps legislation. Even his constitutional right to return it once for reconsideration is not, by custom, exercised.

The system is designed to ensure workability rather than pluralism, but it makes Greek politics excessively partisan. We are denied even a healthy tradition of backbenchers.

Even within this tight institutional frame, there is wiggle room for bipartisanship that New Democracy has not taken advantage of. Pensions provide the perfect opportunity. Social security legislation constitutionally may not be hidden as a rider on an unrelated bill. A high-profile social security bill is therefore inevitable at some point. A repetition of the 2001 attempt to save social security, sunk by union action, is in nobody's interest, because it will merely pass the problem on to another administration. The conservatives could appoint a champion, and invite Pasok to do the same, who would together draft a common set of the more progressive positions in the two parties and present it as a bill. Deputies from both sides could then be invited to vote according to conscience. If 151 MPs from among the combined 254 don't vote for it, that will be a truly democratic rejection, not a partisan one.

The experiment is important because Greece desperately needs precedents of bipartisanship in order to begin to heal the historic rifts between left and right. 

4. Foreign policy: Greece hasn't had a foreign policy to deal with its most intractable problems since New Democracy came to power. We need strategies to bring the Former Yugoslav Republic of Macedonia and Turkey to the negotiating table. Both have chosen to let our differences, respectively over the republic's name and over the Aegean continental shelf and airspace, to fester. That is not in Greece's interest in the long term, because it is the Greek position that will become eroded and the challenges that will become more established.

Athens also needs to adopt a clear position in preparation for renewed efforts next year towards a political settlement on Cyprus. Greek-Cypriots will ultimately decide their fate, but they need to negotiate the outcome rather than wait for a risk-free solution on a plate. Karamanlis' fence sitting three and a half years ago allowed Cypriot President Tassos Papadopoulos to cross his arms at the negotiating table, delivering to Turkey its first diplomatic victory on Cyprus in thirty years. 

5. Global warming and desertification: If current warming trends continue, Greece will face a real threat of desertification. The water table is falling rapidly in many parts of Greece and forests are vulnerable to fire because of dehydration and global warming.

We have enough water to grow crops responsibly, but not enough to overproduce. The Common Agricultural Policy, which has encouraged quantity over quality, is at the beginning of its end. New Democracy has said it wants to re-train farmers in sustainable methods, but hasn't pushed the agenda; nor has it re-oriented them into service professions. Instead, Public Works minister George Souflias is well on his way to recreating the Aral Sea disaster by diverting a river for irrigation of cotton farms.

New Democracy is also failing to do all it can to counteract the effects of global warming. A long-term strategy must include the reduction of carbon emissions. On paper Greece is set to meet its EU commitments to generate a fifth of all power from renewable sources by 2010, but that is mostly thanks to decades-old investments in hydro-power. The Public Power Corporation should no longer be suffered to run Europe's dirtiest and fifth-dirtiest power stations, as ranked by the World Wide Fund for Nature.

The environment has proven New Democracy's blind spot. It is highly doubtful whether they will re-train farmers, stop the Acheloos river diversion or re-design the PPC's business plan around renewables.

6. Labour, administration and meritocracy: Greek society is divided into two separate realities. In the public sector there is appointment for political loyalty, tenure regardless of performance, high benefits, low working hours and inflexibility due to unionisation. The opposite is broadly true of the private sector, which offers better services for less and pays the public sector's bill. To varying extents this is true in every country, but it is true to an egregious extent in Greece, and here the public sector lacks the boon of a marketable training.

As the state loses control of the economy (it has fallen to just below 50 percent by the development ministry's reckoning) this inequality becomes untenable. Societies that reward merit grow stronger because they bring competence up the hierarchy and solve problems sooner rather than later. Having witnessed the failure of the system of overprotection to make them happy, Greeks are ready for more accountability.

If New Democracy shows the mettle to tackle the greatest problems, and an openness to bipartisanship, they will stand a chance for re-election based on their courage. If they do not, their days are numbered, because voters are aware that mere management is no longer enough to keep Greece abreast of competition.

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