Tuesday, 10 June 2014

Sweeping reshuffle punishes ministers for lack of growth and hope

The Greek government announced a sweeping reshuffle on Monday, replacing the finance minister and seven other ministers, and retiring all but one.

The reshuffle comes in the wake of a poor showing in European Parliament elections two weeks ago, in which the left wing opposition topped the conservative and socialist coalition by four points.

It also comes almost exactly two years since the coalition came to power promising growth, but implemented cutbacks amid continued recession. The Greek economy lost about a tenth of its size in that period.

Prime Minister Antonis Samaras called the new cabinet a "completely new formation". Swearing-in ceremonies were planned on Tuesday afternoon.

The opposition left Syriza party issued a statement saying, "Nobody believes that the reshuffle will affect today's policy... what the country needs... is a government that will stop acting as a local enforcer of creditors' interests."

There was no immediate comment from the departed seven: finance minister Yannis Stournaras, development minister Kostis Hatzidakis, interior minister Yannis Mihelakis, education minister Konstantinos Arvantitopoulos, health minister Adonis Georgiadis, culture minister Panos Panayotopoulos and government spokesman Simos Kedikoglou. Public order minister Nikos Dendias was moved to development.

Stournaras was a technocrat whose departure to pursue the post of governor of the central bank was widely speculated upon. His tenure has been a success in terms of balancing the budget last year, and even producing a surprise 2.9bn euro surplus. He managed to oversee the first multiple-year bond sale in four years in early April. However the pain of squeezing enough taxes out of a recessionary economy to produce that result produced widespread criticism of the government.

Hatzidakis made no discernible impact as development minister - a liability for a government that came to power promising growth over austerity. His one legislative effort, a fast-track bill for starting new businesses unveiled with great fanfare in February, was put under wraps again following a period of public consultation and never re-emerged.

The Hellenic Federation of Enterprises, Greece's industrial chamber, found last February that Hatzidakis had done almost nothing to eradicate more than 171,000 laws, ordinances and regulations hamstringing free enterprise.

Growth is expected to return to Greece this year (the budget predicts 0.6 percent) but that is not attributed to Hatzidakis.

The post was a tough one to begin with. Greece has suffered a cumulative 25 percent recession in the last six years. Early figures suggest that the recession is slowing faster than expected, to -0.9 percent in the first quarter against a forecast -1.1 percent. And the Greek branch of Manpower, the recruiting agency, expects an eight percent growth in employment in the third quarter, the strongest forecast since 2008.

"The government at least recognises mistakes and injustices," wrote Vasilis Korkidis, president of the National Confederation of Greek Trade. "The government must address overtaxation, the settling of market debt, liquidity, social security, the restarting of a social dialogue and the establishment of a just and friendly business environment."

Georgiadis proved surprisingly competent in cutting healthcare and pharmaceutical spending by at least two billion euros over two years (about a third of the ministry's budget) without suffering a complete collapse of public healthcare, but long strikes by pharmacists and doctors led to shortages of medicines and long queues at clinics. During his tenure he managed to create a network of primary healthcare centres to relieve hospitals, but most of his energy was spent simply maintaining system functionality. His departure may have had less to do with inefficiency and more to do with his association with austerity.

Arvanitopoulos also oversaw an unprecedented reduction in education spending - amounting to 40 percent of the higher education budget alone - and was associated with austerity. He, too, was plagued by strikes by middle and high school teachers and almost daily demonstrations against cutbacks outside his ministry. But he also came in for criticism for an uneven implementation of a 2011 law introducing more transparent governance in universities and polytechnics.

Kedikoglou's fate was probably sealed on June 11 last year, when he announced the closure of public television. It has been seen as one of the government's worst mistakes, producing international criticism as a move against freedom of speech. The government eventually replaced the public broadcaster but it was months before it could produce current affairs content again. This, together with the prosecution of an independent publisher have tarnished the conservatives' image as pursuing a more closed society.

Dendias was initially seen as a success for clearing undocumented migrants off the streets and putting them into detention centres. Rising unemployment and crime attributed to economic migrants were seen as problems of the first order when the government came to power in 2012. He also oversaw the creation of an efficient new asylum service to cope with a stream of political refugees from war-torn regions in Africa and the Middle East. However, he is seen as the mastermind behind a conservative plot to destroy the far-right Golden Dawn politically by prosecuting them legally as a criminal organisation. If such a plot ever existed, it clearly failed. Golden Dawn raised its share of the popular vote by a third to take 9.4 percent in Euroepan elections. 

Whither the economy? 

Gikas Hardouvelis comes to the finance portfolio with crisis experience. He was the key economic advisor to prime minister Loukas Papademos in November 2011-March 2012, when politicians briefly lost control of the government and the former central banker was sworn in as premier. Papademos and Hardouvelis steered Greece through its darkest crisis period, when its exit from the Eurozone was at its most likely. They negotiated a 103bn euro writedown of debt in the private sector, and a second facilitation loan worth 170bn euros, of which 48bn was earmarked for bank recapitalisation. This job done, they handed power to an interim government which oversaw back-to-back elections in May and June. 

Hardouvelis was borrowed from Eurobank, where he served as chief economist for a decade. He now faces a new slate of problems. The International Monetary Fund said in its fifth review released on Tuesday that "a number of challenges remain to be overcome before stabilisation is deemed complete and Greece is on a sustained and balanced growth path." It listed those problems as weak exports, a "mountain of bad debts" in high street banks, fiscal gaps in state financing in 2015-16 and a public debt that "remains very high."  

In his last interview with Al Jazeera last September, Hardouvelis said that the debt acted as a deterrent to investment in an economy that was undercapitalised. He saw Greece's best chance of reversing this in a debt-equity swap. 

"We owe at this stage over $288bn to our European partners, and everybody is asking how to get rid of that wolf that scares investors. The best way to do it is to say, ‘let’s swap debt for equity, and come in and invest’. Land is the easiest thing to do… take a rocky island for 100 years... I don’t see any other solution." 

That debt has now risen to over $400bn. Paying it down would take a lot of land. 

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