The New Athenian

Papandreou in DC after Berlin, Paris

2010-03-08T09:51:00.004+02:00

In DC on Monday:
The head of the International Monetary Fund believes Greece will resolve its debt crisis without an IMF bailout, and today dismissed fears that other European nations will be engulfed by the crisis. "The eurozone wants to deal with the problem itself, and I can understand that," Dominique Strauss-Kahn said. "I think they can do it … and we're just here to help."
http://www.guardian.co.uk/business/2010/mar/08/greece-will-come-through-crisis-imf
In Paris on Sunday:
At a joint press conference in Paris, Sarkozy expressed his unequivocal solidarity with Greece, saying that his finance minister, Christine Lagarde, had already drawn up legislation to help the European Union's most indebted member extricate itself from its worst fiscal crisis in decades.
"Should Greece need financial help, the eurozone will stand by it," the French president said. "That's what partners are for."
http://www.guardian.co.uk/business/2010/mar/07/nicolas-sarkozy-support-greek-economy
In Berlin on Friday:
Angela Merkel, the German chancellor, on Friday pledged to do “everything in order to stabilise the euro, our common currency”, after meeting George Papandreou, the Greek prime minister.
http://www.ft.com/cms/s/0/f635351e-287c-11df-a0b1-00144feabdc0,dwp_uuid=2b8f1fea-e570-11de-81b4-00144feab49a.html

Thank you!
The New Athenian started in August 2009 as an experiment in whether an online venue could build up visitors without money or mass advertising. It has been promoted solely through a periodic round-robin email to 1,200 recipients, a few sites that have chosen to link to it and word of mouth.

Your visits to The New Athenian have helped drive the site to its highest numbers yet for the month ending March 7:

935 unique visitors
1,576 visits
2,145 page views
44 countries
1:08 minutes average times on site
46 percent new visits
89 members

Greek protests turn violent

2010-03-05T16:42:00.003+02:00

What started as a peaceful protest march turned suddenly into a pitched battle between riot police and a small group of protesters in central Athens. Police say the group emerged from a section of the march sponsored by the Left Coalition, a breakaway communist party that has been accused of giving safe haven to anarchists. The group set upon about a dozen riot police guarding the Council of State, one of Greece’s highest courts. Witnesses say they managed to isolate and badly beat up one officer. They also tore up marble steps for ammunition, and smashed plate glass windows on central avenues. A strike today shut down schools and hospitals, state media, public transport and at least one ministry. Flights were grounded for four hours. Labour unions and left wing parties, responsible for the protests, are scheduling more strikes against what they see as one-sided deficit-reduction measures victimising workers.

View the Irish Times article.

New austerity measures bite the Greeks

2010-03-04T11:45:00.022+02:00

THE GREEK government says it will effectively axe one in 14 annual salaries from the public payroll and raise VAT as part of an ongoing effort to cut its budget deficit by four points in 2010.

Public servants have gone on strike twice this year, complaining that a 10 per cent cut in their benefits already amounted to the loss of one salary. Yesterday those benefits, which can sometimes double nominal salary, were cut by a further two percentage points. Pensions are being frozen.

Greece has pledged to bring its deficit to 8.7 per cent of GDP in 2010 and was under pressure from the European Union in recent days to make good a €4.8 billion shortfall in its initial plan.

Half of the pain is in public-sector cuts, but the other half is in new revenue. This comes in part from higher value added tax, the top bracket of which now rises from 19 to 21 per cent. Inflicting further pain on household budgets will be a 10 cents a litre hike on unleaded fuel, a 65 per cent consumer tax on cigarettes and a further tax hike on alcohol. Even electrical power will suffer a fee of €5 per megawatt hour.

Preparing public opinion for the latest tranche of measures on Tuesday, prime minister Yiorgos Papandreou said: “We are today in a state of war against the worst-case scenario for our country.”

That scenario, by his description, was a cost of borrowing so prohibitively high that the state would be unable to pay salaries and pensions, which represent 52 per cent of its outlay. “Today, when we borrow €5 billion, we pay €750 million more than Germany does in interest,” Mr Papandreou said. “How can we ever compete with the German economy?”

He is facing increasingly stiff opposition at home, however. These measures would deepen the recession, said conservative leader Antonis Samaras, who rejected the salary cut and VAT and fuel tax rises. He accused Mr Papandreou, who came to power in October, of waiting five months to cut the cost of government.

If he had acted sooner, he said, the cuts would have been softer and less painful. The government’s indecisiveness was expensive.

The governing council of the European Central Bank (ECB) and European Commission chief José Manuel Barroso backed the new measures, each of them underlining the importance of public-sector pay cuts.

In a statement last night, the ECB’s policy-making body said it welcomed the “convincing additional and permanent” measures and said it appreciated that Mr Papandreou’s administration planned to implement them very swiftly.

“Importantly, cutting public expenditure and adjusting public sector wages is a key signal both for the long-term fiscal sustainability and for substantially enhancing the price and cost competitiveness of the Greek economy,” the council said.

Read the full version of this story in The Irish Times.

The full tranche of yesterday's measures is as follows:
1. New revenue
- VAT (or sales tax) rises from 4.5 percent to 5 percent, from 9 percent to 10 percent and from 19 percent to 21 percent, to bring in 1.3 billion euros.
- A series of consumer taxes aim to bring in a further 1.1 billion euros, including:
     - 8 cents on the litre for regular unleaded fuel, and 3 cents for diesel (heating oil remains as is)
     - Tax on cigarettes rises from 63 percent to 65 percent
     - Tax on alcohol rises to 20 percent
     - The Public Power Corporation loses its exemption from tax on oil, and a new consumer tax is levied on electric power
     - Cars with a retail value above 35,000 euros, pleasure craft, private helicopters, precious stones and metals and furs and leather will sustain a new luxury consumer tax

Total new revenue: 2.4 billion euros

2. New cost cuts:
- Public sector Easter, summer and Christmas bonuses are cut by 30 percent. These three bonuses amount to two monthly salaries, so public servants lose 60 percent of their 14th salary.
- Benefits above salary to public workers are cut by 2 percent, further to the 10 percent cut announced last month
- The salaries and benefits of all employees working in state-owned or state-controlled companies is cut by 7 percent across the board
- Pensions are frozen
- The state will reduce its outlay to the pension funds of the Public Power Corporation (DEI) and the Hellenic Telecommunications Organisation (OTE) by 10 percent
So far, the measures save 1.7 billion euros.
- The public investments programme is cut by 500 million euros
- The public investment programme in education is cut by 200 million euros

Total savings: 2.4 billion euros

Key 10-year bond sale goes well
Greece's sale of a 5 billion euro bond issue was going well on Thursday, a day after the austerity measures were announced, with the FT reporting an oversubscription of 2 billion euros.

Ireland overhauls pensions radically
Ireland has just announced an overhaul of its pension system that includes many of the ideas currently being discussed in Greece. The retirement age will rise to 66 in four years' time, and eventually to 68. Pensions will be calculated on average career earnings, not just the last few years of work. And young entrants into the labour market will be obliged to participate in a second pillar scheme in the private sector, where they will contribute four percent of salary, their employer two percent and the government two percent.While the state pension plan will remain a defined-benefits plan, with the state guaranteeing 35 percent of average industrial earnings, the private scheme will be a defined-contribution one where benefits may fluctuate according to fund earnings.
Read the full story in The Irish Times.

Further austerity announcements expected tomorrow

2010-03-02T10:16:00.001+02:00

Following yesterday's announcements by European Monetary Affairs Commissioner Olli Rehn, the Greek press awaited tomorrow's new austerity announcements. To Vima carried a story predicting a 20 percent cut to above-salary benefits, which will be equivalent to a whole salary, for government employees. It also predicts a fuel, alcohol and tobacco hike. Employment Minister Andreas Loverdos has already frozen pensions for three of the largest funds.

http://www.in.gr/news/article.asp?lngEntityID=1111847&lngDtrID=244
http://www.kathimerini.gr/4dcgi/_w_articles_kathremote_1_02/03/2010_325994

Further austerity measures in sight for Greece
European Monetary Affairs Commissioner Olli Rehn yesterday called on Greece to implement further measures to ensure its deficit reduction target of four percent this year.

“The measures outlined in the Greek stability plan over January and February certainly go in the right direction, but … additional measures of fiscal consolidation are necessary so that the deficit reduction target for this year can be met,” Rehn told journalists in Athens. He described meeting this target “the one single most important thing for the moment”.

Greece has pledged to reduce its yawning 2009 deficit of 12.7 percent of GDP to 8.7 percent this year. It has so far reduced public salaries by 4-6 percent and raised petrol tax. But EU, European Central Bank and International Monetary Fund auditors who visited the Greek finance ministry last week reportedly found a 4.5 billion euro shortfall in the execution of the stability plan.

Even after implementing the first tranche of measures, Greece came away empty-handed from an informal European Union summit in early February to discuss a possible aid package. Asked repeatedly whether the EU was considering a a financial assistance package, Rehn said cryptically, “We are ready to put in place a plan for co-ordination and the euro area has the means to ensure the stability of the euro area as a whole.” He flatly denied that Prime Minister Yiorgos Papandreou and senior cabinet members, whom he met, had asked for “direct financial support”.

France and Germany are reportedly working on extending to Athens loan guarantees or bond purchases, but only in the event that Greece cannot sell its bonds on international markets.

The further austerity measures, due to be announced later this week, could take several forms. For the general public, the government is widely expected to escalate last month’s petrol tax hike. It is also reportedly mulling over a VAT increase. For public servants, who last week went on strike in protest at the especial pain reserved for public servants, there could be another cut in benefits above salary. Those benefits can add between 30 and 90 percent of salary over again. On Greek talk shows there is panicked discussion of the possible elimination of the Christmas bonus from government salaries.
In the longer term, the government is under pressure from the European Union to reform its pension entitlements. Greece is an ageing society, with 2.7 million retirees supported by 4 million workers, one quarter of whom work for the government and whose salaries are thus tax-supported.

Many Greek commentators have decried the lack of more concrete support to Greece as a lack of solidarity. “The euro is based on solidarity that goes both ways,” said Rehn. “It is based on respect for the common rules. No member of the euro can live permanently beyond its means. Either you control your debt or your debt starts controlling you.”

You can read this story in the Irish Times.

2010-03-01T10:12:00.003+02:00

Greece begins to undertake further austerity measures
Employment Minister Andreas Loverdos has announced a zero percent raise in pensions this year for 2.7 million retirees, according to Greek press reports. The measure would apparently save the government half a billion euros this year, but the money is unlikelty to go towards holding down the deficit because of health cost overruns.

According to news reports, European Union auditors who visited the finance ministry last week found a 4.5 billion euro shortfall in the execution of the Greek stability plan, which aims to reduce the deficit by four points this year to 8.7 percent of GDP. They are reportedly asking for the equivalent amount in further public cost cuts.

Those further cuts are likely to come in the form of another cut to benefits above salary and suspension of the Christmas bonus for public servants, another fuel tax hike, a VAT hike and a social security adjustment to keep pension costs from rising as a proportion of GDP over the next two decades. The measures as likely to be finalised today following a visit by European Monetary Affairs Commissioner Olli Rehn to Athens to see Finance Minister Yiorgos Papakonstantinou and Andreas Loverdos.
http://www.enet.gr/?i=news.el.politikh&id=136587
http://www.in.gr/news/article.asp?lngEntityID=1111178&lngDtrID=244
http://www.kathimerini.gr/4dcgi/_w_articles_kathremote_1_28/02/2010_325782

The EU assistance thriller over Greece begins to move towards resolution
The Financial Times reports that European leaders are minded to extend Athens financial assistance in the form of loan guarantees or bond purchases but only in the event that Greece cannot sell its bonds on international markets. This is a big improvement on the sentiments being expressed to journalists a week ago, which were that Greece would have to tie its own shoelaces. Greece must sell a 5 billion euro bond this week, which markets see as a critical test of its creditworthiness. And it must refinance 22 billion euros' worth of debt by the end of May.
http://www.ft.com/cms/s/0/f793a8a0-249e-11df-8be0-00144feab49a.html
http://www.ft.com/cms/s/0/a7a677d8-230d-11df-a25f-00144feab49a,s01=1.html
Hedge funds have made money betting on Greece's crisis, the FT reports.

http://www.ft.com/cms/s/0/a6b71b50-249f-11df-8be0-00144feab49a.html

History written in the ink of disobedience

2010-02-25T16:04:00.010+02:00

GREEK WORKERS took to the streets yesterday as they began to feel the bite of new taxes on fuel, alcohol and tobacco.

They are also worried that the government is about to raise the retirement age and reduce benefits to pull back social security from bankruptcy.

“What will happen to pensions?” asked Fotis, a 60-year-old worker at the Hellenic Telecommunications Organisation, one of roughly 25,000 people who took part in a protest march that brought central Athens to a halt. As an employee of Greece’s telecoms behemoth nearing retirement he should feel secure, but does not: “If the country goes bankrupt who will pay us our pensions? And what will happen to the young?” he asks.

The public sector is especially unhappy. Its one million employees – a quarter of the national workforce – have already taken a roughly five per cent pay cut, and that is expected to double next week. On top of this, the deputy prime minister has intimated that the lifelong tenure that makes public sector jobs so sought after may be up for discussion.

“We are striking because the government is going to cut our salaries,” said Vasiliki Revythi (56), who works at the National Pharmaceutical Organisation – the approval body for medicine in Greece which sets price ceilings.

She is one of the public sector employees who’ve already seen their above-salary benefits reduced, and insists she is not privileged. “I am a biochemist with a PhD; I have 35 years of work behind me. I am a manager, and I get €2,500 [a month]. Salaries are low in Greece. It’s not like Ireland.” Ms Revythi believes the government is leaning on salaried employees as it does not have the means to go after tax evaders.

“Companies should also pay. We know they evade taxes and social security payments. And we should find the people who put Greece in deficit. They must have siphoned money off to Swiss accounts. We should bring that money back.”

These sentiments are expressed more radically by Greece’s communist party, whose cheerleaders were at the head of waves of unionised strikers chanting slogans through megaphones. “No sacrifice for the plutocracy,” said one.

“History is written in the ink of disobedience,” beckoned another.

Organised labour, with left-wing parties, which claim about 12 per cent of the vote in Greece, have often succeeded in stifling social and economic reform.

Yannis Stournaras, the chief economic adviser to the socialist government that put Greece in the euro zone in 2001, doesn’t believe they will pull it off again. “This is a strike which is led by public sector unions. I think it is against the feeling of the average Greek, who sees the spectre of bankruptcy and wants to avoid it. So I don’t think these strikes will continue. I think it’s a one-off and will evaporate.”

Another threat to the government comes from its widening rift with the conservative opposition. The ruling socialists recently decided to call a parliamentary committee of inquiry into the conservatives’ six-year mismanagement of the economy from 2004-2009 as a way of winning support for austerity. But many observers believe this will backfire by killing any hope of consensus at a time of national emergency.

The socialist government is in a race against financial markets to cut the budget deficit by four points this year. If it fails, policymakers fear the markets could fail to refinance €20 billion in debt due this spring. That could have a knock-on effect on the 15 EU countries that also share the euro.

This story was published today in The Irish Times.
You can also hear today's NPR report online.

Greece suffers further credit downgrades
Financial Times: "The Greek bond markets fell sharply on Thursday after the second ratings agency in as many days warned that the country’s long-term credit ratings could be downgraded.
Greek two-year bond yields, which have an inverse relationship with prices, rose nearly half a percentage point following warnings from Standard & Poor’s on Wednesday and Moody’s Investors Service in the early hours of Thursday morning."

As the FT reports, four Greek banks have also suffered a downgrade due to their exposure to Greek bonds.
"Greek banks came under further pressure on Tuseday after Fitch Ratings downgraded the credit ratings of the country’s four largest banks on expectations that the real economy will worsen further as a result of the tough fiscal measures the government must take.
Ratings on the National Bank of Greece, Alpha Bank, EFG Eurobank Ergasias and Piraeus Bank were lowered by one notch to BBB – just two notches above junk."

Pangalos lashes out at the EU
Deputy Prime Minister Theodoros Pangalos told the BBC he did not think that today's European leaders were up to snuff compared to the leaders of the 1980's. "This is another level of leadership which we don't have today. The quality of leadership today in the union is very, very poor indeed," he said.

He also accused the Germans of destroying the Greek economy during World War Two.
"They took away the gold that was in the Bank of Greece, they took away Greek money, and they never gave it back. This is an issue that has to be faced sometime in the future," he said.

2010-02-23T10:30:00.002+02:00

Greece's new witch hunt begins
In December 2004, before they had completed a year in power and just after they had got the Athens Olympics out of the way, the conservatives launched a parliamentary committee of inquiry into socialist defence procurements. The socialists are now doing the same. Last night, the government of Yiorgos Papandreou introduced a motion to launch an inquiry into conservative financial mismanagement over the past six years.

The inquiry is sure to end the vague consensus that has so far existed between government and opposition on the economy. Last week, in expectation of the launching of this inquiry, the conservatives began to distance themselves from government policy by issuing a list of 23 economic development policy points they believe need to be immediately implemented.

Conservative opposition leader Antonis Samaras followed up with a fiery speech on Sunday to his party's congress. He echoed much of the socialist pre-election platform, advocating a new economic revolution on the back of renewable energy, and spoke of releasing the dynamic Greek spirit much as Papandreou had done.

The government's response has been to escalate the tension further. The government spokesman said yesterday that "we realised yet again how much hypocrisy there is in the words of the leadership and members of New Democracy." Deputy Prime Minister Theodoros Pangalos called Samaras' warnings of new humiliation for Greece through the revelations of the committee "nonsense".

These latest exchanges confirm what has been apparent since Papandreou announced his intention to call the inquiry a week ago, that the gloves are off and the domestic political scene will now enshrine the traditional acrimony that has bedevilled any attempt at long-term policymaking in Greece for decades.

See the story in The Irish Times.

Goldman banker critical of Greek transparency, but defends deal
The BBC and Financial Times today generated diametrically opposite headlines from the same story. Goldman Sachs chairman Gerald Corrigan told a UK parliamentary committee of inquiry that Greece's 2001 credit swap was in keeping with standard practice at the time, but that further controls should have been implemented internationally.

The Financial Times led with the banner headline, "Goldman Banker Hits at Athens Swaps". It hangs the title on Corrigan's statement that, “with the benefit of hindsight . . . the standards of transparency could have been and probably should have been higher”.

The BBC billed the story "Goldman defends Greece debt swaps" and led with Corrigan's statement that the swap "was "consistent" with the regulations of the time."

Corrigan was commenting on a swap that took place in 2001 to help defer public deficit after Greece's entry into the eurozone. Goldman Sachs posted the following details of the transaction:
“In December 2000 and in June 2001, Greece entered into new cross-currency swaps and restructured its cross-currency swap portfolio with Goldman Sachs at a historical implied foreign exchange rate,” the statement says. “These transactions reduced Greece’s foreign-denominated debt in euro terms by €2.367bn and, in turn, decreased Greece’s debt as a percentage of [gross domestic product] by just 1.6 per cent, from 105.3 per cent to 103.7 per cent.”

http://www.ft.com/cms/s/0/9899dccc-1fe2-11df-8deb-00144feab49a.html%20%20
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/8529111.stm

Greece threatens the entire EU project

FT comment by Gideon Rachman: "The risk for Europe now is that if the EU does not move forward politically in response to the Greek crisis, it will move backwards – and the long process of European integration could start to unravel."

http://www.ft.com/cms/s/0/c5aadd7e-1fe7-11df-8deb-00144feab49a.html

Let the Greeks ruin themselves

The Economist carries out a political analysis of why there is such strong opposition within Germany to further assistance to Greece: "A domestic row over welfare makes charity for foreigners a still more awkward subject. This month the constitutional court ruled that the government had erred in setting benefits for the main welfare programme, called Hartz IV. It has until the end of the year to come up with a new formula, which may cost more money. Guido Westerwelle, the FDP leader, lamented the “late Roman decadence” of a society that treats welfare beneficiaries more generously than workers. His outburst, in turn, annoyed Ms Merkel. “I can’t explain to someone on Hartz IV that we can’t give him a single cent more but that a Greek gets to retire at 63”, said Michael Fuchs, a CDU leader in the Bundestag."

http://www.economist.com/world/europe/displaystory.cfm?story_id=15549449

The Greek deficit crisis in the media

2010-02-22T14:47:00.002+02:00

Germany denies loan plans for Greece
A German finance ministry spokesman denied a report today that Germany was thinking of extending loans and loan guarantees to Greece worth 4-5 billion euros. The denial came on the tail of a report in Der Spiegel magazine that Greece's European partners were mulling over a 20-25 billion euro line of credit, citing German finance ministry sources.
http://www.in.gr/news/article.asp?lngEntityID=1109211&lngDtrID=251

'Greece seeks good interest rates, not bailout'
Greek Prime Minister Yiorgos Papandreou wants political support and help from his European partners to borrow money at rates enjoyed by other, less-indebted countries, he recently told the BBC's Andrew Marr show, but denied that Greece was looking for a bailout.

"We don't have at this point a need for borrowing. Our borrowing needs are covered until mid-March. What we're saying is simply that we need the help so we can borrow at the same rate at other countries, not at the high rates that undermine the possibility for making the changes [to Greece's deficit]," Papandreou said.
http://news.bbc.co.uk/2/hi/business/8526736.stm

ECB 'lacks imagination'
Deputy Prime Minister of Greece Theodoros Pangalos says that the European Central Bank lacks the imagination to support Greece in an interview to the Sunday edition of To Vima yesterday. That support, he says, could simply take the form of the bank buying Greek bond issues and pitting itself against hedge funds that drive interest rates up. "Just as they gamble, so should the ECB," says Pangalos. "A bank that bought Greek bonds with spreads at their highest point would make money. But they don't do it."

Pangalos ruled out the possibility of Greece electing a bailout from the International Monetary Fund, which would provide credit at cheaper rates than financial markets. "There is no possibility of that," he said. "We are in the European system. This is a strategic choice... But that doesn't mean we can't say to a European partner, 'Look here, I'm doing for you everything the IMF would ask me to do, and you won't perform for me a single anti-speculative gesture'."
Full interview: http://www.tovima.gr/default.asp?pid=2&ct=32&artId=316300&dt=21/02/2010

The euro will face bigger tests than Greece
Financier and investor George Soros writes in today's Financial Times that a eurobond should be instituted for Greece and other eurozone countries whose debt matures. This is both in order to provide less expensive financing than is available in money markets, and in order to build the political unity on which monetary union is predicated.

"A fully fledged currency requires both a central bank and a Treasury," Soros writes. "The Treasury need not be used to tax citizens on an everyday basis but it needs to be available in times of crisis. When the financial system is in danger of collapsing, the central bank can provide liquidity, but only a Treasury can deal with problems of solvency. This is a well-known fact that should have been clear to everyone involved in the creation of the euro."

http://www.ft.com/cms/s/0/88790e8e-1f16-11df-9584-00144feab49a.html

Domestic opposition to Greece's austerity plan rises

2010-02-19T13:59:00.000+02:00

The conservative New Democracy party yesterday published a list of 23 steps it considers immediately necessary to give the economy breathing room and prevent the austerity plan from flattening it beyond repair. "The government's plans are one-sided," the party statement said. "They focus exclusively on the fiscal problem, ignoring the necessary stimulation of the economy, without which unemployment will rise enormously. We also need countermeasures to stimulate demand."

Among New Democracy's proposals are the following:
- Shift Greece's participation in EU co-funded projects to 2013, which is the end of the current financial period, to give state coffers a reprieve and allow infrastructure projects to continue on EU funding alone
- Accelerate the approval of new infrastructure projects
- Accelerate concession projects (eg. toll roads)
- Accelerate public-private partnership (PPP) projects
- Exhaust loan possibilities from the European Investment Bank (EIB)
- Carry through a conservative initiative to expand regional airports as concession projects
- Carry through a conservative initiative to expand the fibre optic network to homes as a PPP
- Fulfil the 2009 law setting up investments through Invest in Greece S.A.
- The state should pay off its debts to private contractors and move money into the system
- Set up industrial parks envisioned by New Democracy
- Promote competition
- Remove bureaucratic obstacles to enterprise creation
- Approve measures to promote the liquidity of small and medium-sized enterprises
- Promote construction by subsidising new housing loans
- Promote the conversion of buildings to energy efficiency
- Promote tourism by opening up the cruise shipping market to European competition
- Expand and improve island harbours to better handle passenger shipping

The conservatives' emphasis on development is in stark contrast to the government's emphasis thus far on fiscal discipline. The government took a step towards addressing this imbalance yesterday, when it announced a 1.5 billion euro green energy development plan.

Stability plan approved, further austerity in sight

2010-02-17T11:38:00.032+02:00

Cracks appear in Greek-EU consensus, and political partisanship stirs at home

Yesterday's ecofin (European Union economy and finance ministers) council definitively approved the Greek stability plan entailing a four percent cut in the budget deficit this year, to bring it to 8.7 percent. But the mood in Brussels is still in favour of further cuts, Greek newspapers report. Ta Nea suggests that Greece is under pressure to save three billion euros above current projections this year, through measures that may include mass layoffs of civil servants and elimination of 13th and 14th salaries which represent Christmas, Easter and summer bonuses.

The latest ecofin council in combination with last week's EU emergency summit have seen Greek-EU relations turn a corner. Whereas Prime Minister Yiorgos Papandreou, Finance Minister Yiorgos Papakonstantinou and the eurogroup until now reinforced each other in pushing for austerity measures, a difference in emphasis now seems to be emerging, with Athens fearing that further cuts in salaries and benefits, and mass layoffs in the public sector, could flatten the already fragile Greek economy. The Stability Plan is up for review on March 16, only a month from now. The government now seems to be weighing the option of an appeal to the International Monetary Fund against carrying out further EU commandments come spring, newspapers report. Kathimerini reports that the European Central Bank is pressing for a 5.25 percent deficit reduction this year, which represents a major revision of the 2010 budget approved by Bryussels. Some observers of the Greek economy fear that it will shrink by more than the projected 0.3 percent, making it necessary to adjust the deficit reduction proportionally to GDP.

The finance ministry recently reported a good budget performance for January (it has promised a monthly performance review) thanks to an extraordinary tax on companies making more than five million euros in profits in their last tax return. It also reports a 10.6 percent reduction in expenditure, overshooting the monthly target.

Nonetheless, the harshest measures so far, officially announced on February 9, to reduce public sector above-salary benefits by 10 percent, which is effectively a 4-6 percent public wage bill reduction, seems to be inadequate to satisfy Brussels. This and a new tax bill, which includes higher fuel tax, are included in the Stability Plan.

Another qualitative difference this week comes on the domestic political scene. Thus far, conservative opposition leader Antonis Samaras has sounded concessionary on the economy, not wishing to replicate Papandreou's record of undermining consensus, while pitching battles on more ideological issues such as the immigration bill and public order.

That may be about to change. Yesterday the socialist government announced that it would seek a parliamentary committee of inquiry into the figures sent by the National Statistical Service to the European Commission in the years of conservative rule, 2004-2009. The conservative opposition now wants to extend that committee's scope of inquiry backwards to 1981, when the socialists first came to power and began running up high deficits and debt.

It is a stock-in-trade argument in Greek politics to fiddle with the temporal scope of an inquiry. New governments typically want to chastise predecessors, who in turn argue for a massively expanded scope in order to dilute their liabilities. But in the highly inflammable situation the government now faces, this perfunctory argument is no longer perfunctory. It could become the excuse for a parting of the ways, and make Prime Minister Yiorgos Papandreou's job a great deal harder than it already is.

The Goldman deal
Greece's media have been animated by the revelation by the New York Times last week that the socialist government that put the country in the eurozone in 2001 hid some of its sovereign debt in a currency swap arranged by Goldman Sachs. The Financial Times today explains how the deal worked and reveals that the Greek debt management agency paid 200 million euros in fees for the arrangement:

"Bankers and officials say the swaps were legal, that they were in line with EU accounting rules that prevailed at the time, and that similar transactions had already been arranged between investment banks and other southern eurozone countries including Italy and Portugal. The nature of the Goldman deal was, however, that it remained out of public view and did not show up on Greece’s balance sheet until the following year, when the country’s debt-to-GDP ratio fell from 105.3 per cent to 103.7 per cent."

Comment: The FT's senior analyst, Martin Wolf, draws a distinction between the US deficit, which is a temporary phenomenon in hard times, and the Greek, which requires fiscal tightening. The US can afford to spend its way out of the crisis via stimulus, Wolf argues, while Greece cannot.

Today's Greek news

2010-02-16T13:13:00.027+02:00

Strikes begin in earnest
The squeeze on Greek state employee incomes through a ten percent cut in their above-salary benefits is already producing reactions. Several groups of civil servants are on strike this week (February 16-19), including employees of the finance ministry such as the General Accounting Office and the National Statistical Service. The most worrying action comes from customs officers, who have to clear fuel imports. They will strike for three days, followed by a tanker truckers' strike on Friday. Together the two could produce fuel shortages and bring the country to a halt. The customs union said it would allow through only military and medical supplies and fuel for public transport.

Widespread media reports suggest that the EU is putting pressure on Greece to abolish the Christmas bonus for public servants. The strikers say that they have already forfeited their Christmas bonus (amounting to a full extra salary) and, in some cases, their Easter and summer bonuses (amounting to two extra half-salaries) through a ten percent benefits cut for the public sector announced earlier this month. Any further reduction will eat into their 12-month salary, they say. Another reported emergency measure includes raising VAT by 1-2 points across the board by putting low-category goods into higher categories. The government has so far resisted measures that would indiscriminately affect rich and poor such as increases in VAT, electric power rates and heating oil.

The civil servants' union (ADEDY) went on a one-day pre-emptive strike on February 10. They will join the General Confederation of labour (GSEE) in a one-day strike on February 24. Together the two umbrella unions are the largest representations of organised labour in the public and private sectors, respectively.
http://www.in.gr/news/article.asp?lngEntityID=1106717&lngDtrID=251
http://www.kathimerini.gr/4dcgi/_w_articles_kathremote_1_16/02/2010_323959
http://www.enet.gr/?i=news.el.ellada&id=132236
Finance Minister Yiorgos Papakonstantinou announces the tax measures to Greek media on February 9.
http://www.mnec.gr/el/press_office/DeltiaTypou/dt/dt-2010-02-09_eisodhmatikh.html

Eurozone seeks tougher Greek action
The FT's Brussels bureau chief, Tony Barber, reports that the European Union refused Greece a bailout, and are instead insisting on more measures to curb the deficit this year. Greek Prime Minister Yiorgos Papandreou returned this weekend from an impromptu Brussels summit convened to discuss the eurozone's weaker members, beginning with Greece.

Greece submitted a Stability and Growth Plan in January, detailing how it will reduce the deficit of 12.7 percent of GDP last year by four points in 2010. The EU accepted it on February 2 on condition that further measures were detailed for the likely event that the original package did not hold the line. Greece's progress is up for review at a March 16 ecofin council (the EU finance ministers' forum). At that time further measures could be requested.
http://www.ft.com/cms/s/0/4f1ed35e-1a65-11df-a2e3-00144feab49a.html
http://www.kathimerini.gr/4dcgi/_w_articles_kathremote_1_16/02/2010_323949

Greek newspaper headlines today demonstrate the mood of inevitability in Greece:
"Heavy artillery for new measures" - Eleftherotypia, nominally socialist
"Possible new measures" - Kathimerini, nominally conservative
"We expect further measures from Greece" - Ta Nea, nominally socialist

Hidden debt scandal causes uproar in Greek media
The Greek media are in uproar since yesterday over a New York Times story published on February 13 revealing that Goldman Sachs helped Greece conceal billions of euros in sovereign debt by packaging it in complicated derivatives that do not appear as loans.

The bank sold such a derivative to the Simitis government in 2001, the NYT says, shortly after Greece entered the eurozone: "The 2001 transaction involved a type of derivative known as a swap. One such instrument, called an interest-rate swap, can help companies and countries cope with swings in their borrowing costs by exchanging fixed-rate payments for floating-rate ones, or vice versa. Another kind, a currency swap, can minimize the impact of volatile foreign exchange rates."

What Greece essentially did, the article says, was to mortgage revenue streams: "In Greece, the financial wizardry went even further. In what amounted to a garage sale on a national scale, Greek officials essentially mortgaged the country’s airports and highways to raise much-needed money.

"Aeolos, a legal entity created in 2001, helped Greece reduce the debt on its balance sheet that year. As part of the deal, Greece got cash upfront in return for pledging future landing fees at the country’s airports. A similar deal in 2000 called Ariadne devoured the revenue that the government collected from its national lottery. Greece, however, classified those transactions as sales, not loans, despite doubts by many critics."

The original NYT story by Louise Story, Landon Thomas and Nelson D Schwarz:
http://www.nytimes.com/2010/02/14/business/global/14debt.html?dbk
Eurostat, the EU's statistical agency, has asked Greece to deliver details on currency swaps transacted between 2001 and 2008, which effectively hid some of its sovereign debt.
http://www.ft.com/cms/s/0/cc82f954-1a3f-11df-b4ee-00144feab49a.html

Papandreou to CNN
"In the battle against the perceptions and the psychology of the markets, the EU was timid, at the least," Greek Prime Minister Yiorgos Papandreou said on Saturday in an interview.Returning from a Brussels summit that ran February 11-12, Papandreou demonstrated disappointment with his European colleagues for the first time since coming to power last October. He said Greece was being used as a guinea pig by the EU in this economic crisis.
http://edition.cnn.com/2010/WORLD/europe/02/14/greece.eu.crisis/index.html?hpt=C2

Comment: Greece headed the way of Argentina
The FT's Desmond Lachman believes that Greece cannot achieve retrenchment through austerity, and predicts a breaking off of Greece from the eurozone in two to three years.
http://www.ft.com/cms/s/0/5ffb0694-ff1b-11de-a677-00144feab49a.html?nclick_check=1

Strucutral weakness behind woes in Greece

2010-02-12T11:29:00.002+02:00

UNTIL A few days ago, the key question investors were asking themselves about Greece was whether it can dig itself out of debt. Greece had said it could do so. It submitted a Stability Plan to the European Commission, and just got approval on February 2nd, albeit with caveats about contingency planning.

Many of the austerity measures contained in that plan are still being legislated. They are still a way from being implemented, and even further off from bearing fruit. Prime minister Yiorgos Papandreou confessed that they will only have an effect next year. Until then, markets may not give Greece a chance to keep refinancing roughly €300 billion in debt, forecast at 125 per cent of GDP this year – hence the extra lines of credit under discussion in Brussels.

The Greek plan contains austerity measures that would have been unthinkable before the international economic crisis. For instance, Wednesday’s strike by civil servants was occasioned by a 10 per cent cut in their benefits, which can add between 30 and 90 per cent of nominal salary over again. That amounts to a 4 per cent cut in the public payroll, a significant sum, given that a million out of Greece’s 4.5 million-strong workforce is on the public payroll. But it also dims the socialist party’s election message of hope. Papandreou had promised to raise civil service salaries, which he did initially by 1.5 per cent, only to undermine them. He had also poured scorn on the incumbent conservative warning of a wage and hiring freeze in the public sector. Last week he adopted them, too.

To be sure, it is nothing to Ireland’s 20 per cent cut in civil service salaries, but the Greek public sector is traditionally a milk-fed reserve of party appointees not subject to the hardships of the real economy.

The private sector is bearing its share of the pain, too. Finance minister Yiorgos Papakonstantinou hopes to raise €4.5 billion more than he did last year – a 9 per cent rise, despite a 0.3 per cent drop in GDP, from direct and indirect taxation. He is recalibrating the tax scale to penalise higher earners, and abolishing flat taxes on certain professions and bringing them onto the sliding scale. Fuel, alcohol and tobacco are also going up. However, Papakonstantinou is being careful to leave untouched taxes that might affect the poor, such as tax on heating oil, VAT and electricity rates.

Still, with all this in place, he hopes to raise only €54 billion this year to counter expenditures of €70 billion, borrowing €16 billion in new money, and that’s if things go according to plan.

So why did things spiral so badly out of control? After all, Greece earned membership of the euro zone in 2001 on the basis of three good budgets.

One problem is that Greece’s loss of credibility is partly Papakonstantinou’s own doing. He shocked his euro zone partners when they met for the first time last year. The outgoing conservatives had sent figures a few days before the October 4th election to the effect of a 5.7 per cent deficit for 2008 and a 6 per cent outlook for 2009. Papakonstantinou’s revision was for 6.5 per cent for 2008 and 12.7 per cent for 2009. It was the second time in six years that an incoming finance minister rubbished his predecessor’s figures. Tired of being lied to, the EU demanded that Papakonstantinou make the National Statistic Service politically independent. Legislation for this is under way.

Another reason for Greece’s predicament is that the international financial crisis has revealed structural weaknesses in the economy. It’s not just that the cost of government is too high. It is also that development has been stalled for years because of Greek conservatism, so government revenues have been falling despite a 4 per cent average growth rate from 2000 to 2007. For instance, Greece is paying daily fines of €15,000 since the beginning of the year for ignoring a directive (and European court conviction) on recognising degrees issued by other EU universities. Apart from the social injustice involved to Greek graduates of non-state universities, this is directly tied to a lack of investment in private tertiary education at home. It is also tied to stagnant research and development.

Greece has also forestalled liberalisation of its electricity market, worth about 10 per cent of GDP. This is because of pressure from the Public Power Corporations union, which fears that private generators will lead to attrition in the state sector and render their social security fund insolvent. The implications run deep in this sun-soaked, windswept archipelago. Renewable energy investments and micro-generation have been stymied as a result, and a growth industry kept in the wings.

Other key areas remain effectively locked to private investment. Take transport. Taxis and road freight are closed professions. Non-Greek flagged cruise shipping may not use the Athens port of Piraeus as a base, depriving the islands of much of the benefit of powerful Italian and Norwegian operators. The Hellenic Railways Organisation, a state monopoly, is responsible for about €700 million in state debt each year. All this is against the letter and the spirit of European antitrust and competition directives.

Where Greece did liberalise, notably in banking and telecommunications, the results were spectacular. These areas saw growth, foreign investment and new jobs in the last 15 years, helping to drive much of the economy. For instance, all three of Greece’s mobile telecom licences have traded upwards to be owned by foreign interests (Germany, the UK and Egypt). Some of its banks are strategically partnered with interests in Germany, France and the United Arab Emirates or have themselves acquired targets in the region.

These signs of competitiveness are all too rare in other areas of the economy. Last September Greece dropped in the World Economic Forum’s Global Competitiveness Index from 67th to 71st place among 133 countries, and has been dropping for years. It performs poorly in Transparency International’s Corruption Perception Index, coming well behind the EU15 and even some eastern European members which have been independent nations, free market democracies and EU members for far shorter periods.

The socialist government has shown that it appreciates the deep-rooted nature of the problems Greece suffers from. For now, the government has a fairly free hand. Public opinion polls recently showed themselves in favour of the austerity package by a ratio of two to one. Wednesday’s protest was feeble, given that it came from one of the two largest union umbrella organisations. The other represents private sector labour and is scheduled to hold a one-day strike on February 24th. If the General Confederation of Labour fares similarly, this may be a signal that the reactionary unionism that has for a decade stifled attempts at economic restructuring may be dead.

You can also view this analysis by John Psaropoulos as published today by the Irish Times. To see today's news update on European support for Greece please scroll down to the next post.

Worth reading today

2010-02-12T10:37:00.002+02:00

Brussels stops short of a Greek bailout
European leaders pledged support for the Greek recovery plan at the start of an impromptu Brussels summit yesterday, but stopped short of the full bailout media analysts had led the markets to expect. "we fully support the efforts of the Greek government and their commitment to do whatever is necessary, including adopting additional measures to ensure that the ambitious targets set in the stability programme for 2010 and the following years are met," the statement said. It forecast close monitoring of the plan's implementation together with the IMF, and did not exclude possible additional measures.

Any effect on stock, financial and currency markets is unlikely to show until trading begins today, as the Council's statement was issued after European trading hours.

"We have the will to do everything for Greece to regain its lost credibility and its place in Europe," said Prime Minister Yiorgos Papandreou, blaming the conservative government he defeated last October for the present predicament. "Greece is living through the catastrophic policies of the recent past. We Greeks are experiencing the results of irresponsible policies in our daily lives."

Conservative opposition leader Antonis Samaras expressed gratitude for the European support for the Greek recovery plan, but reserved some criticism for Papandreou. "He is not the most suitable person to talk about integrity and responsibility," Samaras said. "The catastrophic opposition exercised by his party was irresponsible. So was his pre-election demagoguery that 'there is money available'."

The statement by European leaders:
http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/112856.pdf
Yiorgos Papandreou's statement:
http://www.tovima.gr/default.asp?pid=2&artid=314824&ct=32&dt=11/02/2010
Antonis Samaras' statement:
http://www.nd.gr/index.php?option=com_content&task=view&id=58531&Itemid=92
Financial Times cover story:
http://www.ft.com/cms/s/0/d49a915e-173f-11df-94f6-00144feab49a.html
FT's Lex analysis, that Greece should choose an IMF bailout, should it need one, over a eurozone bailout, if the interest rate is lower:
http://www.ft.com/cms/s/3/aa6e752a-1731-11df-94f6-00144feab49a.html

The Greek press reaction
Kathimerini (nominally conservative): "We should pause today and ask ourselves what led us to the brink of bankruptcy and IMF/EU guardianship. The responsibility belongs to politicians who handled the country's finances and behaved irresponsibly and reprehensibly. Personal favours, appoinments, the creation of new public services such as the border patrol, benefits and unjustifiable expenditures sank the country in debt. What is needed now is a new breed of politician who will take unpopular decisions..."
http://news.kathimerini.gr/4dcgi/_w_articles_columns_14_12/02/2010_390556
Ta Nea (nominally socialist): "Yesterday's dramatic confession by Prime Minister Yiorgos Papandreou that 'we handled our finances in such a way as to lose a piece of our national sovereignty' shows the tragic situation in which our country now finds itself. His assertion that the country is now in the most difficult period of its modern history leaves no room to avoid painful sacrifices and new tough measures which are necessary if the country is to regain its prestige and prosperity."
http://www.tanea.gr/ripes.htm
Eleftherotypia (nominally socialist): "Brussels has begun to understand that the problem of Greece, Spain and Portugal is European and therefore these countries must not be left to deal with it themselves without the danger arising of a transmission of the disease to the entire eurozone."
http://www.enet.gr/?i=news.el.politikh&id=130905
Apogevmatini (unofficial mouthpiece of the conservative New Democracy party): "The government's lack of agreement creates a new problem for the people, which is impossible to understand. Either the crisis is as great as they describe, and if very tough measures are not taken we are headed for a crash; or there is a safe exit and they are deceiving us into believing that it is a great crisis so that they can impose unjustifiable measures for many people, according to the dictates of Brussels. And when we come to the safe exit they are already aware of they will present themselves to us as heroes."
http://www.apogevmatini.gr/?p=64087

Credit spreads linked to recovery
The FT's John Authers highlights a Barklay's study which finds that high bond spreads, such as those the Greek bond market is suffering from, seem to inhibit market recovery:
"Looking for the key factors driving recoveries, Barclays found that economic growth and profits were not particularly important. Instead, the strongest link was with credit spreads. Provided credit continued to get cheaper (as shown by the extra spread for corporate debt compared to government debt), then relief rallies could continue. Once credit spreads widen, equities cannot make much headway."
http://www.ft.com/cms/s/0/9d5e30c4-173f-11df-94f6-00144feab49a.html

Worth reading today

2010-02-11T10:09:00.010+02:00

Brussels Blog
The FinanicalTimes' Brussels bureau chief, Tony Barber, reports that a rescue plan for Greece is all but certain at this European Summit. But what will Germany demand in return for bailing out its fellow eurozone member?
"Today’s European Union summit in Brussels will set out the framework for a financial rescue operation for Greece. This much is clear is from various briefings being given by officials from countries as varied as Austria, Lithuania, Poland and Spain. But financial markets will have to wait until next week to see the full details of the plan."
http://blogs.ft.com/brusselsblog/

Berlin and Paris urge backing for Greece
Financial Times: President Nicolas Sarkozy and Chancellor Angela Merkel are expected to give a show of political support to Athens at a summit of EU leaders in Brussels.
http://www.ft.com/cms/s/0/930883f4-1645-11df-8d0f-00144feab49a.html

Franco-German bailout plan for Greece in the works
Kathimerini reports that France and Germany are leading efforts to formulate a bailout plan for the Greek economy. Talks went on late into Wednesday night, the paper reports, with the possibility of a 25 billion euro line of credit being mooted. Germany apparently raised the idea of an EU viceroy to oversee budget execution in Athens.
http://news.kathimerini.gr/4dcgi/_w_articles_politics_100044_11/02/2010_390418
Prime Minister Yiorgos Papandreou reiterated from Paris his determination to see through the new Greek Stability and Growth Plan. "I assured [President Sarkozy] of our strong political will to implement to the letter the Stability and Growth Plan... and stressed that we have recently taken additional measures."
http://www.primeminister.gr/2010/02/10/879
Spanish Prime Minister Jose Luis Zapatero said, "The countries of the eurozone will support Greece in this unprecedented crisis it is going through."
http://www.enet.gr/?i=news.el.politikh&id=130847

Greek civil servants strike over austerity plan
FT: Thousands of Greek civil servants on Wednesday staged a one-day strike and march to parliament in the largest protest to date against the government’s austerity measures. All domestic and international flights were cancelled for 24 hours as air traffic controllers at Athens airport – employees of the transport ministry – joined the walk-out. Bus and underground services shut down across the capital.
http://www.ft.com/cms/s/0/1a493218-1633-11df-8d0f-00144feab49a.html

Ministers grudgingly accept the tax bill
Ministers grumbled about cuts in their respective portfolios at a cabinet meeting to put final touches to the tax bill yesterday, Eleftherotypia reports. Deputy Prime Minister Theodoros Pangalos apparently got Finance Minister Yiorgos Papakonstantinou to agree to except air force pilots from a cut in their benefits. In a reminder of the internal government tensions surrounding the stability plan, National Economy Minister Louka Katseli comlained that she was not invited to a single consultation. Papakonstantinou replied that this was because the tax bill was not in her jurisdiction. Katseli and Papakonstantinou share a building on Syntagma Square, but have divided their territory so as to work from separate floors.
http://www.enet.gr/?i=news.el.politikh&id=130929

A very European crisis
The Economist surveys Greece's structural and budget problems in a three-page briefing this week. "SOME would say that tragedy was inevitable from the moment, nine years ago last month, when Greece was admitted to the euro zone. Others would claim that woe was sure to befall such a disparate currency union sooner or later: if not Greece, then some other weak member of the club would have been the cause. Avoidable or not, trouble has arrived. At best, Greece has to undergo a dramatic budgetary tightening. Its fellow Europeans, or the IMF, may yet have to organise a humiliating bail-out."
http://www.economist.com/world/europe/displaystory.cfm?story_id=15452594

The view from Turkey
Ioannis Grigoriadis, a Greek academic teaching at Bilkent University in Ankara, writes that Greece's liability to the European Union is seen by many Turkish commentators as comeuppance for favouritism. Greece should never have been admitted to the EU in 1979 on objective criteria, in this view. Europe is now paying the price. Grigoriadis also writes that the economic crisis Turkey underwent at the beginning of this decade fortified its currency and financial system. Many Turks are now calling for an opportunistic buyout of Greek interests, especially banks, in reciprocation of the National Bank's buyout of Turkey's Finansbank a few years ago.
http://epifyllides.blogspot.com/

Audio commentary
You can hear a discussion on the Greek economy in which I partook hosted by the show On Point on Boston's NPR member station:
http://www.onpointradio.org/2010/02/europes-debt-and-the-global-economy
and with the CBC here:
www.cbc.ca/daybreak

Worth reading today

2010-02-10T12:07:00.001+02:00

Germany building Greek firewall
The Financial Times reports that German policymakers are looking into the danger of a flight from Greek government bonds turning into a flight from eurozone bonds in general. Officials spoke vaguely about trying to insulate themselves from the Greek phenomenon, not bailing Greece out, without specifying details.
http://www.ft.com/cms/s/0/83de2cae-15a9-11df-ad7e-00144feab49a.html?nclick_check=1
The markets' sensitivity to Greek default fears remained as high as ever, as yesterday's positive trading showed.

http://www.ft.com/cms/s/0/9f177262-160f-11df-8d0f-00144feab49a.html

The new tax code
The socialist government is increasing high-end income tax brackets, offshore company tax and taxes on fuel and luxuries, among other measures. A controversial measure is making half the tax-free threshold of 12,000 euros contingent on taxpayers gathering thousand of euros' worth of sales receipts. Daily Eleftherotypia offers a summary of the measures announced today, and due to be voted before the end of the month.
http://www.enet.gr/?i=news.el.oikonomia&id=130645

Worth reading today

2010-02-08T10:00:00.002+02:00

G7 tries to ease fears over Greek contagion
Financial Times/Kathimerini: The unfolding debt drama in Greece, which is now spreading to Spain and Portugal, was among the top agenda items at the G7 summit over the weekend. The fear was that Greece's loss of creditworthiness due to excessive debt would spread to Spain and Portugal, and destabilise the eurozone. Greece received statements of confidence and support from the US and France. German finance minister Wolfgang Schauble was stern, in keeping with his country's official attitude to Greece during the crisis. Not following the rules over a long period results in a comeuppance, he said.
http://www.ft.com/cms/s/0/440710d2-141e-11df-8847-00144feab49a.html
http://www.kathimerini.gr/4dcgi/_w_articles_kathremote_1_08/02/2010_322868

Tax measures to be announced by Friday
in.gr was reporting that a cabinet meeting tomorrow or on Friday would approve final tax measures to be announced by the end of the week and voted into law before the end of the month. Social security reforms discussed in an inner cabinet meeting yesterday are expected to be announced tomorrow. The government's new income policy and pension reforms are part of what Prime Minister Yiorgos Papandreou plans to present in Brussels on Thursday at a European Union summit. Civil servants and customs officers plan to strike on Wednesday over a public hiring freeze and wage freeze announced on February 2 by Prime Minister Yiorgos Papandreou, and may be joined by others. (In Greek).
http://www.in.gr/news/article.asp?lngEntityID=1103811&lngDtrID=244

EU disunity is making the economic crisis worse
Tony Barber's Brussels Blog: "There is no common approach visible in the fiscal emergency unfolding in Greece, Portugal and Spain. This crisis cries out for more vigorous action from the eurogroup, the body that brings together finance ministers from the 16-nation eurozone. For the sake of calming financial markets, it demands clarity from eurozone governments about what they plan to do. Instead, all the markets hear is that eurozone leaders are determined not to involve the International Monetary Fund, but don’t want to give any financial assistance themselves to Greece. From the markets’ point of view, this is not exactly reassuring."
http://blogs.ft.com/brusselsblog/

Tractors remain on the highways
in.gr: Hardcore farmers' unions in Greece were to meet today in Larissa to decide on how to continue to exert pressure on the government for an extra-curricular subsidy. They are seeking a meeting with Agricultural Development Minister Christina Batzeli tomorrow, and have decided to maintain a dozen roadblocks, in.gr reports. (In Greek)
http://www.in.gr/news/article.asp?lngEntityID=1103858&lngDtrID=244

Benefits above salary to cost state over 6.5bn this year
Eleftherotypia daily newspaper reports that the Greek government will spend more than 6.5 billion euros this year paying out benefits above salary to civil servants and the public sector payroll in general. This does not include overtime, memberships on committees and travel expenses. Finance Minister Yiorgos Papakonstantinou said these benefits will be cut by ten percent, which amounts to an estimated four percent of the public wage bill.
http://www.enet.gr/?i=news.el.politikh&id=129480

Worth reading today

2010-02-03T10:13:00.002+02:00

Greece to tighten public spending
Greek Prime Minister Yiorgos Papandreou firmed up his government's commitment to fiscal discipline hours ahead of an expected European Commission approval of the Greek stability and growth programme for the next three years. Papandreou, whose socialist government came to power in the midst of the economic crisis last October, has announced a wage and hiring freeze in the public sector. A new tax bill also goes to parliament next week, he said, in which special tax brackets are abolished and all professions are brought into a uniform sliding scale. It is also expected to tax dividends and offshore companies, and place a special levy on real estate worth more than 200,000 euros. Also under discussion are higher taxes on fuel and raising the retirement age.
Financial Times: http://www.ft.com/cms/s/0/fd11666a-100c-11df-b278-00144feab49a.html
in.gr: http://www.in.gr/news/article.asp?lngEntityID=1101857&lngDtrID=244

Worth reading today

2010-02-01T10:30:00.002+02:00

EU tells Greece to take strict measures

The European Commission will tell Greece on Wednesday to consider additional measures to cut public spending in case its stability and growth plan should fail, reports in Kathimerini and the Financial Times reveal. The measures include slashing public sector pay and raising taxes on non-essential goods.
FT: http://www.ft.com/cms/s/0/b257fe8c-0e85-11df-bd79-00144feabdc0,dwp_uuid=91d7b52e-0527-11df-a85e-00144feabdc0.html
Kathimerini (in Greek): http://news.kathimerini.gr/4dcgi/_w_articles_politics_2_31/01/2010_389076

Greece suffers from 'credibility deficit'
The Financial Times' Gillian Tett describes the Greek prime minister's credibility deficit in international fora on the occasion of his speech to the World Economic Forum.
http://www.ft.com/cms/s/0/462d7808-0c42-11df-8b81-00144feabdc0,dwp_uuid=91d7b52e-0527-11df-a85e-00144feabdc0.html
British Chancellor of the Exchequer Alistair Darling says Britain would not assist the eurozone in a possible bailout of Greece.
http://www.ft.com/cms/s/0/d3c93a00-0cae-11df-b8eb-00144feabdc0,dwp_uuid=91d7b52e-0527-11df-a85e-00144feabdc0.html
The FT's Daniel Gros comments: "When taking over a company in distress, one does not consider only the views of management. Similarly, a bail-out of a country makes sense only if all stakeholders contribute. Saving a country that is consuming too much makes sense only if the entire body politic accepts that more than a fiscal adjustment is required. Deep cuts in private sector wages and consumption are needed before any outsider should even consider stepping forward."
http://www.ft.com/cms/s/0/1a568f14-0c40-11df-8b81-00144feabdc0,dwp_uuid=91d7b52e-0527-11df-a85e-00144feabdc0.html

Economic changes to be rushed
Eleftherotypia reports that Prime Minister Yiorgos Papandreou, upon his return from the World Economic Forum in Davos, last night gave four main priorities to his cabinet:
a) Rushing the National Statistical Service to independence (a bill is under preparation).
b) Rushing the new tax code to parliament, which abolishes special tax brackets and puts all professions on a sliding scale.
c) Cutting public sector benefits.
d) Reforming social security.
http://www.enet.gr/?i=news.el.politikh&id=127261

Worth reading today

2010-01-28T11:29:00.000+02:00

Chinese whispers drive up Greek yields
Yesterday's FT story that Greece was wooing China to buy up to 25 billion euros' worth of bonds helped drive down the Athens Exchange almost four points and opened up spreads to a historic high of 3.6 percent. Greece bought money yesterday at interest rates of 6.92 percent. The FT reports today: "For the eurozone, “a member country implicitly rescued by China would be an even worse signal than an IMF programme,” said Marco Annunziata, chief economist at Unicredit."

http://www.ft.com/cms/s/0/65ac74fc-0aaf-11df-b35f-00144feabdc0.html
Comment by John Authers: "The market mistrusts Greek data; and it can see the logic of the situation. Its deficit is deep-seated and pre-dates the crisis. Only truly austere economic measures (“plan A”) can counter it, and these may curtail economic growth or stoke social discontent."
http://www.ft.com/cms/s/0/864d085a-0b74-11df-8232-00144feabdc0.html
Concerns at 'overmarketed' bonds
http://www.ft.com/cms/s/0/9e6b3de6-0b72-11df-8232-00144feabdc0.html

BoG sues for fast fiscal discipline
Bank of Greece Governor Yiorgos Provopoulos visited the prime minister yesterday to press for a quicker implementation of the fiscal measures provided in the stability and growth plan submitted earlier this month. (In Greek).
http://news.kathimerini.gr/4dcgi/_w_articles_economy_100031_28/01/2010_388474

Barack Obama's first State of the Union address
http://www.whitehouse.gov/the-press-office/remarks-president-state-union-address/

Worth reading today

2010-01-27T12:04:00.000+02:00

Athens invites Beijing to buy bonds
Goldman Sachs is acting on Greece's behalf in promoting up to 25 billion euros in government bonds to Beijing, the Financial Times reports. The newspaper says that sources close to the investment bank think a 5bn-10bn euro deal more likely.
http://www.ft.com/cms/s/0/65ac74fc-0aaf-11df-b35f-00144feabdc0.html

A principled Europe would not leave Greece to bleed
Nobel laureate economist Joseph Stiglitz argues that Europe's knuckle-rapping of Greece has worsened its economic problems and exposed a double standard. And he compares favourably America's model of federalisation: "Part of the reason for the success of America's "single market" is that there is this sense of social cohesiveness, and a large federal budget to support it: when one part of the country has difficulties, federal spending can be diverted to help those parts that are in need." (The Guardian).
http://www.guardian.co.uk/commentisfree/2010/jan/25/principled-europe-not-let-greece-bleed

Why did AIG's clients get a full bailout, but not SCA's?
A congressional committee is to grill US Treasury Secretary Timothy Geithner on why, when he was chairman of the Federal Reserve Bank of New York in 2008, he forced banks insured with Bermuda-based Security Capital Assurance to accept as little as 14% of their entitlements, whereas AIG's clients were paid in full. The implication is that taxpayer money was paid too liberally to AIG. The hearing comes on Wednesday, hours ahead of a State-of-the-Union address by President Barack Obama, in which he is expected to announce a government spending freeze for the remainder of his first term in an effort to reduce the US deficit, forcast at 12% this year.
"By paying AIG’s counterparties in full, the Fed sidestepped one of the thorniest issues facing financial markets: how to value securities that were so complicated that no one – not the credit agencies, not the bankers, not the issuers themselves – knew how to price them."
http://www.ft.com/cms/s/0/3e18cd5c-0ab2-11df-b35f-00144feabdc0.html

Worth reading today

2010-01-26T10:13:00.003+02:00

Vatopaidi scandal inquiry underway

The socialist government got its first committee of inquiry today, after parliament unanimously approved a proposal put forward by Pasok MPs. The Vatopaidi land exchange scandal rocked the conervative government in September 2008, after Supreme Court Prosecutor Yiorgos Sanidas launched a probe into an exchange of land between the state and Vatopaidi Monastery on Mount Athos. Vatopaidi was to receive valuable parcels in Halkidiki and Attica in return for 2,500 disputed hectares surrounding Lake Vistonida in east Macedonia. The exchange favoured vatopaidi by tens of millions of euros. The cross-party committee is to conclude on March 15.

http://www.kathimerini.gr/4dcgi/_w_articles_kathremote_1_26/01/2010_320201

University oil scandal
A former rector of the Aristotelian University of Thessaloniki was released without bail while facing charges of embezzling heating oil during his tenure. About 200,000 litres of oil were noticed missing after the university converted to natural gas in 2004. The oil shipments under suspicion started in 1999 and could be as many as ten million litres' worth, amounting to more than seven million euros, according to Eleftherotypia. Rector Yannis Antonopoulos insisted he was innocent. (in Greek).
http://www.enet.gr/?i=news.el.ellada&id=124990

Karamanlis letter to Siemens casts a pall

Former prime minister Kostas Karamanlis wrote to thank the then head of Siemens Hellas for his support in New Democracy's election campaign, Eleftherotypia has revealed. The letter is dated 24 May 2004, about ten weeks after the conservatives came to power. "I would like to thank you personally for your support in our effort for a new beginning," the letter reads, "and to assure you that one of the new government's major priorities will be to make the expectations of Greeks for a better tomorrow reality." The Siemens strongman, Mihalis Christoforakos, has testified to German authorities that his company bribed both New Democracy and Pasok during his tenure.
http://www.enet.gr/?i=news.el.politikh&id=124362

Jeffrey Sachs describes how a relief plan for Haiti should work
Economist Jeffrey Sachs tells the Economist that the US should donate a billion dollars to Haiti, but channel the aid through a multi-donor trust fund placed with the Inter-American Development Bank. He believes that the US has not provided leadersip on development of poorer countries in the last quarter century.
http://www.economist.com/blogs/democracyinamerica/2010/01/seven_questions_jeffrey_sachs?source=hptextfeature

Worth reading today

2010-01-22T14:01:00.001+02:00

Greece will fix itself from inside the eurozone
Comment in the Financial Times by Bank of Greece Governor Yiorgos Provopoulos.
"The problems faced by the Greek economy are extremely serious. However, the key question is whether it will be easier to solve them from inside or outside the eurozone. My answer is that it will be unequivocally easier to solve these problems from within the euro area."
http://www.ft.com/cms/s/0/018d0a1e-06cb-11df-b058-00144feabdc0.html

No more money for farmers
Speaking in parliament yesterday, Greek Prime Minister Yiorgos Papandreou told farmers that he cannot give them a new handout. Instead, he will include farming in a government scheme for SMEs and raise farmers' pensions by 30 euros a month to reach 550 euros by the end of his term. And he says he will reform farming, but prime ministers have been saying that for at least a decade.
http://www.enet.gr/?i=news.el.politikh&id=123961
Healthcare fallout from the loss of Massachussetts
After losing Ted Kennedy's senate seat to a Republican, Democrats are preparing to downwardly revise the scope of their healthcare bill, according to the NYT.
http://www.nytimes.com/2010/01/22/health/policy/22health.html?hp
This week's Economist/YouGov poll finds correlation between opposition to the health care bill and support for Republican challengers in 11 states facing tight Democratic races. But the poll's analysis is that the health care debate's damage is done, and that the Democrats have scope to improve their standing only by improving the job market.
http://www.economist.com/blogs/democracyinamerica/2010/01/weeks_economistyougov_poll

Diamantouros wins third term as EU ombudsman
Nikiforos Diamantouros served as the first Greek ombudsman and was elevated to the European position on 1 April 2003.
http://news.gr.msn.com/political/article.aspx?cp-documentid=151813888

Independent asylum authority in Greece
Prime Minister Yiorgos Papandreou announced on January 19 that he would separate asylum processing from other immigration management, currently held by the police. Greece has come under severe criticism from the EU, UN and Amnesty International for its extremely low level of asylum approvals.
http://news.gr.msn.com/political/article.aspx?cp-documentid=151796249

Worth reading today

2010-01-21T11:11:00.002+02:00

Democrats Reel at Bay Staters' Verdict
Comment on the Financial Times about the loss of Ted Kennedy's seat to Republican Scott Brown.
"Even the most punch-drunk Democrats can ask what a repudiation of their party repeated on this scale across the nation would mean. The answer is a rout."
http://www.ft.com/cms/s/0/f9479a52-05ff-11df-8c97-00144feabdc0.html

Commission finds 'tens of billions' in hidden Greek national debt
Story in Kathimerini on a confidential European Commission report on Greece's public finances, in partnership with non-state agencies.
http://news.kathimerini.gr/4dcgi/_w_articles_economy_100036_21/01/2010_387549

From Monday:
UK universities try to outflank Greek regulations
Ta Nea story about how UK universities are embedding a Diploma Supplement in their degrees to try and ensure that their graduates do not face doubts about the equivalence of their qualifications.
http://www.tanea.gr/default.asp?pid=2&ct=1&artid=4555749

Greece in 2009: The year of upsets

2010-01-02T11:06:00.002+02:00

2009 was the year of upsets. It saw the socialist party defy polls and stampede to power with a staggering ten point margin, ending almost six years of New Democracy rule. It also saw the end of Kostas Karamanlis after a 13-year career at the helm of his party, and the next conservative leader-presumptive, Dora Bakoyannis, trounced at the polls by the populist Antonis Samaras. 2009 is the year in which Greece’s government bonds ceased to hold their A1-class status in every rating agency, and the Greek economy began to be reviled as the Eurozone’s basket case. It is the year in which a Greek prime minister finally told the European Union that Greece is benighted in corrupt and uncompetitive practices, and fixing the deficit will require structural, political and cultural changes. At the cusp of 2010, Greece is strangely balanced between a realisation of its own comeuppances and an irresistible hope that the country may finally begin to build for the longer term.

January – A reshuffle, excessive deficits, and a farmers’ blockade

The conservative New Democracy government staggered into 2009, dizzy from three massive scandals the previous year – a sexual and financial scandal at the culture ministry, revelations of kickbacks from Siemens and a land exchange between the state and Vatopaidi monastery which favoured the latter to the tune of tens of millions of euros.

A January 7 reshuffle attempted to turn a new page by shedding Agriculture Minister Alexandros Kontos and Deputy Foreign Minister Petros Doukas. Doukas’ signature had appeared on Vatopaidi land exchange documents when he was Deputy Finance Minister in 2005, and Kontos had initiated a search for land suitable for such an exchange. They were the last ministers associated with the scandal to go. Merchant Marine Minister Yiorgos Voulgarakis had gone in September and Government spokesman Thodoris Roussopoulos a month later – both key administration figures.

The biggest surprise of the reshuffle, however, was the replacement of Finance Minister Yiorgos Alogoskoufis by Yannis Papathanasiou following the international economic crisis. The media largely interpreted this as a pre-election cabinet on the logic that Karamanlis wouldn’t hand Papandreou a Europarliament election victory in June, which might cement a psychology of defeat, ahead of a general election scheduled for February 2010. So the scenario of a double election in June was the favoured one at the time.

A week later, Standard & Poor’s lowered Greece’s sovereign credit rating from A to A- in the first downgrading of a eurozone member, citing the country’s weakening finances. Spain and then Portugal would follow in creditworthiness downgrades within days. It would be the first of many revisions of Greece’s creditworthiness throughout the year. Greek stocks and bonds fell after the announcement.

Papathanasiou held his first press conference on the same day to explain why Greece had overshot its 2008 deficit target. Alogoskoufis had forecast a deficit of 2.5 percent in 2008. In January the European Commission estimated Greece’s 2008 performance at 3.9 percent of GDP, and that figure would later be revised to 5.1 percent as Greece admitted to revenue shortfalls of 4.5bn euros.

Car sales, bank lending to companies and individuals, bank values and capital flight from the Athens Exchange reached their worst levels in years.

On January 19, European Commission forecasts released for Greece warned of recession. The growth rate enjoyed in 2008 of about 2.9 percent would turn into a marginal 0.2 growth rate this year, the Commission warned, leading to Greece’s worst performance since 1993. The Commission based its finding on a predicted contraction in private consumption, tourism and shipping. Papathanasiou contradicted the finding, saying that Greece had consistently outperformed Brussels’ predictions over the years.

After four days of blockades, Agriculture Minister Sotiris Hatzigakis on January 22 announced 500mn euros in over-budget subsidies to farmers. The reason for the farmers’ protests was insecurity over falling food prices after a high in 2007. Some farmers said they had suffered an income drop of 50 percent.

The roadblocks continued, however, as farmers deemed that the money was not enough. Some were sceptical about whether it was even new money. ELGA, the Greek Agricultural Insurance Organisation, had spent an average of 457 million euros a year between 2003 and 2008, said PASEGES, the Panhellenic Union of Farmers’ Co-operatives. Another reason for farmers’ recalcitrance was that the European Union had not signalled that it agreed to the spending. The first contacts between the ministry and the commission occurred on January 27, five days after the package was announced. The blockades led to shortages on supermarket shelves as overland freight was backed up for miles.

February – EU says shape up, Revolutionary Sect arises

In the first week of February, Greece submitted a revised Stability and Growth Plan which formalised its difference of opinion with Brussels. Greece predicted a 1.1 percent growth rate in 2009 (far below its original estimate of 2.7 percent), followed by about 1.6 percent in 2010 and 2.3 percent in 2011. That contradicted the EU estimate of 0.2 percent growth for 2009, against a Eurozone contraction of 1.9 percent, and growth of below 0.7 percent in 2010.

Papathanasiou justified this difference of opinion as follows:
- He expected 5.7bn euros’ worth of public-private partnerships to come to fruition after years of paperwork, and through a broadening of the 2004 investment incentives law, which provided subsidies of up to 60 percent to businesses. The money for these projects would come partly from EU funds.
-Savings would also be made, Papathanasiou said, in a hiring rate into the civil service that would be below the rate of attrition, and a wage raise in line with inflation.
-Papathanasiou also announced a two billion euro fiscal stimulus package in the form of bonuses to pensioners, the jobless, farmers and the poor. He also repealed a 10 percent tax on the first 10,500 euros earned by the self-employed, a cash-raising measure rushed into law by Alogoskoufis in August 2008.

On February 18 a massive liquid fuel and fertiliser bomb was placed in the boot of a car parked outside the Halandri branch of Citibank in Athens’ northern suburbs. A security guard tipped off police, who defused the device. Revolutionary Struggle would later claim responsibility. Although the bomb did not go off, it represented a qualitative leap in domestic terrorism.

Under pressure from Brussels to reduce the cost of government, Karamanlis announced a 12-step plan including:
• A public hiring freeze in all ministries except health and education
• A ten percent cut in discretionary spending by ministries to save 500mn euros
• Computerisation of the health procurements system
• Merging or abolition of a thousand state enterprises in four months, getting rid of their boards of directors
• Better tax collection (evasion is estimated to cost Greece 10-15bn euros annually)
• Wage ceiling for CEOs of state companies

The savings and revenues of the entire package were not specified. Before the end of the month Moody’s downgraded Greece’s A1 bond from positive to stable.

March – Parties reject consensus, debt soars, Olympic is sold

Karamanlis was forced to deny that the country was in danger of bankruptcy, prompted by Greece’s being given a 20 percent chance of defaulting on its debt by world financial markets. The general accounting office found that the accumulated debt had soared to 262bn euros, 12bn higher than forecast for 2009.

Realising that the situation required unpopular measures, Karamanlis sought bipartisan support. He asked the opposition parties to form a consensus with government on how to handle the crisis, but they roundly refused.
The European Commission declared itself as yet unsatisfied with Greece’s expenditure cuts. It demanded a freeze on civil servants’ salaries altogether, a restructuring of social security and public health, and improved tax collection. Reports suggested that Brussels wanted Greece to cut its deficit for the year by 0.7 percent, or 1.8 billion euros.

On March 18 Papathanasiou announced that there would be no pay raise for about 500,000 civil servants who earn more than 1,700 euros gross. Higher earners in the public and private sectors would pay a one-off tax of between 1,000 and 5,000 euros, depending on earnings above 60,000 euros. The constitutionality of this was later disputed.

A scheduled EU report on March 24 told Greece to do more to save money and raise taxes. The Commission gave Greece six months to explain how it would bring its deficit below three percent by end-2010 and eliminate it by 2012. It also announced for the first time that it would recommend to the European Council that Greece be placed under the Excessive Deficit Procedure for two years. Figures released this month showed the expected deficit for 2009 to be above 5 percent.

One of New Democracy’s biggest successes in dealing with state corporations came in the middle of this bleak month. Development Minister Kostis Hatzidakis managed to get EU approval for the sale of Olympic Airways for 62.4 million euros to Marfin Group. Marfin also pledged to invest 70 million euros in the company. It was the culmination of no fewer than six attempts to sell or restructure the airline over 15 years. During that time, Olympic had come to lose roughly a million euros a day. The European Commission made no mention of 700 million euros in waived social security payments, fuel tax breaks, aircraft leases, voluntary redundancy schemes and operating losses it had wanted Olympic to return to the state. This, the lack of resistance from unions and the preservation of the company name, to which Greeks have become sentimentally attached, were Hatzidakis’ biggest successes.

April – The economic squeeze

Bank of Greece Governor Yiorgos Provopoulos told business leaders on April 8 that Greece had no leeway to spend its way out of the crisis. In a speech to the Hellenic American Chamber of Commerce he foreshadowed his upcoming annual report on the economy and suggested a ten year structural reform plan to curb waste and raise taxes effectively. These views would be fully fleshed out a week later in the bank’s report.

In April Papathanasiou began to squeeze taxpayers for VAT receipts, the new uniform property law and outstanding income taxes. Tax authorities targeted roughly 530,000 businesses and individuals for auditing to bring in an estimated 2.5bn euros, as the finance ministry scrambled to try and meet annual targets.
On April 10 Greece suffered its first US-style college campus shooting. Nineteen year-old Dimitris Patmanidis, an electrical systems student at a training centre run by the Manpower Employment Organisation (OAED), arrived at the Nikaia campus in southern Athens with two guns and started to shoot randomly. He seriously wounded an 18 year-old fellow-student and two staff members, and then took his own life. Police found a note on Patmanidis’ body explaining that he was fed up of being ignored and humiliated, and would “take the most valuable thing” his fellow students possessed.

On April 23 Supreme Court Prosecutor Yiorgos Sanidas decided not to send the Vatopaidi case file to parliament for the formation of a Special Court to try wrongdoing by ministers, as the constitution foresees. As the Pavlidis inquiry (see below) was building to fever-pitch throughout the month, the Sanidas decision came as a huge relief to the government.

May – The Pavlidis embarrassment and an early closure of parliament

On May 4, parliament voted by the thinnest of majorities – 146 against 144 – to acquit former Merchant Marine Minister Aristotelis Pavlidis from charges of extortion and bribery. The scandal – New Democracy’s biggest in 2009 and, as it turned out, the last of its five and a half years in power – sapped what little credibility the government had left after the string of scandals in 2008.

The Pavlidis affair had, in fact, begun in New Democracy’s annus horribilis. Shipowner Fotis Manousis had accused Pavlidis in August 2008 of demanding bribes in order to award him subsidised eastern Aegean passenger routes. The scandal returned with a vengeance, fanned by opposition media and spurring a parliamentary Preliminary Committee of Inquiry. The committee’s job was to report to parliament on whether it thought evidence existed of criminal wrongdoing. A plenary session would then vote to strip Pavlidis of his parliamentary immunity from prosecution. According to the constitution, as a former minister he would have to be tried by a Special Court comprised of the members of parliament.

Pavlidis and his family went through a gruelling process of depositions into their personal wealth. This produced some famous contradictions. For instance, Pavlidis’ daughter said that 235,000 euros were paid for her Neo Psyhiko apartment, whereas Pavlidis had quoted 156,000 euros. Sums amounting to some millions of euros entered various accounts owned by Pavlidis and his family between 2003 and 2008, which required explanation.

Throughout the investigation, senior New Democracy party members, including ministers, publicly called on Pavlidis to step down and submit to a judicial process rather than drag his party through publicity it could ill afford. The looming ballot on whether to acquit Pavlidis also put a wedge between the party leadership and the rank-and-file of deputies. The former wanted an acquittal on party lines, since a mere two defections would leave the government dependent on opposition support for an acquittal - whereas the deputies demanded a vote according to conscience.

Pavlidis insisted on using the political process to protect himself. In the event, the committee broke down on party lines. Its New Democracy bloc reported on April 29 that the evidence of criminal wrongdoing was insufficient for a trial. Opposition Pasok’s bloc thought there were grounds for at least five criminal charges, including passive bribery, extortion and money laundering.

The vote to acquit Pavlidis and spare him a Special Court trial was a Pyrrhic victory for New Democracy. Its reputation for both transparency and democracy had suffered irreparable damage through the inquiry itself and as a result of New Democracy’s reluctance to allow a secret ballot. And of course its committee’s findings were seen as entirely partisan.

On May 4 the European Commission reported a worsening outlook for the Greek economy in 2009. It now forecast the decline in growth at below -0.5 percent, and the aggregate debt at above 100 percent of GDP against Greece’s prediction of 96 percent.

Three days later, the European Central Bank (ECB) lowered its baseline interest rate to a historic low of one percent, in order to provide cheap capital for banks and governments. Until the end of the year, when ECB Governor Jean-Claude Trichet announced the end of the measure, Greek high street banks would absorb about 40 billion euros’ worth of cheap credit to take advantage of the 4-5 point interest rate difference with Greek bonds. They profited so massively from borrowing cheaply from the ECB and buying Greek sovereign debt that they would be forced to return some of the capital to the ECB at the end of 2009.

On May 8 the conservative government announced a surprise early shutdown of parliament for an extended estivation. Parliament normally closes at the end of June. The government cited Europarliamentary elections on June 7 as the reason. Pasok called it an “institutional derailment”. The media interpreted the move chiefly as a pre-emption of four major investigations Pasok still hoped to bring to parliament – the sale of the Germanos shop chain to OTE, the Vatopaidi land exchange scandal, the allegations of bribes by Siemens to government figures and a 2006 government bond sold to four pension funds at an enormous profit to middlemen linked to the conservative party. Constitutionally, the end of the parliamentary session placed a statute of limitations on these cases.

Revolutionary Struggle finally managed to detonate a bomb inside a bank – an ambition thwarted in January. One May 12 they blew up the Argyroupoli branch of Eurobank in southeast Athens, causing material damage. Four perpetrators on two powerful motorcycles made good their escape despite the presence of a police patrol car.

On May 17 the two major parties announced their candidates for the upcoming Europarliament elections, with Pasok leading by as many as five points in the polls. In a televised interview on May 27, Pasok leader Yiorgos Papandreou issued his slogan, «Αλλαζουμε η βουλιαζουμε» (we change or we sink), and framed the Euroelection as the first step in a change on the national political scene.

June – Pasok’s first victory and the New Acropolis Museum

On June 7 Pasok scored its first electoral victory since it fell from power in 2004. The victory was largely expected (the latest polls two weeks before the election had put Pasok ahead by anything between 2.8 and six points). The shock was not so much that it beat New Democracy by 4.3 points in the Europarliamentary elections, but that the victory was owed less to Pasok’s gains (it was 2.6 points up relative to its performance four years earlier) than to New Democracy’s losses of 10.7 percent relative to 2004. The other great winner was right-wing LAOS, which rose from 4.12 percent in 2004 to 7.14 percent. The Ecogreens got into Europarliament for the first time with a single MEP on 3.45 percent of the vote.

The LAOS victory, in particular, sent ND a strong message that its immigration policy had to change. Police sweeps through the heart of Athens removed thousands of illegal immigrants from view and emptied the former court of appeals building of squatters. A bill passed by parliament late in the month set apart seven disused military camps and other sites throughout the country for redevelopment as concentration camps where illegal immigrants would be kept for up to nine months. Until then authorities gave them 30 days to leave their country of their own volition.

But try as it might to effect a psychological turnaround, New Democracy kept stumbling on scepticism from its own side. Argolida backbencher Yannis Manolis expressed this most forcefully when he announced on June 16 that he would not be putting himself forward as a New Democracy candidate in the next general election.

Revolutionary Sect – a nihilistic group that made its first appearance in January – struck its first fatal blow on June 17 with the execution of a plainclothes policeman guarding the key witness to a terrorism trial. The killing underlined yet again the decline in public safety under New Democracy that had contributed to the rise of Laos.

The New Acropolis Museum was inaugurated with great fanfare in three ceremonies on June 18, 19 and 20. In his speech, Culture Minister Antonis Samaras forcefully raised the issue of the return of the Parthenon Marbles from the British Museum, saying “the Marbles are calling the Marbles.” In return, he offered the keep the BM’s Duveen Gallery permanently filled with a rotating exhibition of other antiquities. The British Museum congratulated Greece on the inauguration and remained reticent on the thorny issue.

In a further sign of deficit desperation, on June 25 the government announced increased taxes on fuel and luxury goods such as mobile phones, pleasure boats, lottery winnings and luxury cars. It would also sell an amnesty for open-air spaces incorporated into homes (such as solaria). The measures were to bring the 2009 budget an estimated two billion euros.

July – a constitutional conundrum

Pasok leader Yiorgos Papandreou declared that his party will not vote for the re-election of Karolos Papoulias as president in February 2010, making a general election in early 2010 inevitable. The 151 ruling conservative MPs would need to build a two-thirds majority (200 MPs) to elect him in two voting rounds or a three fifths majority (180 MPs) in a third round. If New Democracy failed to garner the votes, article 32 of the constitution allows for a further three voting rounds under a new parliament, which means a general election.

The position triggered a constitutional furore among experts. Athens University's Yiorgos Kasimatis (To Paron, July 12) and Dimitris Tsatsos (Kathimerini, July 19) argued that a candidate could only be rejected on the basis of suitability for the job. Pasok was therefore acting unconstitutionally.

Nikos Alivizatos (Kathimerini, July 26) argued that the executive needed checks and balances, and that since the constitution doesn't provide them this clause of article 32 is one of the few offered to the opposition. He said the presidential election trigger is “the only institutional counterweight to the excesses of prime-ministerialism. In other words, the only check on what [Alexis de] Tocqueville called 'the tyranny of the majority'.”

If there had been any doubt about the likelihood of an imminent general election that was now dispelled. New Democracy had been implying one by closing parliament early and stepping up public hiring as of April. But Pasok now stole a march on the conservatives by setting the terminus ante quem.

On July 31 the Paris-based Organisation for Economic Co-operation and Development (OECD) published its biannual outlook of the Greek economy, forecasting a 1.25 percent shrinking in 2009 and a budget deficit of just over six percent of GDP, growing to 6.75 percent in 2010. These forecasts were far more pessimistic than anything the government would agree to at the time.

August - Feu! Feu!

The OECD’s projections were quickly reinforced on August 6 by similar ones from the Washington-based International Monetary Fund (IMF). It foresaw a 1.7 percent shrinking of the economy in 2009 and a deficit of 6.2 percent of GDP, growing to 7.5 percent in 2010. Officially, the Greek position was still for a modest growth of 0.2 percent and a deficit of 3.7 percent.

On the evening of August 21, the fire brigade fatally underestimated a small fire reported in the area of Grammatiko in northeast Attica. Several fire trucks that rushed to the scene were unable to master the situation overnight, and the fire chief failed to dispatch water-dousing planes and helicopters at first light. As the morning wind picked up it sped the flames past any hope of control towards Marathon Lake. The fire scorched the lake’s northern shores and carried on in a southwesterly direction towards the inhabited areas of Agios Stefanos, Stamata, Rodopoli and Dionysos.

By the third day the fire had taken on the scale of a national emergency as municipal water tankers and the armed forces threw themselves into the fight. Still they retreated as the flames spread to Mount Pendeli, Pallini and Pikermi. At the height of operations almost 200 fire trucks, dozens of water tankers, 14 airplanes and seven helitankers were in operation not including the contribution of the armed forces. Only by evening did they manage to place the flames under control.

The tally of destruction was formidable. Sixty five homes were completely destroyed, and a further 143 partly destroyed. The blaze tore through more than 20,000 hectares (50,000 acres) of pine forest. It was New Democracy’s second major environmental disaster after the forest fires of August 2007, which had burned 2.5 percent of the surface area of Greece - a record.

September – Election fever

Following political scandals, a breakdown in law and order and the financial and economic crisis, avoidable natural disaster seemed to place a tombstone on the government of New Democracy.

Not surprisingly, on September 2 Prime Minister Kostas Karamanlis announced a snap general election. His argument was that painful economic measures to tame the debt and deficit required a new mandate. He cited tightening tax collection, making structural changes to the economy and shrinking government. He also said he wanted to avoid the extended campaign season that the autumn would inevitably be after Pasok’s threat to force an election in March.

Finance Minister Yannis Papathanasiou met with Economic and Monetary Affairs Commissioner Joaquin Almunia to ask for a two-year extension on a 2010 deadline to bring the deficit below three percent of GDP, confessing openly that his January Stability and Growth Plan was now unrealistic as the recession was affecting state earnings. Newspapers reported that the finance ministry was planning to claim as much as eight billion euros’ worth of tax arrears and auction off state property in order to save the 2009 budget from further slippage.

On the same day, a massive, Oklahoma City-style bomb exploded outside the offices of the Athens Exchange. It was later claimed by Revolutionary Struggle, which issued a punishingly long proclamation in Pontiki newspaper about how equity and financial markets had brought on the financial crisis.

Greece dropped in the World Economic Forum's Global Competitiveness Index from 67th place in 2008 to 71st place in 2009, among 133 countries. The statistic confirmed what many economists believed to be the country’s root problem. On September 22 the country’s five biggest bilateral chambers of commerce rallied behind a report from the Institute for Economic and Industrial Research, which outlined 123 steps to make the Greek economy more competitive.

Greece now admitted to a six percent deficit, negative growth of half to one percent of GDP and aggregate debt of over 100 percent of GDP.

The Bank of Greece also had unhappy revisions to report. Total public and private sector borrowing for the first two quarters of 2009 reached a record 391.1 billion euros, or 163 percent of GDP, a 16 percent rise on the same period last year. But since private sector borrowing actually went down, the rise was entirely due to the government. Its debt went from 187.9 billion in 2007 to 227.3 billion in 2008, 233.6 billion in the first quarter of 2009 and 255.5 billion in the second.

October – Pasok triumphs

Pasok won an unexpected landslide in the October 4 general election of 43.92 percent of the popular vote, taking 160 seats in a five-party parliament. New Democracy disgraced itself with 33.48 percent and 91 seats. Pasok’s gains over five and a half years of conservative rule were a mere 3.5 percent of the vote, compared to ND’s loss of 13 percent. Looking crestfallen on election night, Prime Minister Kostas Karamanlis announced his departure and called for immediate elections for a new party leader.

The Communist Party of Greece (KKE) held onto 21 of its 22 seats with 7.54 percent of the vote and Syriza ably survived the jettisoning of Alekos Alavanos, winning 4.6 percent of the vote and 13 seats. However, it slipped in rank, ceding fourth place to Laos. The right wing party, which only entered parliament in September 2007, managed to raise its popular margin from 3.8 to 5.63 percent and its seats from 10 to 15. The Ecogreens did not manage to enter national parliament, but polled a strong enough margin - 2.53 percent – to try again.

The day after the election, the finance ministry sent information to Greece’s national statistical service that upped the 2008 deficit from 5.1 percent of GDP to 5.7 percent, and the debt from 97.6 to 99.5 percent. And on October 6 Bank of Greece Governor Yiorgos Provopoulos told reporters at the IMF gathering in Istanbul that he forecast a 10 percent deficit for 2009 (Greece's official estimate was six percent).

First impressions of the new government were positive. A Public Issue poll published a week after the election found that 83 percent of voters had a positive impression of the new government, including 70 percent of ND voters.

The government began to work on its first pieces of legislation. The finance ministry set to work on the 2010 budget. The employment ministry announced that its first piece of legislation would improve the lot of retirees who are penalised by drawing from multiple pension funds by 6-12 percent. The newly formed environment ministry took over unfinished legislation to legally incorporate solaria and built-in verandas into the square footage of houses, but ultimately froze the bill.

The development and merchant marine ministry faced a major early challenge in the strike declared by crane operators in Peiraieus to fight the concession of a container terminal to Chinese Cosco. Unwilling to openly challenge the dockworkers' union, Pasok sent the matter for lengthy court arbitration. On November 10 the court ended the strike. In the meantime, however, Pasok tried to interpolate on the original agreement an undertaking by Cosco to provide work for crane operators on pier 1, which remained under public ownership, after its lease of pier 2 was over. Cosco was unhappy to revise any of the fundamentals of its original lease, which had been ratified by parliament.

The European Commission published its annual report on the Greek economy on October 14, and said the country needed to make good a 14.1 percent of GDP “viability deficit”, equal to about 32.5bn euros.
On that same day Papandreou spoke in parliament for the first time as PM, calling for a new electoral law on the lines of the German model. He suggested 160-170 single-seat constituencies and six multiple-seat constituencies, where the MPs would be chosen from a list. The first party would receive a 40-seat bonus. He hoped that with ND’s support he could get the law to apply from the next election.

Papandreou visited Nicosia on October 19 and attempted to resurrect Cyprus policy along the lines of a) reinforcing Greece's commitment to full Turkish membership, b) holding Turkey to recognition of Cypriot exports, and c) making a common front with Cyprus on influencing the annual EU report on Turkey's progress. Ten days later he would meet Nikola Gruevski on the sidelines of an EU summit, to assert Athens' redlines on Macedonia policy: a universal name solution for all uses under the UN process.

While Papandreou was in Nicosia, Finance Minister Yiorgos Papakonstantinou had his first – and most uproarious - Eurogroup meeting. The bone of contention was his new deficit and debt figures for 2008 and 2009. The outgoing ND govt had sent figures a few days before the election to the effect that the 2008 deficit was 5.7 percent and the outlook for 2009 was 6 percent. Papakonstantinou's preliminary revision was for 6.5 percent for 2008 and over 12 percent for 2009. He asked until 2012-13 to bring the deficit under three percent, presented immediate measures for cost containment and set a goal of a deficit of 9 percent for 2010. The Eurogroup was displeased with both the revisions and the measures. Its leader, Jean-Claude Juncker, said that Greece's revisions had to end or they would cause problems to the credibility of the entire group. “The game is over,” he said in irritation.

The following day Bank of Greece Governor Yiorgos Provopoulos presented an interim report on monetary policy in which he supported lowering the deficit by 4-5 percent of GDP in 2010-11 (i.e. by 9.5-12 billion euros), and 1.5 percent thereafter. This indirectly supported Papakonstantinou’s rate of reduction, as opposed to more shocking adjustments.

But Papakonstantinou would learn that the markets and media would be harder to contain than his European peers. On October 23, the credit rating agency Fitch's demoted Greece's rating from A to A-, following the skyrocketing deficit and debt figures. A week later, Moody's would say that it is also reviewing Greece's A1 status.

Media attention was temporarily diverted to the Gaia Paasikivi police precinct in the northern Athenian suburbs. On October 29, assailants on motorcycles fired 100 Kalashnikov r0unds into the building, wounding several officers.

November – the 2010 budget and Samaras’ triumph

The European Commission submitted its report on the Greek economy on November 3. Its new outlook was bleak. Its deficit figure for 2008 was retroactively revised to 7.7 percent, and it saw deficit figures of above 12 percent of GDP until at least 2011. It also saw the debt climbing to 135 percent of GDP in that period.

Two days later, Papakonstantinou submitted a draft 2010 budget to parliament, which threw the weight of deficit reduction on new income. He planned to raise 4.5 billion euros from a slate of measures including:
- higher income tax on the better off
- abolishing flat taxes on certain professions and bringing them into the tax scale
- a special tax on large real estate holdings
- higher consumption tax on cigarettes and alcohol
- a one-off redistribution tax on 300 profitable companies that made more than five million euros in profit last year.

The Eurogroup demanded more action on the cost-cutting side, and the European Commission confirmed that it would recommend to the Council that Greece be put under the Excessive Deficit Procedure as of January 1.
Within days of the general election defeat, New Democracy’s lieutenants had been declaring their candidacies for the party leadership. Former foreign minister Dora Bakoyannis had, for a number of years, been the presumed frontrunner to succeed Karamanlis. Her candidacy received a body blow on November 10, when Dimitris Avramopoulos announced that he would support former culture minister Antonis Samaras, her main rival.

Samaras and Avramopoulos fought on ideological grounds. They promised to create “effectively the first urban party based on principles, which seeks the governance of the country without nepotism, hereditary political entitlements, opaque procedures, personal power machines and decisions made without consulting the party base.” Dora Bakoyannis responded in a speech to the party youth the same day. “The political and ideological entrenchment of New Democracy is a recipe for failure. A New Democracy with a new leader and old attitudes has no future.”

Whereas Bakoyannis ran as a centrist, Samaras said ND had lost because it had been ashamed to own up to its ideological roots as a liberal, conservative party committed to competitiveness and low taxes, fiscal discipline and law and order. Bakoyannis lost by a wide margin to Samaras in a vote thrown open to the public on November 29 - 50.2 percent to 39.5.

In the middle of the month, Education Minister Anna Diamantopoulou ran into her first problems with teachers’ unions. She told a press conference that hiring in education will be done through the Supreme Council for Personnel Selection (ASEP), per the govt's election promise, not from seniority tables kept at the ministry. Diamantopoulou also wanted to institute a two-year trial period in which poor choices of teacher could be weeded out.

The reactions from the unions, OLME and DOE, were such that a few days later Diamantopoulou said there would be an admixture of the merit and seniority systems. A week after her initial press conference Diamantopoulou said the entire revision to the hiring system would be put off until the 2011-2012 academic year.

Greece dropped from 57th place to 71st in Transparency International's annual Corruption Perception Index on November 17.

Papakonstantinou submitted the final 2010 budget to parliament on November 20. It forecast income of 53.7 billion euros against 49.3 billion in 2008. It foresaw expenditure of 69.8 billion euros - a deficit of 16 billion. It was only slightly tougher following its presentation to the EU, promising to reduce deficit to 9.1 percent of GDP from 12.7 percent in 2009.

Against EU wishes, it promised a 1.5 percent raise to public sector employees earning under 2,000 euros a month, but it also reduced their benefits by 10 percent, an effective four percent pay cut. It also adopted the ND plan of freezing all hiring in the government except for education, health and citizens' protection. As of 2011 there would be one hire for every 5 departures.

December – Riots and consumer woes

Thousands marked the first anniversary of the police killing of teenager Alexandros Grigoropoulos with a peaceful march. It turned violent when some hundreds of rioters occupied the University of Athens Law School campus and adjacent classroom buildings. They broke masonry and hurled it at police, who responded with teargas and stun grenades. The violence continued the following day despite a call from Grigoropoulos’ father for nonviolent memorials. Over three days police arrested 125 people, including at least a dozen non-Greeks, and detained over 300 – far more than they did over two weeks of rioting in 2008 – a sign that they meant to end this anniversary quickly.

The riots were most important in that they provided a pretext for the university to re-interpret asylum. On December 7, Athens University Dean Christos Kittas asked police to surround and protect the downtown campus because pavements and streets are not covered by asylum law. Police did not enter the building, but effectively sealed it. A few days later, the university announced that administrative and secretarial offices are not covered by asylum law, and on this basis would institute controlled access to the building for card-carrying students, staff and visitors only. A new guard would enforce this, and the dean would in future have to approve all events on premises.

Greece’s credit rating suffered further downgrades, leading to fears about the cost of borrowing and the possibility of default. Fitch's downgraded Greece to BBB+ on December 8, sending the stock market down 4 points for a total day's loss of 6 points, with banks suffering a nearly 9 point loss. Papakonstantinou said Greece may take additional measures to lower its deficit in a supplemental 2010 budget. But he reacted angrily on December 16, when Standard and Poor’s announced Greece’s second downgrade within a year, from A- to BBB+. The finance ministry said the agency failed to properly assess its deficit-reduction measures in the 2010 budget. Relief came in the form of a mild downgrade by Moody’s on December 22 from Α1 to Α2 with a negative outlook. That put the Greek bond two notches above the B status it had suffered in the other agencies.

ECB governor Jean-Claude Trichet warned that not enough has been done in 2010 budget and told Europarliament that “we all know the very important and courageous decisions that will have to be taken”.

Prime Minister Yiorgos Papandreou attempted to restore confidence in Greece in a speech on December 14, in which he stressed transparency measures. It was not what the markets wanted to hear. The following day, the Athens Exchange dropped 2.1% led by a 4% fall in bank shares, and Greek bond spreads increase by 23 basis points.

Parliament passed the deficit-reduction budget on Christmas Eve. Although Papakonstantinou said he would aim for a 4-point deficit cut from 12.7% to 8.7%, his budget officially aimed to reach 9.1% of GDP. The budget was passed along party lines, with 160 votes in favour. The fiscal adjustment was of the order of 8.4bn euros.

Meanwhile back in the real economy, retail sales were reported to be down 30 percent on Christmas 2008. Poor consumer sentiment was combining with a general trend away from high street shops and towards malls to drive many merchants to thoughts of bankruptcy in the new year.

Antidoron: New Democracy under Samaras

2009-12-03T16:58:00.003+02:00

Last Sunday, former culture minister Antonis Samaras won the New Democracy party leadership with a surprising majority against former foreign minister Dora Bakoyannis. His 50.2 percent of 770,000 ballots cast nationwide by anyone who cared to vote was especially stunning in view of the fact that until a month ago Bakoyannis, who reaped 39.5 percent, had been the presumed favourite. Samaras trounced her in some of the first opinion polls, but by last week the gap between them had narrowed beyond worthwhile scrutiny. Within a year, Samaras has gone from a seat in parliament to leader of the opposition.

Samaras' rises and falls have generally been precipitous. Konstantine Mitsotakis plucked him out of the parliamentary ranks at age 37 to be finance and then foreign minister in 1989. His disagreement with the government over the Macedonia issue forced him to resign that post barely 29 months later (though curiously, his curriculum vitae mistakenly gives February 1992, not April, as the end of his tenure).

He rocketed back into the limelight that year with a new party, Political Spring, touting social justice and an affinity to the common man. In October the following year Political Spring won a respectable ten seats on 4.88 percent of the vote. For a while it looked as though it might avoid the shooting star fate of breakaway parties, but then failed to win re-election three years later. Samaras spent the next eight years in political exile, as Konstantine Mitsotakis, whose government he had fatally undermined, did his best to ensure that he never got a job in New Democracy again.

As prime minister, Kostas Karamanlis, whose uncle founded the party, gradually began to rehabilitate Samaras. He secured him a place on ND's Europarliament ballot in 2004, and on the national ballot for his native Messinia three years later. Try as it might to ensure a smooth succession for former foreign minister Dora Bakoyannis, the Mitsotakis family was unable to prevent the appointment of Samaras to the cabinet in the January reshuffle this year. As far as the media were concerned, the two-horse race for the leadership was on.

Why did Samaras win, and why did Bakoyannis lose? A Public Issue poll taken last month found that a majority of Greeks felt Bakoyannis struck more of a leadership profile and came across better on television, but was dependent on special interests. Samaras, in contrast, came across as more genuine, a politician who was closer to the common man and who put people at their ease.

Many voters were put off by Bakoyannis' support for America's ill-considered missile defence shield in eastern Europe last year. Samaras, in contrast, has made his name on standing up for Greek interests, not kowtowing to the interests of powerful allies.

There is another issue here. Bakoyannis is a second-generation politician. New Democracy went down in flames under Karamanlis, who essentially inherited the party from his uncle. After the spectacular, ten-point election loss to Yiorgos Papandreou in October, conservatives evidently decided that renewal rather than royal succession conduced to survival.

The historic newspaper of the right, Estia, put it diplomatically in a front-page editorial on Monday: “This party is emerging from an unprecedented electoral defeat. The 33.5% result was a huge shock for New Democracy voters... It was to be expected that ND folk would turn towards the candidate who had not identified himself so much with five and a half years of government policy.”

Bakoyannis probably had little choice but to run as the continuity candidate. She spoke up noticeably against corruption in her party only once, in January 2008. The occasion was low key – a book presentation – and the remark - that the political profession was in crisis largely because ministers refuse to tell hard truths - more than warranted given a recent sex scandal at the culture ministry. Yet the media widely interpreted it as a lance in the ribs of then prime minister Kostas Karamanlis.

Before such highly tuned expectations there were no options for Bakoyannis between co-operation and outright rebellion. Rebellion is how Pasok's Kostas Simitis won the prime ministership in 1996, and how Samaras made his mark on political history in 1992. But rebellion sits next door to betrayal; Bakoyannis' father branded himself a traitor in 1965 when he agreed to form a government without his party leader. Bakoyannis evidently felt that one apostasy in the family was enough. Unfortunately for her, not only did the consensual approach fail; it also stifled much of her creativity during four years as foreign minister. Not wanting to bear the political cost of any foreign policy strategy, she instituted none.

How will Samaras' tenor as opposition leader affect foreign policy as Papandreou seeks to make a deal with Skopje and revivify the UN process on Cyprus? Observers will be nervously listening to his language on the Macedonian issue. Back in 1992 he rode a wave of nationalist fervour that helped scuttled Mitsotakis' moderate line in favour of Nova Macedonia, which Skopje was willing to accept. Seventeen years later, Greece has reverted to the same position (inserting Northern in place of New), while Skopje plays the nationalist card. Were the Makedonski leader, Nikola Gruevski, to agree to a composite name containing the M-word, it would be a disservice to both countries and to the EU for Samaras again to upset an agreement.

Samaras says he is sailing the party for a refit in its right-wing ideological drydock. Whatever that now means remains to be defined. He gave a hint in his first policy speech as leader to the Hellenic-American Chamber of Commerce on Tuesday. It was a call not to penalise private enterprise for the crisis, but to unburden it of the costs of an inefficient state, and lower its social security contributions and taxes. In calling for the state to take on the burden of cost-cutting and monitoring a fair market, Samaras has picked up the pulse of small and medium enterprise owners.

What will the return to conservative values mean socially? Samaras will surely bid to wrest back that 5.6 percent of his voters who've bled to LAOS. His most powerful ally, former health minister Dimitris Avramopoulos, is a social conservative who rejected the political centre as meaningless in an opinion/editorial on November 29. Specifics are pending.

But Samaras cannot win a general election without swing voters, and that means sailing his refitted ship back to the centre at some point. Party moderates like former education minister Aris Spiliotopoulos and former development minister Kostis Hatzidakis chose to back his rival. Together with Bakoyannis they are too big a group to ignore. Samaras says he will embrace the ND moderates, but what level of pluralism will he allow? Will he support a national line in foreign policy?

They are the big questions that remain. Newspaper editorials have been encouraging Samaras to strike a new tone of responsible opposition and to confer privately with Papandreou. After their first meeting on Monday, Samaras offered only one sly indication of his opposition style: that he would ride shotgun with the prime minister on some issues but hold up the stage wagon on others.