The New Athenian

The unfolding debt deal

2012-01-19T12:15:00.000+02:00

The Financial Timesare today reporting that last week’s impasse between Greece and private holdersof its debt is being resolved with a sliding interest rate that favours thelong-term investor. Interest will begin at 3 percent and rise to 4.5 percent, averagingabout 4.25 percent over the lifetime of the bonds, according to the newspaper.

The talks had stalledafter German negotiators apparently introduced a sharply lower rate than theone that was on the table during the final stages of talks. According to onebanker quoted by the FT, the deal would represent a writedown of a whopping 68 percentof the debt.

If these details areconfirmed, it would mean that the reworked offer has one chief priority – to favourbanks and long-term investors over speculators – the two main groups ofbondholders.

It would do this intwo ways; firstly, by discouraging immediate resale of the new bonds. Athree percent initial interest rate lowers the so-called net present value – a calculationof a bond’s market value if it is sold before reaching maturity; secondly, by keepingthe bond remuneration at a minimum (closer to 30 percent of the value of the original bonds Greece is effectively defaulting on. That is the discount GermanChancellor Angela Merkel famously imposed on the Institute of InternationalFinance last July, revised to 50 percent settled in October’s Europeansummit). This penalizes hedge funds that have been buying up Greek bonds sincethe bond buyback scheme was announced last year. They were able to pick them upat the roughly 25-30 percent of face value, on the reasonable safe gamblethat the European Financial Stability Facility would offer a better rate thanthe markets. The vast majority of the bonds, after all, areheld by banks (an estimated 40 billion euros’ worth are held by Greek banks, androughly twice that amount in banks across Europe, while the European CentralBank holds roughly a further 45 billion) and the EFSF was set up to provideliquidity to the banking system as well as governments. In other words, hedgefunds were buying a free ride on a European Marshall Plan. The concomitant bankrefinancing one would expect ought to be quite generous, given the severe haircut on the bonds. About 40billion euros of a second, 130 billion euro bailout promised to Greece are saidto be earmarked for banks. In the event, the amount could be higher.

There may be two reasons for this change ofheart on the part of the Germans, the eurozone’s only remaining large, triple-Arated economy now carrying a disproportionately high influence in negotiations.One is that the cost of money available to the European Financial StabilityFacility has gone up since Standard and Poor’s earlier this month downgradedsix eurozone economies, including France. That may have made Germanpolicymakers less charitably disposed towards parts of the financial world,including risk assessors and hedge funds. The other is Germany’s known distaste forspeculators and derivatives – bets against success – that can apply tocountries as well as companies.

The counter-bets areparticularly irksome to the Europeans right now. Not all bondholders are infavour of a settlement. A small group, owning about five billion euros’ worth ofbonds, are also invested in credit default swaps, which insure them against upto 100% of losses. There are also analleged 35 billion euros’ worth of CDSs in the hands of non-bondholders whohave simply bet against a consensual settlement. CDSs cannot be triggered iftheir owners voluntarily accept a discount on bonds.

The known unknowns

Remaining to be seenis what proportion of the old bonds will be paid out in cash upon maturity, and what proportion will be rolled over into the new bonds with variable interest. Given the German mood one would expect a smaller rather than a larger up-front payout.

Even more important will be whether the ECB’s sizeable stake will be included in the writedown. Werethat to happen, the effect on Greece’s long-term hopes of solvency would increase.In addition, Greece would then more easily implement a collective actionclause, making participation in the scheme compulsory for all its bondholders.

Also key, of course, will be the calculated effect on Greece's bottom line. The plan is to reduce Greece's debt to 120 percent of GDP by 2020, down from more than 150 percent today. There are , like Athens University economist Yannis Varoufakis, who claim that Greece will not be deemed solvent even after a successful writedown.

Portrait of a philhellene

2011-12-19T04:43:00.002+02:00

The following interview with Christopher Hitchens is being republished on the occasion of his death on December 15. It was originally published in the Athens News in May 2009, when Hitchens was in Athens to visit the grave of his mother, Yvonne Jean, who is buried in the first cemetery.

Christopher Hitchens was inAthens earlier this month to celebrate a death.

A long-time supporter of theBritish Committee for the Reunification of the Parthenon Marbles, he believesthat the group has now obliterated the British Museum’s arguments for holdingonto them.

“The last argument the British Museum had wasthat ‘The Greeks have nowhere to put it’,” he said on the eve of a visit to thenew Acropolis Museum. “I’ve come here tocelebrate the death of the last argument.” His celebration is due to appear inVanity Fair.

The Parthenon Marbles - orElgin Marbles - have been controversial since the 7^th Earl of Elginstretched the terms of an 1802 firmanfrom the sultan and removed to his native Scotland dozens of panels of friezeand metope. He sold them to the British state in 1816 and they became part ofthe British Museum collection in 1817.

The British Museum hasresisted returning the sculptures on the grounds that Greece could, on thestrength of that victory, ask for the return of other things. The frieze fromthe temple of Apollo at Bassai also sits in Bloomsbury. So does a number ofexquisitely painted vases. Why shouldn’t the Greeks ask for everything back?

“They can if they want to.No one will pay any attention,” says Hitchens. And here lies the key to why hebelieves the Parthenon Marbles will be returned: guilt.

The marbles’ initial removalcaused them to be sawn into pieces and damaged the Parthenon itself. During thetwo centuries that the sculptures have spent in Britain, they have gone fromScotland’s inclement humidity to London’s Victorian grime. Fissures on the pieceswere at one point cemented, then unplugged again. The reliefs were twice castin plaster and washed several times. They were sandbagged in the AldwychUnderground station during the blitz. Their location and arrangement underwentseveral changes, with the risks of damage that entails. Fragments were been drilledin order to be fitted together. The coal stoves used to heat the British Museumin the 19^th century coated them in dust and soot. In 1938 themarbles were cleaned with copper chisels and silicon carbide, an abrasivecrystal, causing an outcry and dismissals from the British Museum.

But on the marbles, as oneverything else, Hitchens seeks out the principle from the particulars. Hisposition is not about his unapologetic philhellenism (he has two children byhis first marriage to Greek-Cypriot Eleni Meleagrou), or even about Britishmistakes (it can plausibly be argued that some of the marbles might never havesurvived if left in Athens); it is not even about repatriation, a bilateralargument lacking universality which would reduce it to “the limited interestthat applies to a divorce dispute.”

For Hitchens theuniversality of bringing the Parthenon marbles back to Athens is in restoring thewholeness of a monument “that belongs to humanity proper,” as if gluing thetorn canvas of the Mona Lisa.

“This argument has been, atleast since Byron, part of the mental and moral furniture of every liberalEnglishman worthy of the name,” maintains Hitchens. “It is something that is andshould be on our conscience.”

Like Byron, Hitchens isextraordinarily intelligent, curious about the world, controversial wherever hegoes and a legendary drinker. Like Byron, too, he is susceptible to the “mad,bad and dangerous to know” type of publicity.

It is easy to see how Hitchensgenerates controversy. His insistence on arguing solely on points of principle leavesno room for the discretionary decisions of realpolitik.

To quote a minor instance,during a noisy lunch in Thiseio Hitchens took the Athens News to task for notrepublishing anti-Islamic cartoons that caused an international furore afterthey ran in a Danish newspaper, Jyllands-Posten, in 2005. The cartoons were interpretedby many in the Muslim world as insulting to Mohammed.

“’Here’s an image that’scaused a big row, but we’re not going to show it to you’,” Hitchens parodied.“It’s a negation of the journalistic obligation.”

I explained that the AthensNews did not want to gratuitously offend a large multicultural constituency.“What has the size got to do with it? What if it was only one Muslim? Would itbe OK to ruin their day and hurt their feelings? Is it bulk that impressesyou?” And so on.

But Hitchens is also willingto put his money where his mouth is and change his mind on the basis ofevidence. He originally dismissed waterboarding as not being torture, underwentthe procedure for Vanity Fair and declared it to be torture of the worst kind.

Turkey too “arrogant”

Hitchens is incensed withwhat he sees as the Obama administration’s sacrifice of principle to appeaseTurkey.

He faults America for pamperingits second-closest Middle Eastern ally and thinks US President Barack Obama“invertebrate” not to remind Turkey of its denial of the Armenian genocide whenhe addressed the Turkish parliament on April 6.

“I think the Turks consultonly their own interests and we’ve allowed them this arrogance on a lot ofmatters – Armenia, Cyprus, Kurdistan.”

He points to the way Turkeysingle-handedly opposed a unanimous candidate for secretary-general of Natoearlier this month. Former Danish prime minister Anders Fogh Rasmussen waselected in the end, but Hitchens thought Turkish behaviour in a consensual body“outrageous”.

“I think I would now saywithout much hesitation what I had not ever thought of ever saying - which isthat after the Rasmussen business I don’t think Turkey should be in Nato.”

The ongoing Turkishoccupation of Cyprus is another example of entitlement, he believes.

Turkey’s 1974 invasion,codenamed Attila, was launched in reaction to a Greek coup attempt in thecapital, Nicosia. The EU admitted the island in 2004, but freedoms of commerce,movement and settlement are now massively curtailed between the northernTurkish-Cypriot enclave and the Republic of Cyprus to the south.

“We can’t import the Attilaline into Europe. It’s a direct negation of all the underlying principles ofthe founding documents,” Hitchens says.

Once again, he argues forprinciple, not Hellenism. “The invasion and occupation of Cyprus is a violationof international law... If it’s only supposed to move you if you’re Greek, it’sto that extent a lost cause.”

In the early years of thecentury, Cyprus’ admission on this flawed basis was a coup. At the 2002 EuropeanUnion summit in Copenhagen, Greece persuaded its partners to admit Cyprus occupied.It thus ensured that Turkish foot-dragging in reunification talks wouldn’t holdGreek-Cypriots outside the EU until Turkey itself was admitted.

But the accession of Cypruswas only partly based on the principle that Greek-Cypriots should enter firstbecause they were ready to; it was also a massive European gamble toprecipitate a settlement. That gamble has now failed. Greek-Cypriots vetoed theUnited Nations’ Annan Plan in 2004, which would have created a federationgoverned by consensus. Meanwhile Turkey has shown no sign of diminishing the30,000-odd troops it keeps on the island.

Hitchensbelieves the entire basis of UN talks as an instance of suspending principlefor expediency. He sympathises with Cypriots’ reluctance to abolish their statein return for a Turkish promise of cooperation. “One cannot trust Turkish undertakingson matters of principle... you can’t assume their signature is worth the paperit’s printed on.”

His recommendation? Apartfrom reconsidering Turkey’s position in Nato, he thinks Cyprus should insist onTurkey’s prior recognition before any further negotiation. Few can complainthat Hitchens isn’t prepared to argue principles all the way home.

Papademos Receives Vote of Confidence But Disagreements Fester Inside Frail Coalition

2011-11-16T20:36:00.001+02:00

The government of Loukas Papademos received a vote of confidence in parliament today. 255 MPs voted in favour, 38 against. Three deputies from the coalition broke with party discipline to vote against. Conservative Panos Kammenos was expelled from New Deomcracy, making him the second MP to suffer that fate in two days after Sotiris Hatzigakis. Pasok did not move to discipline Panayotis Kourouplis and Christos Katsouras.

Papademos already faces problems in releasing the 8bn euro instalment of the bailout. He asked the leaders of the three parties in his coalition to sign a letter saying they stand by the terms of the IMF and eurozone-sponsored bailout.

But the leader of the conservative New Democracy party – Antonis Samaras - is refusing to sign. Samaras’ signature is important for 2 reasons: Greece’s European creditors want his signature, because he has was in opposition to many of the country's austerity measures, saying they have made Greece’s recession worse and put people out of work. And Polls suggest he is set to become the next prime minister after elections that could take place as early as February.

Samaras earlier told the chamber that his party's membership in the coalition and voting record in parliamentary legislature carries more constitutional weight than his personal signature on a letter. In a populist note, he also called on the government not to carry out a threat to cut power to households that cannot pay a new property tax, being charged through electricity bills.

The comment from Samaras came after the Public Power Corporation's workers' union this morning cut power to the health ministry for half a day. The union, Genop, issued a proclamation saying the ministry owes over 3.8 million euro in unpaid bills. But that is only the tip of the iceberg. The government and broader public sector owe the power company a total of 141 million euro, the union says, a figure the PPC did not deny.

The company has slashed 328 million euro from its payroll in the last two years, under pressure from the government.

Genop is also incensed that the PPC's list of non-paying households is growing sharply after three years of recession. The government's decision to charge a new property tax through power bills has accelerated the blacklisting of households. Those unable to pay in 40 days are cut off. The union says households now owe 715 million euro, and fears that government policy will bankrupt the power company.

The Conservative Conundrum

2011-11-15T10:57:00.001+02:00

Conservative New Democracy leader Antonis Samaras insists that he won't sign a letter binding him to the terms of an October 26 bailout agreed in Brussels. Without that letter, says Commissioner Olli Rehn, Greece's next instalment of 8bn euro will not be released; and without that, Greece will have difficulty meeting payroll beyond December 15. So is Samaras going to be responsible for Greece going into disorderly default?

Newly installed Prime Minister Loukas Papademos put the ball very much in Samaras' court during his first parliamentary address yesterday, when he declared that Greece's written consent was the last remaining obstacle to receiving the money.

Samaras' position is understandable from a certain point of view. He expects to be elected to lead the country in February or March, or at least to the position of top party in parliament by number of seats. A recent poll by Public Issue published in Sunday's Kathimerini gives him anything between 121 and 132 seats - not enough to form a government on his own, but far above the maximum of 61seats it gives Pasok. When the next coalition talks happen, it will be Samaras and not Papandreou who will be in the driver's seat.

Samaras knows that he cannot hope for voter approval if he is the cause of a default. It is to be expected, therefore, that some kind of compromise will be reached. Samaras will have to agree to sign some bit of paper, and will publicly fuss over its precise wording. New Democracy must not appear to block the 6th instalment, nor to compromise its room for manoeuvre before it is elected.

In its new role as coalition partner, New Democracy is increasingly caught in this battle of substance versus symbolism. It is trying to preserve the image of a bailout enabler who hasn't been compromised by wielding any power over the bailout terms. Entering the coalition presented the same dilemma. Ultimately Samaras decided on a limited participation (placing ministers in the foreign affairs and defence portfolios) that did not compromise New Democracy in economically sensitive ministries. But the fact that this dilemma keeps showing up means that the coalition is on tenterhooks.

Samaras' position is both untenable and hypocritical: Untenable because he will have to keep inventing ways to portray himself as the opposition within the government. The longer the government survives, the more energy Samaras will have to spend being a rebel; and hypocritical because by the constitution, the cabinet is collectively responsible for the government's actions, and as coalition co-guarantor Samaras must be understood to support Papademos' actions.
Ultimately, though, the coalition seems to serve his purpose. Papandreou has done much of the dirty work of austerity hitherto. Papademos will quietly negotiate the austerity measures that will come in 2013-2014. Sandwiched between these bouts of unpleasant enforcement, the 2012 election can be expected to revel in populism. Samaras can afford to rail against unpopular policies that he cannot but enforce. He can thus fulfil the role the eurozone's leaders have come to expect of Greek politicians: to deny responsibility and take handouts defiantly.

The Bill for Incompetence Has Arrived

2011-11-10T11:45:00.001+02:00

Having lost financial credibility and then political credibility to pull itself out of its sovereign debt mess, Greece has now lost credibility even in the media. No one seems to be sure if or when a new government will be announced.

Prime Minister George Papandreou has brought this upon himself and the country. New Democracy committed itself to talks resulting in a national unity government last Sunday. Papandreou has the parliamentary majority and constitutional prerogative of naming the next premier. Instead of leading talks, he allowed himself to be dragged through four days of postponements. He has now bid farewell three times: in a speech to parliament last Friday, in a cabinet speech last Tuesday, and in a national address last night. Such prolonged death scenes do occur in the opera, but without the notes they lower the dignity of the reluctantly departed.

The plot of this particular musical theatre suits it more to the genre of operatic farce, with suitors and jealous ministers hiding in closets and passing notes. The media, like the public, have been played like a sounding board, broadcasting the names of jumped-up hopefuls or of personalities who had no idea they were up for the job. Finance Minister Evangelos Venizelos circulated his name, and is said to have secretly approached opposition parties in a parallel negotiation to the prime minister's. Someone at Pasok party headquarters told Reuters it would be Vasilis Skouris, the Greek head of the European Court of Justice. Apparently he never received a phone call. Greek media outlets aligned with New Democracy claimed with certainty that it would be former Euro-MP Ioannis Koukiadis, a friend of conservative leader Antonis Samaras.

Among the more respectable names floated is that of Nikiforos Diamantouros, the successful and well-regarded founder of the Greek ombudsman, who went on to preside over the European ombudsman. But it is the candidacy of Loukas Papadimos that serioius parliamentarians consider to carry the most weight in Europe. He has served as head of the Bank of Greece and went on to become deputy head of the European Central Bank in its first years of operation. His credentials and connections among Europe's governing elite are without doubt his strongest suit in managing a government whose chief aim is to gain credibility and implement a eurozone-sponsored bailout.

Banking sources tell The New Athenian that Papademos wants at least six months in office to get the job done of approving the second bailout and entrenching austerity reforms. He would likely bring National Bank governor Vasilis Rapanos as finance minister, and wants both socialists and conservatives to commit themselves to the cabinet politically by staffing it with top party figures.

A commitment to a government neither of them controls is understandably a big step for Papandreou and Samaras. But by pussyfooting around they have lost time and authority. Their grip on their own parties is weakening as a result. Papandreou wants to ensure that his legacy is protected and is increasingly acting like a man who does not intend to abandon the party leadership. That raises questions about whether he plans to attempt a comeback in the next election. Samaras refuses to invest himself too deeply in an interim government, fearing that his party will have lost too much of its political virginity if it goes into an election after spending six months in bed with the socialists. Then there are the concerns of party insiders. Papapandreou is under evident presure to ensure a political career for Venizelos. And many conservative hardliners seem to fear that Samaras has already compromised too much. All these pressures drove Papandreou in the direction of Parliament Speaker Philippos Petsalnikos, a socialist party traditionalist rather than a reformer. He would keep Venizelos as finance minister, protect Papandreou's reputation and give the interim government a sufficiently socialist feel to becalm conservatives' fears of too much hanky panky.

Petsalnikos was probably the man Papandreou had settled on when he mentioned an "institutional choice" in his farewell speech last night. The trouble was that by that stage he was said to have received irate phone calls from many in the party who saw the choice as insufficient to impress Europeans. The announcement was thus scuppered, and the farcical nature of the evening's proceedings were topped off by right wing Laos leader George Karatzaferis storming off in a huff over being sidelined.

Papandreou and Samaras must realise that the longer they spend thinking about their personal priorities and the pressure groups beneath them, the less likely they are to make a sound decision that benefits the country. They must also realise that this attempt to save the nation is really an attempt to save it from themselves. If Papandreou had had the maturity to realise he would need Samaras' help last year, they could have spoken on a better basis. If Samaras had had the maturity to accept Papandreou's ham-handed overture in June, we would never have breached the European taboo of discussing a Greek exit from the eurozone.

If Messrs. Papandreou and Samaras again botch this compromise, they will have killed the idea of a national unity government and brought Greece to the far worse option of immediate elections. That will put Greece's bailout at risk and point the country firmly in the direction of disorderly default. It is difficult to imagine the madness that will be released in an election campaign under such circumstances, but it is a fair bet that Pasok and New Democracy will be punished, possibly splintered, and ultimately unrecognisable as the parties of their founders. Given how poorly they have governed since the 1980s and particularly over the past decade, that would be fair comeuppance. But a culturally Western democracy that has enjoyed all the benefits of being saved from the communist bloc, won membership in Nato and the inner core of the European Union, should not have to plumb the depths of bankruptcy, social division and international disgrace to rid itself of political incompetents.

Greece Still Without Interim Government After Papandreou Farewell

2011-11-09T17:41:00.000+02:00

The naming of an interim Greek government was postponed for a fourth time on Wednesday night, as Prime Minister George Papandreou and conservative opposition leader Antonis Samaras left the presidential office without an announcement. Greek media were reporting on Wednesday evening that Parliament Speaker Philippos Petsalnikos had been named to lead Greece's interim government, causing uproar in the socialist party. Talks had been ongoing throughout the day for a fourth day between the two parties.

Earlier the embattled Papandreou stepped down after leading his country through the crisis for two difficult years. The interim government that is to ratify a second bailout the country badly needs and then take the country to an election next year was supposed to be announced an hour later.

George Papandreou bid Greeks an emotional farewell after four days of gruelling negotiations with opposition conservatives on the makeup of the interim government that will succeed his. He called the new government an end to the acrimony of the past months, and said it would represent Greek solidarity to the outside world. Its aims are clear, Papandreou said – to unblock the next instalment of an existing bailout package and ratify a second, 100bn euro bailout. Without the money Greece will default in a matter of weeks. He also called on the new administration to continue structural reforms to turn the economy from austerity to development, and reverse four years of recession.

At 6pm local time, Papandreou delievered the following address:

"Today we are doing what is nationally necessary and understood. The political forces are putting their support behind the country’s next political steps. This is necessary for the country to emerge from a crisis born of the mistakes of the past and an international crisis.

"From the moment the scale of the crisis was apparent, it was clear that what the political forces should do is cooperate, as is done in so many countries. If we didn’t do it now, when would we have this cooperation? From the beginning I supported the path of cooperation. I think that is what people wanted. That is why I supported it from the first. We did not have this. Now we do.

"We have differences, ideological and practical. We leave behind the acrimony and confrontation. We present a government of national unity to implement the decisions of 27 October, which gives us security at a troubled time. And we want to open a new era in our nation. We need more than ever to believe in ourselves, our nation, and to understand that when we have to face a serious problem we are not divided amongst ourselves. We can look at each other without hate and come together in solidarity.

"It was obvious from the beginning that to achieve this we would need a figure that unites us all. And I think the choice is institutional and correct. My presence could never be an obstacle to harmony. I took this decision [to resign] with the good of Greece as my sole concern and with conviction that in a new Greece we can fight side by side to build a different country. This value allows me to proceed down this road with decisiveness and surety.

"We the political powers are joining our forces to create an agreement that vindicates the efforts of the last two years. We need to hold onto this agreement to protect ourselves in view of the dangers that exist.

"The government will hold to this road map: secure the 6th instalment [of the existing bailout]; ratify the Oct 27 agreement that will secure 130bn euro and last through to 2014; start immediately the negotiations to reduce the debt by as much as 100bn euro in the coming years; the new government is also called upon to agree to the changes small and large – to the political client system, opacity, corruption, tax evasion, remittances of money abroad. It is all these things we have combated and I believe that we can guarantee social justice.

"I want to send a message of optimism. When the October 27 agreement is ratified all our problems won’t be over, but we will be able to stand on our own strengths and emphasise development rather than austerity. With this agreement we will send our partners the message that we Greeks know how to cooperate and not shrink from difficult circumstances. I am proud that despite the difficulties we all managed to keep our country upright. We avoided default. We had historic successes. Last year in May the EU did not have a [European] bailout mechanism. But we also managed to make changes that are unprecedented for Greece. These will form a foundation for future generations and the incoming government.

"I never counted personal political cost. For me Greece comes above all. On every trip I carry the flag in my heart. For a very simple reason. Greece is not a fate. Greece is a choice. As it was for me as a child of the diaspora – both a compass and a vision. And it is evident that we have great hereditary strengths – the natural environment, our ingenuity, our cultural heritage.

"I want to thank all those close aides who worked hard to get us to this point. But also the Greek people – for your resilience and trust under difficult circumstances. Thanks to you Greece won the time it needed to negotiate with European partners and put the state above markets. This is something all people want. Thanks to you Greece continues to fight and to hope.

"I want to wish every success to the new premier. I will support this new government’s every step."

Loukas Papademos Candidacy On The Ascendant

2011-11-08T13:25:00.001+02:00

Former Bank of Greece Governor Loukas Papademos is again today considered the favourite for prime minister in discussions among Greece's political leaders. His candidacy was said eysterday to have waned in favour of Nikiforos Diamantouros, the highly regarded head of Greece's Ombudsman for a decade.

A banking source told The New Athenian that Papdemos had raised the bar on negotiations between Prime Minister George Papandreou and opposition leader Antonis Samaras by placing strict conditions on the table. Among them is a stipulation to hold elections no sooner than May, allowing the interim government time to ratify the October 27 bailout offer from Brussels, implement reforms and cement a new relationship with the Eurogroup and financial system. The banking source also said Papademos was keen on appointing Vasilis Rapanos, head of the National Bank of Greece, as finance minister in place of Evangelos Venizelos.

The coalition is designed to unite rulingsocialists and opposition conservatives, whose bickering over the past monthshas brought the government to its knees. Conservative leader Antonis Samaras hascompletely abandoned his anti-austerity stance and adopted the governmentposition that ratification of the latest bailout deal from Europe is “inevitable”.

Earlier today the prime minister thanked the cabinet for what hecalled historic reforms decades overdue, and collected their resignations.

Pasok, New Democracy To Announce Interim Government

2011-11-06T19:21:00.002+02:00

Greece was poised on Tuesday to announce an interim government and end a crisis of confidence that threatens to derail a 100bn euro bailout agreement crucial to the eurozone's survival. The country's political leaders had said they would make the announcement on Monday, but talks dragged into a third day amid disagreements over who would lead the government.

Socialist prime minister George Papandreou and conservative opposition leader Antonis Samaras met for almost 90 minutes under the auspices of the country's president. A commuinique issued after they broke off negotiations for the night said they would name the caretaker prime minister and cabinet the following day. The new government's agenda would be the ratification of a 100bn euro bailout for Greece which the eurozone approved last week, and the implementation of an austerity programme attached to that bailout. It would then take the country "immediately" to a new general election, the communique said.

Papandreou has said that he will be stepping down as prime minister in order to facilitate the formation of such a government. His resignation has been the key demand by Samaras, who has reiterated it every day for the past three days. The prime minister's brother, Nick Papandreou, told The New Athenian that George Papandreou took the decision to resign on Friday.

Papandreou told his cabinet on Sunday that he would only hand over power to a government committed to the priorities of unfreezing billions of euros from the European Central Bank, European Commission and International Monetary Fund, stemming from Greece's existing bailout package; ratifying the second bailout which includes a 50% writedown of bond values in private hands; and implementing Greece's obligations stemming from that agreement.Papandreou wants the bailout ratified by a three fifths majority in parliament, which will require opposition support.

It was Papandreou's unwillingness to risk a bipartisan vote in an increasingly polarised legislature that led him to opt for a January referendum to ratify the bailout instead. His announcement last Monday unleashed a storm of criticism. New Democracy led the charge, saying that Greece's memberhsip of the euro was itself at stake, and a referendum was too unpredictable a vehicle to gamble the country's future on.

Pasok MP Milena Apostolaki declared herself independent on Tuesday, and Eva Kaili followed suit on Thursday. In the meantime, eurozone leaders France and Germany upbraided Papanredou on the sidelines of a G20 summit in Cannes, and challenged him to decide whether Greece wanted to be in the eurozone or not. His Finance Minister, who accompanied him, was so shaken by the experience that he broke ranks with the cabinet, which had initially aligned itself with Papandreou's referendum idea, and split the government.

By Friday, the day of a confidence motion in parliament Papandreou had called, he was within two MPs of losing his governing majority in parliament and his cabinet was divided. On Friday evening he told parliament that if he received a vote of confidence he would be willing to resign and form a national unity government.

Sunday night's communique suggests that Samaras prevailed upon Papandreou to hold the election sooner rather than later. Papandreou had, before the meeting, placed the election nearer to March 2012.

Outlook

A caretaker government would have to be approved by an absolute majority of the 244 MPs in the socialist and conservative camps. Not enjoying a popular mandate, it would draw its legitimacy from these two main parties, which have traded power between them since 1974. But popular support for the two party system has waned in recent years, suggesting that collaboration may be necessary after an election as well.

Many observers questioned whether a caretaker government made up of technocrats would be able to run the government even for very long, given how recalcitrant many labour groups have become in the public sector after a year of austerity measures.

Papandreou Looks for Scarce Friends After Vote of Confidence

2011-11-04T22:35:00.002+02:00

Greek Prime Minister George Papandreou was scheduled to see the country's president today, to discuss the formation of a coalition government that would ratify the Greece's second bailout package.

The coalition talks were the promise Papandreou gave MPs in asking parliament on Friday night for a vote of confidence, saying that he would be willing to lay down his premiership if that brought closer the prospect of a coalition government the following day.He received 153 votes, all from socialist MPs.

Papandreou expressed all other political initiatives - approving the second bailout; unblocking the sixth instalment from the first bailout; forming a coalition government with conservative New Democracy; and holding a general election - as dependent on his government's survival.

Who is willing to talk to Papandreou remains an open question. All opposition parties have shut the door to talks, excluding the right wing Laos. The prospect exists that Papandreou could fail to find partners and continue governing on his own.

Before the vote

Papandreou faced three unattractive choices in parliament tonight, which before his speech were thought of as mutually exclusive:

a). Stand down, take the blame for the referendum fiasco and allow his parliamentarians to elect a new leader.The attraction is that his party and government could move on, possibly to complete the government's full term. Papandreou would leave voluntarily, remain party leader and nurture hopes of a contuned political career. But his premiership would end at a dark moment in the crisis that would stigmatise him forever.

b). Propose that the confidence motion be delayed until he and conservative leader Antonis Samaras have hammered out the scope, lifespan and composition of a transitional government of national unity which would include neither of them. He would be praised for parting with power for the good of the nation, and vindicated after suffering three rebuttals from Samaras. However, his premiership would again be at an end.

c). Go to the confidence motion with the hope that his parliamentary majority of one (he now holds 151 out of 300 seats after three departures in the last fortnight) and a few independents will miraculously support him now that he has dropped the divisive issue of the referendum. He might just win it, but would probably lose and be ousted in a fashion he could not control

Option b is the one that puts the country's political system in the best light and somehow salvages what little is left of the credibility of the socialist and conservative parties. The smaller groups are already accusing the two-party system of bringing the country to disaster over three decades. Pasok and New Democracy could thus prove that they can put national interest above party interest.

The mandate of such a government should go beyond the limits Antonis Samaras, the conservative leader, stipulated yesterday - ratification of the second bailout and securing the moneyflow from the eurozone. New taxes should be put beyond its brief. But peopled by technocrats, it could also be authorised to continue cost cuts in the public sector until it had dismantled the client state built by Pasok and New Democracy over thirty years. Papandreou and Samaras cannot do this, but this is their opportunity to allow someone else to. They can then hold elections in the autumn of 2012 and blame the non-politicians for putting things right.

There is a fourth option, of course - that of a general election. But German Chancellor Angela Merkel's December 4 deadline for Greece to accept the second bailout makes this option risky. The constitution mandates a month-long campaign period; polls suggest that an election would likely produce a hung parliament leading to coalition talks; and ministers generally need a month to find their sea legs, thanks to a Greek tradition of outgoing governments shredding every document as though newcomers were a foreign invader. An election would put Greece on hold for a quarter of a year, which neither markets nor Greece's creditors would now accept.

Challenge from Finance Minister Could Topple Greek Government Tomorrow

2011-11-03T09:16:00.000+02:00

Greek Prime Minister George Papandreou is fighting for his political life after his finance minister and two other ministers withdrew their support for a referendum on the latest European bailout plan announced on October 26. Papandreou has lost a critical mass of support from his parliamentary bloc that make a vote of confidence tomorrow tantamount to suicide. His preference for a referendum also seems doomed because ministers and MPs have distanced themselves from the proposal as too risky.

The demise began late last night when Deputy Prime Minister and Finance Minister Evangelos Venizelos openly challenged the prime minister’s insistence on a referendum, which would let the people decide whether Greece should accept Europe’s latest bailout plan for Greece. This just hours after Prime Minister George Papandreou met with the French and German leaders in Cannes, and secured their reluctant agreement to the referendum. But the eurozone’s leaders suspended Greece's sixth instalment of 8bn euro under the existing bailout, and said, the referendum has to be on whether Greece wants to remain within the euro. That is exactly what Greece's opposition parties and many ruling party MPs don't want to risk, because it could signal a Greek return to the drachma. In a gruelling cabinet meeting that started on Tuesday and ended on Wednesday, Papandreou had been convinced not to frame the referendum as a question of remaining within the euro.

Venizelos said Greece’s membership of the euro should not be risked on the outcome of a referendum. That makes him the only cabinet member to disagree with the initiative, which ends the consensus reached in the small hours of Wednesday after a gruelling cabinet meeting, and could split the party ahead of tomorrow's vote of confidence. It also makes him the fourth socialist member of parliament to dispute the referendum, putting the party's mathematical majority in the red by two votes.

Venizelos is thus setting the stage for a succession, either immediately or after the vote of confidence if it fails. If he feels he has the support of the party's 151 remaining MPs (after two declarations of independence since Tuesday) and a handful of independents, he could oust Papandreou through a parliamentary procedure similar to that seen in January 1996, which replaced the ailing Andreas Papandreou, George's father. Otherwise Pasok could go to a messier vote among its party base, like the vote that allowed George Papandreou to prevail over Venizelos in November 2007.

There were unconfirmed reports earlier today that Papandreou was on his way to ask the president, Karolos Papoulias, to help form a government of national unity that would include the ruling socialists. An emergency cabinet meeting was ongoing on Thursday in parliament.

In Cannes Papandreou was prevailed upon to move up the date of the referendum to December 4. Originally it had been scheduled for January. "I believed it important that the Greek people have the chance to declare themselves on the [European] Council's decisions of October 26. It is their democratic right. And I believe the Greek people to be mature and wise... It isn't just about a progrmame. It's about whether or not we want to remain within the eurozone," he told reporters. Asked what he would do if the government lost the referendum, he said "The answer will be yes."

The language among the eurozone's leaders is reflecting the growing realisation that Greece could default and exit the euro, whereas the topic was taboo only a week ago. “We would like Greece to remain a member but we’re not saying Greece has to stay a member at all costs,” Eurogroup President Jean-Claude Juncker told Bloomberg. "The referendum will revolve around nothing less than the question: does Greece want to stay in the euro, yes or no?" asked German Chancellor Angela Merkel after meeting Papandreou in Cannes yesterday.

Full text of Finance Minister Evangelos Venizelos' statement:

"Greece's place within the euro is a historic achievement that cannot be put in doubt. This conquest of the Greek people cannot depend on the outcome of a referendum.

"The country has to feel safe and stable, and that is the first prerequisite for it to be safe and stable. Greek banks are entirely guaranteed as an integral part of the European banking system. That much was clear last night in Cannes.

"What is foremost is the disbursement of the sixth instalment [of the first bailout loan] as agreed by the Eurogroup on October 26, after a ten hour battle.

"The next step is the activation before the end of the month of the new support programme [bailout], which gives Greece another 130 billion euro and leads to a reduction of our public debt by about 100 billion euro. The completion of these procedures is a national imperative.

"I left hospital and went to Cannes because I consider that it was a matter of duty to the country. With the first hand view of the situation in Europe and internationally, I am obliged to tell the Greek people the full and simple truth: If we want to protect the country, we must, under conditions of national unity and political sobriety and consensus implement without delay the decision of the 26th of October. Now, as quickly as possible.

"Towards this end, the government's initiatives and the initiatives of the [socialist party's] parliamentary bloc of deputies are insufficient. Everything that is being said and done on a Europen and international level is equally pertinent to the opposition, particularly the main [conservative] opposition, which is the recipient of the message from Cannes. Its stance, were it a positive one, would act as a guarantee for the country's international credibility, but being negative hurts that credibility at an enormous cost to the Greek citizen.

"What is at stake is not the political dynamics at home or the future of particular individuals or parties, but the salvation and resitution of the country through the only feasible process, which is enshrined in the October 26 decision."

Other Developments

Socialist MP Eva Kaili, who asked Papandreou to form a government of national unity earlier this week announced today that she is not going to support the government in a vote of confidence tomorrow nor resign her seat, and effectively declared herself independent.

The Greek Political Crisis on PBS

2011-11-02T18:46:00.003+02:00

On Tuesday, The New Athenian talked with PBS's Jeffrey Brown about the reasons behind Prime Minister George Papandreou's declaration of a referendum.

Transcript:

JEFFREY BROWN: A short time ago, I spoke with John Psaropoulos in Athens. He's a freelance reporter and writes the blog called The New Athenian.
John, welcome.

We said this was a surprise. Apparently it was even a surprise to people in the prime minister's cabinet and party. So what's known about why he suddenly decided to call for a referendum on the plan?
JOHN PSAROPOULOS, freelance reporter: At the moment, the prime minister hasn't explained his thinking, other than what he said in Parliament to his M.P.s yesterday, which was that the country had to move for on a democratic basis, it had to have hope for a better day after the austerity period was done, and that in order to achieve this he wanted his government to have the authority of a popular vote of approval for what was going to be the last phase, I presume, of the austerity measures that have been so painful up until this point.

JEFFREY BROWN: So it caused an immediate firestorm there, with a lot of opposition even within his party. Tell us what's happening now. Is his power threatened at this point?
JOHN PSAROPOULOS: Well, at the moment, the prime minister's power seems to be slipping -- 24 hours after his announcement to have the referendum the entire opposition -- that means left-wing and right-wing parties -- have said they will not back this decision. People have expressed stupefaction.
And he has had three defections within his own party, which now puts him at 150 M.P.s, were his government to come to a vote of confidence on Friday as scheduled. That means that if every party shows up to Parliament for that vote of confidence at the end of the week, and given the stated position of the opposition parties not to back the government at this point because they disagree with the eventual referendum in January, then the government probably doesn't have the M.P.s from its own side in order to survive that vote of confidence.
JEFFREY BROWN: Now, what kind of gamble is he making? If it's a gamble to try to seek political cover, what do the polls tell you now about how Greeks feel, whether they would support such a referendum?
JOHN PSAROPOULOS: At the moment, it's difficult to say, because the latest opinion polls that have been published were taken before the present crisis erupted.
And, yes, 70 percent of Greeks did say in an opinion poll taken on Friday after the latest deal was reached in Brussels for a $100 billion bailout which is Greece's second bailout, and published on Sunday, that they would rather have Greece remain within the euro and presumably with all the pain that that involves, rather than go back to the drachma.
And 54 percent expressed themselves in favor of a referendum, rather than a parliamentary vote. But at the same time, it doesn't seem to have gone well in terms of the government's thinking or the prime minister's thinking, which is namely that it seems to be that the government will seek to re-legitimize itself and re-bolster its authority through the one issue on which Greeks seem to be united, which is that they want stability to remain within the euro and a sense of continuity, rather than some sort of disorderly default.
It seems that the government misjudged that this would be an issue that it could carry itself forward on in a January referendum, at least because it's too far away for that issue to remain in hiatus. The European summit was called in order to bring certainty and stability. And this now reopens the issue and puts it in jeopardy.
JEFFREY BROWN: All right, John Psaropoulos in Athens, thanks so much.
JOHN PSAROPOULOS: Thank you.

Greek Government Tottering

2011-11-01T18:53:00.001+02:00

Greek Prime Minister George Papandreou's days and even hours appeared to be numbered after a mutiny within his bloc of parliamentary deputies.

The ruling socialists were left with a majority of 2 MPs after the resignation on Tuesday of Milena Apostolaki from Pasok, calling the prime minister's idea of holding a referendum on a new, 100bn euro bailout package approved in Brussels last week "deeply divisive". She is holding onto her seat as an independent. Another two socialist MPs, Vaso Papandreou and Eva Kaili, have asked for a national unity government.

Eva Kaili also asked the PM to step down. Vaso Papandreou declared that "the country is threatened with imminent bankruptcy. I call upon the President of the Republic to call a meeting of party leaders with the object of forming a government of national salvation that would secure the aid package agreed on October 27, and then immediately take the government to national elections."

It is increasingly clear that Papandreou would not survive Friday's confidence vote on the strength of its 150 remaining MPs, and the government could well fall sooner. A cabinet meeting on Tuesday night eventually backed the referendum idea, but it is far from clear whether all ministers are agreed on the terms on which it should be carried out.

Were Papandreou to go, a smooth transition scenario would entail a government of national unity with the conservatives once he had done so, and a caretaker prime minister acceptable to both sides - possibly one pulled from retirement - put in his place. The bumpier scenatio would have Greece going directly to an election that would likely lead to a hung parliament and a coalition process.

Conservative leader Antonis Samaras told his MPs on Wednesday that he vowed to rid the country of what he called an irresponsible and dangerous government. New Democracy had denounced the referendum as soon as it was announced as a risky strategy that forced a disoriented, impoverished and divided population to "vote their fear" - leaving the euro - over their anger at the austerity they had to endure. The party renewed its call for elections.

An opinion poll by Kappa Research in Sunday's Vima newspaper said that 70 percent of Greeks would rather remain in the euro than return to the drachma. At least two thirds of Greeks have consistently responded in favour of remaining within the euro over the past several months.

Other observers have said the referendum, which Interior Minister Haris Kastanidis said would likely take place in January, is effectively putting Greece in a three-month long pre-election period it can ill-afford. Should the referendum fail, it puts Greece on a track of leaving the euro, since the austerity terms accompanying the bailout are the only way for Greece to remain within the eurozone. Outgoing ECB president Jean-Claude Trichet and French President Nicholas Sarkozy have told media since the October 26 summit that Greece got into the euro through fraudulent claims and should never have been allowed to do so. "It's economy was not ready," said Sarkozy.

It appears that Papandreou was looking for a way to re-legitimise his government, which has shown signs of fatigue after two years of dealing with Greece's sovereign debt crisis alone. Every time he has brought an austerity bill to parliament the opposition has forced his government and MPs to carry the political cost alone. This has led to the loss of three seats, two failed overtures for a coalition with the leading opposition conservatives, and one reshuffle. Papandreou himself was humiliated by being excluded from talks in Brussels last month leading to a 50% writedown on Greek bonds for private investors.

An early election was out of the question for Pasok, which in opinion polls has been garnering around 15 percent compared to New Democracy's 22 percent of the popular vote were elections to happen now. It is a disgraceful descent from the 44 percent of the vote that unexpectedly catapaulted Papandreou to power just two years ago.

Evidently Papandreou decided that a referendum was the way to go. He could bypass the bruising experience of a parliamentary discussion and use the one issue Greeks overwhelmingly agree on - remaining within the euro - to renew his government's tattered authority. On the back of this, he would pass further austerity measures and remain in power long enough to reap political credit for the fruits of them. The strategy backfired horribly.

New Democracy said it was "determined to pre-empt such political experiments" and called elections a "national necessity". All opposition parties followed ND's stance, declaring themselves categorically against the referendum.

Markets tumbled across Europe and in the US on Tuesday, with the Athens Stock Exchange falling by 6.9 percent, and the euro retreated against the dollar. Italian bond spreads with the German bund reached a record 455 basis points.

Technicalities

The vote of confidence would normally not be a big hurdle for Papandreou. He would need an absolute minimum of 120 votes in the 300 seat legislature. (To put it technically, according to parliamentary rules, he needs an absolute majority of the MPs present at the vote, but musc secure a minimum of two thirds of MPs). When his party controlled 153 seats he could have passed it handily. But not with an internal revolt.

The referendum requires Papandreou to mobilise his cabinet to send a request to parliament. There, the motion has to receive an absolute majority of 151 seats, in order to go to the president, Karolos Papoulias, who then issues a decree for the referendum.

In the referendum itself, according to article 44 of the constitution, if the motion in question has not already been put to parliament, Papandreou requires an absolute majority of at least 40% of Greek voters. If he sends the bailout package to parliament in the form of a bill, he will need an absolute majority of 50% of voters.

PBS Interview

2011-10-20T09:42:00.001+03:00

PBS's Judy Woodruff chatted with The New Athenian about yesterday's protests in Athens and the controversial bill that carries into law thousands of public sector layoffs and wage cuts.

JUDY WOODRUFF: For a closer look at the situation in Greece, we check in again with John Psaropoulos, a freelance reporter based in Athens.
John, obviously, there have been demonstrations before. What was different about what happened today?

JOHN PSAROPOULOS, freelance reporter: Well, today, you had a very, very large number of people. Definitely, the crowd was in the tens of thousands.
You also had some very young people there, people in the high school ages, because schools were on strike. But you also had, of course, mature workers, from people in their 20s all the way up to people close to retirement. It's a very broad, representative swathe of society.
What perhaps made it qualitatively different is that, now that the country is in such desperate shape for its sixth installment of this bailout plan, people really feel that it's a make-or-break moment for Greece. And with every new austerity bill, this dance of demonstrations, sometimes violent demonstrations, timed to coincide with parliamentary debates has happened, but now people feel that everything really is at stake.
And that's reflective in the debate inside Parliament as well.

JUDY WOODRUFF: And, John, what is it that the protesters say they want? Are they in agreement on any set of demands?

JOHN PSAROPOULOS: Well, many people who work for the public sector simply don't want this bill to go through, because it carries into law promises the government has made to the country's creditors, which it must be held to. It will retire 30,000 people from the public sector. It will lower pay for the remaining 550,000-odd.

And it will also make it easier to fire people next year in a sector that has got used to tenured, lifelong employment. If you ask people in the private sector, they want the government to do more to develop the economy, to focus on boosting the economy, which is now in its third year of recession. People are looking at their fourth year of recession in 2012. A lot of businesses won't survive that, small and large.

And so, on the whole, there are different reasons for opposing this bill, some people because their livelihoods are directly affected and others because they feel it's pushing us in the wrong direction, deepening the recession and speeding up the rate at which Greece seems to be falling apart economically.

JUDY WOODRUFF: John, you were telling me earlier that the stresses of what's taking place are now reaching deep into society. You were telling me about people leaving the country, about how this is affecting people's health.

JOHN PSAROPOULOS: Well, there are enormous numbers of people who have left in last two years since the crisis began or who are leaving now, particularly highly educated, highly skilled white-collar workers. You hear conversations, for instance, in the medical professions about how highly specialized doctors no longer have a client base here, and they have gone to the more lucrative markets of Northern Europe or the United States.

You hear about people in the arts, even, graphic designers, architects, leaving, going to North America if they can. A lot of repatriated Greeks particularly who have dual citizenship are doing so. And it's becoming more and more palpable to everyone that Greece is going nowhere fast.

This country is not going to be a viable job market for the young people now entering the work force and graduating from university maybe for the next decade, in people's perception, and therefore the future is elsewhere.

JUDY WOODRUFF: You also were describing health strains, more people having heart attacks.

JOHN PSAROPOULOS: There are enormous stresses in just about every profession you care to mention, from advertising to finance, but also to blue-collar professions, plumbing, electrical work. Everything has gone down. Ask any sector of the economy.

Take something as simple as gasoline. Gasoline consumption has gone down 35 percent in the last year-and-a-half -- 1,100 petrol stations have shut down. That's a very large number of small, medium-sized enterprises out of work. That's a family at least, maybe two or three families, behind each business.
We had a local jeweler suffer a fatal heart attack over the summer because he was so stressed about the way his business was going, leaving two small children behind. And it's happening. It's happening all over town. You hear anecdotally stories of people who are simply not able to cope with the stress of merely remaining in the profession that they're in.

People aren't even hoping for anything better. They're just trying to survive.

JUDY WOODRUFF: John Psaropoulos in Athens giving us a human look at what's taking place there on the ground in Athens, in Greece.

Thank you, John.

New Weapons Against Tax Evaders

2011-10-14T17:02:00.002+03:00

Finance Minister Evangelos Venizelos today told parliament that tax evasion is a national crime now amounting to 42 billion euros in lost income to the state. He has in the past admitted that the figure contains a great deal of uncollectable debt from defunct firms.

Venizelos also revealed that the government has assembled a new task force to audit the thousand biggest companies by turnover, and is retaining private sector services to help it track down large individual tax evaders. While he appealed to the patriotism of the Greeks in honestly declaring their income, Venizelos also made clear that the government is bringing to bear new weapons to home in on large tax evaders. It recently declassified banking transactions, and the minister today revealed some of the findings of that declassification for 2009 income.

Roughly 180,000 people remitted 5.4 billion euro overseas, Venizelos said. Of those, 8,667 individuals were responsible for remitting 4.9 billion. From among these, 3,718 declared an income of less than 20,000 euro for the year. He said the government would have remittances data from 2010 and 2011 within days.

The details were revealed during an exchange with Fotis Kouvelis, leader of the Democratic Left Party, who called on the government to crack down on nearly 10 billion euros in corporate tax evasion. Kouvelis implied that the government is reluctant to undertake the political cost of allowing its Financial Crimes Unit do its job of auditing individuals and companies.

The public payroll figures

2011-10-10T20:08:00.002+03:00

The Lancet published a report today detailing a sharp rise in suicides, HIV infections and drug abuse as a result of the economic crisis in Greece. The report cites unofficial data indicating a 25 percent rise in suicides in 2010 over the previous year, and a 40 percent rise in the first half of 2011. It also estimates that HIV infections will rise by 50 percent this year.

The report prompted concern about whether Greece's truly universal healthcare system can cope with the rise in poor psychological and physical health. Doctors have reported that outpatient clinics are receiving more visitors as people try to avoid private consultations, which typically cost 40-80 euro. And anecdotal evidence suggests that clinics are losing some of their more highly specialised doctors who are mobile enough to find more lucrative employment overseas; even public hospital doctors rely on their private practice to supplement income.

The nursing staff union says it has shed about 6,500 people in 2010 and thus far in 2011, representing about 10 percent of nursing staff. As difficult as this is for the public healthcare system to absorb, where there is always high demand for nursing services, the cuts are proportionally lower than they are in the rest of the public sector.

Ilias Iliopoulos, the general secretary of the civil servants' union, ADEDY, told me that about 230,000 people will have left the public payroll between January 2010 and the end of this year, representing 30 percent of the workforce. The figures break down as follows: Last year, 35,000 tenured employees took retirement, 51,000 fixed term employees were not renewed and 22,000 Stage employees (subsidised by EU funds) were terminated. This year an estimated 90,000 employees will have left or retired, not including the 30,000 retirements announced last week by the government. So the government can say that it will have reduced the public payroll by 30 percent over two years, with pressure likely to continue from Greece’s creditors for continued reductions next year on a similar scale. If this plan is adhered to, the payroll will stand at about 548,000 by the end of the year, in a total national workforce of four and a half million.

The other bone of contention with the unions is the bill the government submitted to parliament last week consolidating and streamlining public sector payrolls by lowering their above-salary benefits. ADEDY disagrees with Finance Minister Evangelos Venizelos' estimate that the best-paid 100,000 would lose 20 percent of their take-home pay, while others would remain unaffected or see a modest increase. Iliopoulos intends to tell a parliamentary committee tomorrow, where the bill is to be discussed, that 98 percent of employees will see income reductions of anything between seven and 52 percent.

There is a huge secondary loss in quality of life resulting from the spats between unoinists and the government. There are ever-more frequent strikes in Athenian public transport. ELLPE, the state refiner, and the Public Power Corporation will begin indefinite strikes tomorrow, and that will likely lead to rolling blackouts and queues at the pump. Municipal rubbish collectors and landfill workers are on partial strike status so fetid piles of rubbish are growing on street corners.

But hovering above all these daily inconveniences is the fundamental insecurity among people that they might lose their jobs not because they haven't done them well or worked hard, but due to bad economic sentiment with Greece now in its third year of recession. There is insecurity in school and university, because there are no jobs for new graduates. The nationalisation of Proton Bank this week has reminded people that their savings and mortgages may not be safe. There is fear that the country could be thrown out of the euro, and there could be mayhem on the streets. That stress is a fundamental reason for deteriorating public health.

Greek polls punish both Pasok and ND

2011-09-28T16:42:00.001+03:00

Finance Minister Evangelos Venizelos assured the Greek and international media yesterday that Greece's bailout and agreed programme of reforms would proceed according to schedule. “If we fail,” Venizelos said, “the country will suffer a setback equivalent to a great military defeat. It will take us back decades.”

Later the same day parliament voted through a new property tax that will add hundreds of euros to household power bills this year, and attempt to raise 1.7bn euro. In imposing wave upon wave of severe austerity measures for the past 18 months, the government is partly playing on Greek fears. In a Public Issue poll published last Sunday by Kathimerini, two thirds of Greeks were against returning to the drachma and 60 percent feared that default is possible.

But that is where the good news ends for the ruling socialists. The polls are generally not favourable to the government or the political elite in general. The same survey found that Prime Minister George Papandreou enjoys a 17 percent approval rating, and his opponent, conservative New Democracy chief Antonis Samaras, a mere 26 percent. Papandreou is shouldering unpopular reforms; but why have Samaras' figures been stubbornly stuck in the low 20s since he came to his party's leadership in December 2009? His unaffordable economic programme, his divisive stance over the midterm reform programme last June and his insistence earlier this month on protracted elections until he wins an outright parliamentary majority ought to be prime suspects.

It gets worse for the PM in a Rass poll for Proto Thema, also published last Sunday, where 29 percent of Pasok voters would back his finance minister for party leader, versus 12 percent still in favour of him. It is a shameful showing for Papandreou, who four years ago trounced Venizelos for the party leadership, claiming 56 percent of the party base versus Venizelos' 38 percent.

As they now stand, voter intentions would neither return Pasok nor install New Democracy in autonomous parliamentary power. An ALCO poll published in Proto Thema and a Pulse poll for Eleftheros Typos both gave Pasok 15 percent and New Democracy 21 percent. A GPO poll aired on Mega channel the next day gave similar results. It is a far cry from their election performances of 43.92 percent and 33.48 percent respectively in October 2009. Of course between 20 percent and 30 percent of the vote remains undecided in those polls, but it should come as a concern that the as yet unelected Greens, and the newly formed Democratic Left and Democratic Alliance, all appear close to entering parliament. That would suggest a chamber possibly fragmented between eight factions. Since polls show the smaller parties currently in parliament (Communist Party, Left Coalition and Laos) clinging to their present majorities, new entrants would eat into the roughly 80 percent piece of the electoral pie usually contested by socialists and conservatives.

But a coalition government is not the worst case scenario for Greece. The mere declaration of elections could be ruinous. The prospect of a caretaker government for the mandatory month-long campaign period, followed by a minimum of one month for the new government to begin legislating, would probably be enough for the markets to declare Greece bankrupt.

That is why Deputy Prime Minister Theodore Pangalos appeared on television this morning to massage public opinion in the wake of the passage of the property tax. He declared that "We have surpassed, for some time now, the ability of the taxpayer to bear new burdens. And I think the emphasis now should be on cost cuts." Pangalos declared that he himself now owes over 17,000 euros in property tax, and will have to sell a property in order to meet the obligation. "What if you can't sell one in this market?" the presenters asked. "Then Mr. Venizelos will have to throw me in jail," came the reply. The presenters laughed, but Pangalos wasn't smiling.

Interview with PBS

2011-09-27T09:11:00.000+03:00

The New Athenian was on PBS yesterday, discussing the reality as hitherto announced austerity measures begin to take effect and people continue to fear default. Parliament is due to vote today on the property tax announced on September 11. The government also faces a series of privatisations in coming weeks including lucrative state monopolies and prime real estate.

The Stubborn Greek Leviathan

2011-09-22T17:33:00.000+03:00

Greek Prime Minister George Papandreou has faced a dilemma these past two years - whether to squeeze more money out of the pockets of the struggling middle class, or alienate political allies by cutting state sector jobs. Over the last ten days he has done both under pressure from creditors, in a bid to raise or save a total of 8bn euros this year (See sidebar at the end of this post). The fact that the projected revenue shortfall for 2011 is a quarter of that sum shows how little credibility we enjoy.

Greece's creditors may demand cost cuts in government rather than squeezing more from taxpayers, but those trigger sedition in the ruling Pasok party's union power base. That is the reason successive governments have not pruned but fertilised the state payroll, which stood at over a million of Greece's 4.5 million-strong workforce when Pasok came to power in 2009. (Cabinet member Ilias Mosialos recently told a Sunday newspaper that 200,000 have since gone off payroll but cited no source for the figure).

The bankruptcy scenario thus still hangs over Greece. Fitch's said today that it expects a Greek default within the euro. It was the latest in a crescendo of voices from economists and financiers calling what they see as the inevitable. Some also see it as the beginning of the end of the euro.

Greek reactions during this ten-day period of government oscillation have been unvaryingly critical of both savings and revenue raising measures. The communist party has discouraged civil disobedience on the property tax. "Refusing to pay is a legal act for families that do not have the means, but also an obligation and an act of solidarity for those families still holding on." (Whether property ought to be owned at all is left unaddressed).

Opposition New Democracy's position is more nuanced. "I do not tell people not to pay," said opposition leader Antonis Samaras at the Thessaloniki International Fair on September 18. "I say people cannot pay." Like Papandreou prior ro his October 2009 election victory, Samaras is spinning a populist myth. Back then, Papandreou had told voters that the credit crunch was a fabrication. Samaras is telling them that he can renegotiate the memorandum that obliges Greece to undergo painful reforms. We've already been there. Both Venizelos and his predecessor, George Papakonstantinou, were thrown out of meetings with eurozone ministers after attempts to renegotiate their position. Papandreou tried and failed to set the agenda for European fiscal union. Both Berlin and the ECB have flatly refused to issue eurobonds for Greece's sake, or anyone else's. In any case, the process is technically difficult, requiring new treaties with all 17 eurozone members. Popular opposition to bailing out the Greeks as much as it has done is pushing Angela Merkel's coalition over a cliff. Germany's constitutional court has now barred her from extending further credit without the prior approval of the Bundestag's budget office.

Samaras is right on a couple of points. The privatisation programme, which is a 28bn euro chunk of Greece's second bailout plan, is looking increasingly undermined by the plummeting value of real estate and the Athens stock market. And the government's inability to release the creative energies of the private sector by unshackling enterprise from the constraints of bureaucracy means its revenue policy has been confined to taxing the economy to death. As a result, it has speeded and deepened the recession. The economy will shrink by 5.3 percent of GDP this year by the government's own confession, compared to 4.5 percent least year and four percent the year before. That in turn further shrinks tax revenues and prompts measures that further the death spiral.

But ultimately Samaras has done more harm than good. His refusal to join forces with Papandreou has deprived Greece of the political leverage in Europe both socialists and conservatives so badly want. And his partisan stance has given people false hope that Greece can somehow talk its way out of repaying its debt, either through default or through renegotiation of the July 21 memorandum of reforms, and still retain its creditworthiness. His own scheme for reviving the economy, termed Zappeion 2, is a bundle of populist concessions (legalisation of all illegal homes, zero dismissals from the public sector) and currently unaffordable pump-priming (e.g. overnight state repayment of its debts to small businesses).

Samaras is also out of line in threatening that in the event of an election his party would only agree to rule with an outright majority, even if it took two elections to achieve it. The constitution would oblige Samaras to seek a coalition partner if he only won a relative majority. He is blackmailing an angry and divided electorate. But once again, Papandreou did the same. In spring of 2009 he announced that his party would trigger an election by refusing to renew the president's mandate in parliament, which requires a bipartisan majority.

The sins of New Democracy and Pasok are sins both of weak character and cynical manipulation of democracy. Worst of all, they have both committed the cardinal sin of buying bloc votes from the unions and defenestrating meritocracy for three decades. Their inability now to cut down the monstrosity of the public sector is hardly surprising. It is like asking termites to demolish their own mound.

Excuses can, of course, be made. The collapse of financial markets and the defencelessness of the euro are beyond Greece's jurisdiction. Both Lawrence Summers and George Soros recently pointed out that Europe’s weakness is its consensual, incremental policymaking that is never quite enough to achieve the quantum leap markets require. As a result, markets are pitchforking politicians into action, and the result, they say, will be the euro's eventual collapse.

But once those excuses have been made, the blame for the fact that the Greek crisis has worsened over two years ultimately rests with George Papandreou's government and to a lesser extent with the opposition. He has caused much of the political unrest by taxing the easy money in consumption, salaries and pensions. And he has done this to avoid the political pain of cost cuts, further undermining market faith in the Greek bond in the process.

Former finance minister Stephanos Manos (1990-93), suggested in a Kathimerini Op/Ed last Sunday that Papandreou do two things to shore up the value of the Greek bond: pay himself, his government and members of parliament in Greek bonds, and accept bonds in payment of tax obligations. His tongue is in his cheek, of course, but he does expose the basic truth that even the Greek government seems to agree with markets in the devaluation of its paper. That devaluation represents less the potential of Greece to provide for itself, and more the dearth of apparent political talent to lead the way.

Measures announced on 11 and 21 September 2011

On the cost-cutting side, Greece announced yesterday that it will suspend 30,000 workers from the public payroll this year, and survey areas where it can make further cuts in 2012. It will also harmonise pay grades across the public sector to quash favouritism and discrimination. The private sector will not escape unscathed. Pensions above 1200 euro a month will be slashed by a fifth.

On the revenue-generating side, the government announced that it will extend to 2014 an annual property tax it unveiled on September 11, which ranges from 0,50 euro to 14 euro per square metre. (German Finance Minister Wolfgang Scheauble expressed doubt about how effective the tax could be this year). The income tax threshold will fall for the second time this year, from 8,000 euro to 5,000 euro.

Crisis Chronology

2011-09-19T10:03:00.000+03:00

2011

June 15: The government nearly falls after protests in Syntagma square and a tumultuous debate in Greek parliament, a mid-term package of austerity measures and reforms worth 28bn over five years. George Papandreou speaks to Antonis Samaras over the phone (!) but they fail to agree on a grand coalition. Papandreou reputedly offers to quite the premiership but recalls the offer after outrage from his senior party officials.

June 16: Two Pasok deputies resign, temporarily reducing the socialist majority in parliament to 154.

June 17: After a reshuffle Finance Minister George Papakonstantinou is replaced by Evangelos Venizelos.

June 21: The new cabinet survives a vote of confidence in parliament along party lines.

June 29: Parliament votes in the mid-term austerity package by 155 votes in favour plus 138 against.

July 18: Taxi drivers begin a series of 24 hr strikes over liberalisation of their sector that turn into an indefinite strike. Their complaint is that outgoing transport minister Dimitris Reppas had promised them a number of licesnes capped at the current 24,000 for Attica, but incoming minister Yannis Ragousis rewrote the law with unlimited licenses and the possibility of group licenses that would allow the creation of cab companies.

July 21: Final agreement on a new 109bn euro bailout of Greece.

Friday September 9: German ECB board member Juergen Stark resigns over disagreement with the extent to which the bank has invested itself in risky eurozone periphery bonds.

Sunday Septmber 11: Finance Minister Evangelos Venizelos announces a property tax at the Thessaloniki International Fair. The tax will be levied through power bills and amount to 0,50 to 10 euro per square metre of property. It is to be levied in 2011 and 2012 and aims to raise 1.7bn euro of a 2bn euro revenue shortfall for 2011. But Venizelos admits in the same press conference that the economy is set to shrink by 5.3 percent, far above the 3.5 percent originally envisioned.
http://www.minfin.gr/portal/el/resource/contentObject/id/2c1186e3-6ac3-4aa3-ab63-c18e6d8cde8e
Philipp Roesler, German deputy chancellor and economy minister, said in a newspaper editorial on Sunday/Monday that "There can be no more taboos. That includes, if necessary, an orderly bankruptcy of Greece."

Monday September 12: World stock markets drop 2% on fears of a Greek default. The FT publishes a useful overview of how all four of Greece's funding sources are in trouble: the remaining portion of the first bailout loan (57bn), the new loan portion of the second bailout (34bn), the debt rollover scheme (54bn) and the privatisation plan (28bn).

Tuesday September 13: Angela Merkel declares that a Greek bankruptcy is "unthinkable until 2013" when the EFSF becomes a full-fledged aid mechanism.

Wednesday September 14: PM George Papandreou, Nicholas Sarkozy and Angela Merkel have a conference call during which Merkel and Sarkozy underline their support for Greece but on the strict condition that the reforms agreed to on July 21 are carried out to the letter. Papandreou asks them to control the statements re. Greek default from their cabinet members (deputy Chancellor and economy minister Philipp Resler was joined by Alain Juppe in public statements about a controlled Greek default).
http://www.ft.com/intl/cms/s/0/be11b43c-dd20-11e0-b4f2-00144feabdc0.html#axzz1Y0xyeV2r

Thursday September 15: George Soros publishes an article in the New York Review relayed by Reuters saying that bankruptcy by Greece may now be inevitable.
http://blogs.reuters.com/great-debate/2011/09/15/does-the-euro-have-a-future/

Saturday September 17: Ecofin and eurozone meeting in Wroclaw, Poland. Venizelos describes the climate as hostile. Papandreou, in London, announces cancellation of the rest of his trip to the US and returns to Athens. Antonis Samaras makes speech to TIF in which he reaffirms his traditional position that the reform memorandum between Greece and its lenders is flawed and needs renegotiation.
http://www.nd.gr/web//guest/press/-/journal_content/56_INSTANCE_c6UH/36615/762947

Sunday September 18: Papandreou holds emergency cabinet meeting reportedly to discuss further austerity measures. These include further cuts to public and private sector pensions, and public sector wages. Also reportedly discussed is a plan to immediately dismiss as many as 100,000 state workers by 2015 – far more than the number currently being considered. Samaras holds a combative press conference at TIF where he says that ND is going for one-party government, and if it doesn't get an outright majority in parliament the first time, it will hold out for a second round of elections. In other words, he is polarising his base and isolating the government.
http://www.nd.gr/web//guest/press/-/journal_content/56_INSTANCE_c6UH/36615/765138
On the same day, Wolfgang Schauble tells Bild am Sonntag that he is sceptical about whether the new property tax will work. He also reiterated his standard position that without a positive review from the representatives of Greece's troika of creditors there will be no next loan instalment. Greece is due to receive 8bn in October. According to the FT, Greece has enough cash until the beginning of October. It quotes a finance ministry official as saying that aftetr October 10 "there will be big problems with meeting obligations, including pensions and salaries."
http://www.ft.com/cms/s/0/de152072-e1ec-11e0-9915-00144feabdc0.html#ixzz1YNaG4vof

Greek banks face new challenge

2011-08-22T10:08:00.005+03:00

The Financial Times explains why even as they face a potentially ruinous liquidity shortage, Greek banks have pooled 50 million euro to save Proton Bank from collapse. Proton faces imminent danger following the revelation that its main shareholder, pharmaceutical operator Lavrentis Lavrentiadis, is under investigation for using it as a slush fund. The last thing honestly run Greek banks need is a public perception that, in addition to their overexposure to Greek debt, they are run nepotistically. According to the FT, as much as a third of Proton's 850 million euro loan portfolio was given to Lavrentiadis' subsidiaries.

Greek daily To Vima broke the story of the investigation by the Greek prosecutor and money laundering authority on August 7.

Back to the Stockades

2011-07-01T09:59:00.002+03:00

The debate in Greek parliament this week on a 78bn euro austerity and privatisation package marked a return to the stockades parties dug themselves into a week ago, when the ruling socialists asked for a vote of confidence. Gone was the consensual rhetoric from Prime Minister George Papandreou, who made a highly partisan, almost pre-electoral speech on the evening of June 27. He squarely accused the opposition conservatives of lacking the responsibility and patriotism to back the government's plan. Conservative Leader Antonis Samaras responded by accusing the government of asking him to make up for its pusillanimous performance in negotiating with Greece's creditors.

Even as the parties hardened their positions and abandoned the more genuine exchange of views we had seen ahead of the confidence vote on June 21, they lost control over two of their MPs. Socialist Pasok's Yiorgos Kouroumplis defected to vote against the austerity plan, and conservative New Democracy's Elsa Papadimitriou defected to vote yes. Kouroumplis was stricken from party rosters, while Papadimitriou is now an independent. In the event the plan passed with 155 in favour, 138 against and 5 abstentions. The framework implementation law passed with a similar majority the following day.

Perhaps the partisanship that has helped preserve the appearance of democracy has now become as unpopular in the legislature as it has long been on the street. Traditionally it helps define party ideology, but Greece is now beyond the traditional ideological alternatives that define right from left. It faces existential decisions.

The browbeating Samaras received from European Popular Party leaders last week and the confidence and unity of the socialist pro-memorandum position seem to have had an effect. Samaras conceded that his party was not in principle against the cost-cutting and privatisation measures of the austerity plan, but only against the new taxes. And here is the nub of controversy. The plan dictates 4bn in cost cuts this year and 3bn in revenues from new taxes. Most publicised among them are a "solidarity levy" (read income tax hike) of up to three percentage points for five years; a new tax on the self-employed, who are notorious tax evaders; and a lowering of untaxable income from 12,000 euro to 8,000 euro.

Finance Minister Evangelos Venizelos warned his parliamentary peers not to read too much into these. "Only 43 percent of tax declarations are taxed," he explained. He justified the hikes as a means to get more Greeks to contribute meaningfully. "Two million families aren't affected by the change in taxable income threshold... while the solidarity levy won't affect three million families," out of the 5.46 million families that declare taxes, Venizelos said. "It is vitally necessary for us to become re-acquainted and reorganised as a society, as a state and as a nation through the National Tax System."

Much more biting to taxpayers, however, will be the consumer taxes that are inescapable to rich and poor alike, such as a VAT hike from 13% to 23% on retaurants; and a new rise in petrol and road tax. New Democracy's argument that such revenue measures are squeezing the pips out of a dying economy are not unfounded. Greece's GDP shrank by 4.5% last year, 4% the year before and is expected to shrink by at least 3.8% in 2011. Falling revenues are to be expected, and the more the state taxes people the faster it deepens the recession. It is for this reason that markets don't think Greece's debt is serviceable even if the country reaches primary surplus, meaning that default is only a matter of time.

The only significant argument against default is a 50bn euro privatisation plan. In theory, Greece would pay down a significant chunk of its roughly 370bn debt, lowering interest payments and lightening its load. According to a Financial Times report, however, only 13bn assets are sale-ready, while some selloffs are going to be held up by unions and disagreement within the ranks of the socialist party. In a recent interview, Yannis Stournaras, head of the Institute for Economic and Industrial Research, suggested that the national holding company of saleable property might, in addition to selling, act as collateral for borrowing. Greece might then successfully enter the markets.

Economists have previously proposed solutions like a eurobond (Yannis Varoufakis) or a haircut to creditors that amounts to the discount markets already charge on the face value of Greek bonds. But France and Germany staunchly refused Europeanising the EU periphery's debt when George Papandreou proposed it earlier this year; and markets have told the European Central Bank that any haircut will be deemed a default, and the Greek bond would instantly tumble. The ECB has warned Greece that if it proceeds to any unilateral default of this type, it will cease to accept Greek bonds as collateral. Since the ECB is currently the only provider of liquidity to Greek banks, they would collapse.

So default now seems like a question of how and when, rather than if. The greater problem is that in addition to its economic instability, Greece is now politically volatile as well. For the past decade, the average lifespan of governments has fallen from the standard 48 months to under 20. The premature elections and reshuffles that have marked this period have come mostly as a result of failed attempts at reform.

Still, Greece's fault is not in its numbers but its leadership. Almost none of the country's political leaders have had a career in the private sector, and one suspects that they have no idea what it is capable of. Thus the battle between a statist ideology among politicians and a struggling private sector. Thus, also, the earmarking of the bulk of the 24bn euros in European Union subsidies Greece won in the 2007-23 period for public enterprises and the government. Notwithstanding adverse demographics, which mean a workforce of just 4.5 million people in a total population of 11 million, Greece could, given the unshackling effect of political courage and vision, achieve a revolution in competitiveness. It is precisely that political courage and vision, more than money, that have been missing over the past two decades.

The Day Greece Stood Still

2011-06-22T11:46:00.002+03:00

Standing up is a gesture of pride, of hope and of defiance. The popular movement that stood outside parliament last Wednesday, June 15, defying the government to put away its 28bn euro austerity package, stirred a number of ruling party MPs to stand up to their government and refuse to vote the package into law. The result was that that government momentarily faltered, and nearly toppled. Prime Minister George Papandreou offered his resignation to conservative opposition leader Antonis Samaras in return for a grand coalition, only to retract it, we are told by Samaras, following outrage from his party seniors.

There followed the thriller of the reshuffle the following day, disappointing in its failure to include not only the conservative opposition, but also independent politicians with broad authority such as Dora Bakoyannis and Fotis Kouvelis. Even though this reshuffle was largely a game of musical chairs, keeping power strictly within Pasok, it did bring two important changes. In came Evangelos Venizelos, a politician with the broad appeal in the party base that Yiorgos Papakonstantinou lacked, and out went ministers who were quietly (Tina Birbili-Environment and energy) or vocally (Louka Katseli-Employment and Social Security) resisting public sector reform.

The vote of confidence in the small hours of June 22 represented a psychological turnaround for the government. Until now it had been isolated as the only party supporting the terms of the May 2010 memorandum with Greece's troika of creditors, the ECB, EU and IMF. After a highly polarised parliamentary debate that stretched the limits of polite confrontation, it is the opposition that has begun to appear isolated in its refusal to join the government in a national coalition. Papandreou cunningly left the invitation open, forcing Samaras to shut the door on him again and again. Each time he did it he sounded less reasonable than before, because his mantra, "Consent to what? The mistake of the memorandum?", increasingly came off as partisan.

Samaras' strident anti-memorandum position is a result of European politics, not Greek. The government began to unravel as its reform programme faltered on internal party opposition in January. That brought it into open conflict with the troika the following month, whose officials held a press conference in Athens to announce a 50bn euro programme of privatisations the government had agreed to but was wary of announcing. Yiorgos Papakonstantinou furiously declared that the troika would not be allowed to hold a press conference in Greece again, but the damage was done. For weeks Greek media debated on whether it was possible to sell so many state assets in such a short period without heavily discounting them. Unsurprisingly, unionists rallied to preserve the public nature of their enterprises; more alarmingly, Greeks began to turn against the memorandum that is keeping Greece solvent as a tool of neo-colonialism and a Trojan horse for ruthless investors holding out for bargain-basement prices.

It was at this point that Samaras' anti-memorandum platform really fired up. Samaras saw an opportunity to present a unilateralist alternative of hope, and said he would renegotiate the memorandum. His strategy is high-risk one. It banks on the assumption that the eurozone is more desperate to save Greece than Greece is to save itself, because default will bring down banks in France and Germany, not to mention the ECB, which holds about 45bn euros in Greek debt. But as Papandreou pointed out in parliament, Greece's mammoth nuisance value would hurt both Greece and the eurozone. Indeed it did. As the debate became more polarised in recent months and Samaras saw the potential for party gains, Greeks withdrew their euros from banks with increasing speed, forcing them to recapitalise. The euro fell to new lows against the dollar in May. A creeping panic sparked conversations and newspaper columns about a Greek default and departure from the euro. The more it was denied, the more it was discussed.

But in the parliamentary debate leading up to the vote of confidence, George Papandreou at last began to act like the leader of his own parliamentary majority and the country. He remembered that it was part of his job description to give people hope as well as instructions. He shamed Samaras even while inviting him to joint government: “In a time of crisis you made a choice that forces you into the same camp as those who are betting on Greece’s failure,” he told him.

Papandreou also addressed directly the alternative economic plan Samaras has put forward. It suggests that new growth can be self-financed through liberalisation, striking where the government's plan is weakest. Unfortunately, it goes too far in a populist direction, opining that Greece can develop its way out of the crisis without continuing down the road of cost cutting as well. And it betrays itself by targeting large voting blocs. It promises owners of illegal homes that 70 percent of them will be legalised; it promises low-earning retirees that cuts to their pensions will be restored; it promises civil servants that none of them will be fired, only shed through attrition, a proven loophole historically; it promises businesses a flat tax of 15%, down from 25% today; and it promises small and medium-sized enterprises, the backbone of the economy, that the state will pay off its debts to them overnight with a 5bn euro bond issue.

"No one agrees with your economic plan," Papandreou told Samaras, "because it blows sky high our main goal of reaching primary surplus in 2012. All our partners in the EU have rejected it... not because it’s you saying it, but simply because it leads all too quickly to bankruptcy."

Also nailing the coffin of the alternative plan was new Finance Minister Evangelos Venizelos. "I wonder," he said, "whether the opposition would have voted against the memorandum a year ago if the government had then asked for bipartisan support. Would New Democracy then have let the country go bakrupt?" Venizelos had cleverly supported at the time that the government should have sought the support of the opposition in a two-thirds majority. Such a move would have pre-empted much of the populism of Samaras that followed.

Also making the opposition look bad was the stalking out of most conservative deputies, after Deputy Prime Minister Theodore Pangalos suggested their party was a lesser force for democracy than the socialist Pasok. That smacked of cheap theatre and opportunism. Samaras had already warned in his closing remarks that New Democracy would not be supporting the government in the vote of confidence. This was icing on the cake. It was also shambolic. Samaras and his clique stayed in their seats, suggesting that the walkout was breaking party discipline. Papandreou and Venizelos seized the opportunity to ask New Democracy to respect democratic procedures and return to the chamber, even if their vote was a foregone conclusion. It was a moment in which they could underline their claim to be the adults in the political process.

The question now is whether, and how, Samaras will consider climbing down from his maximalist position. His polarising politics have not won him much support. His party polled a meagre 21% in a nationwide GPO poll for Mega channel carried out during the two days of debate, to Pasok's 20.1 percent. Papandreou still holds a five-point lead in personal ratings. And 55 percent of voters support the government's decision not to hold early elections and its decision to seek a coalition. It is too early to write off Samaras or his policies, but the feeling is irresistible that his sense of self-preservation will force some changes upon him.

Back Door Reform: Why Greece's Approach to Non-state University Education is Folly

2011-04-18T19:28:00.005+03:00

Even before Greece fell into recession, the reform of its education system was an intellectually urgent issue. Now that Greece’s lack of competitiveness presents itself with existential urgency, education reform can no longer be ignored as a major lever of social re-engineering and national development. The question is, will the socialist government of Yiorgos Papandreou clasp that lever and pull hard? The answer seems to be that it lacks the courage and commitment to do so.

The platform of promises that carried Papandreou to power a year ago overbrims with progressive, reformist intentions. Practically every sector of the economy would be remade. Politics would become transparent, governance efficient and accountable. These policy goals were ambitious and hit the mark. On education reform alone, Pasok’s programme was unprescriptive. Was it possible that Papandreou would reform every major policy area except education?

The reason for silence was that Papandreou had felt his hand forced in strangling worthwhile education reforms as opposition leader. Those had begun promisingly enough in 2005, when conservative education minister Marietta Yannakou created the National Council for Education, a think tank to advise the government, and put Thanos Veremis at its head. As a Greek political historian with international credentials, sound judgment and impeccable friends, Veremis and his committee delivered many of the reform proposals Greece needed. On the basis of these Yannakou set about a three-pronged reform. In that year, with bipartisan support, she passed into law the process of external assessment of Greek universities. They had hitherto assessed themselves, but would not qualify for European Union funding without the additional step.

Yannakou still had two major reforms to pass. One was a bill to de-politicise university campuses. Students who failed to graduate would not be allowed to remain enrolled in perpetuity, providing political parties with the footsoldiers to conscript freshmen into their respective student organisations. Most importantly, the bill would change the way university presidents were elected. Since 1982, Greek students, faculty and staff have cast votes for party electors, who would then make the final selection according to party orders and in proportion to the popular vote. This has given parties effective control over nominations and campaigns. Yannakou’s bill would do away with electors and allow voters to support an independent, or a candidate sponsored by a party other than their own.

Yannakou’s last remaining reform was the liberalisation of higher education, a European Union requirement. The Greek the state constitutionally guarantees free higher education, but also requires that it is provided exclusively by Greek public law bodies. That renders private colleges in Greece mere centres for post-secondary education, providing no recognised undergraduate degree programme even if they are accredited by European universities or US accreditation colleges.

Unfortunately for these two reforms, bipartisanship came crashing down on top of them with a nudge from Synaspismos, or Left Coalition - an aggregation of former communists in search of a new ideology. Under Alekos Alavanos, Synaspismos had fallen close to its threshold for entry into parliament of three percent of the popular vote. Desperate for an issue with which to increase its relevance, Synaspismos gunned for Yannakou’s proposals, arguing that they were paving the way for privatisation of the state university system. Majorities of Greeks were polled as opposing the reforms. Papandreou, who originally backed the reforms, faced an internal opposition in former culture minister Evangelos Venizelos. He was vulnerable, having lost the 2004 general election and Europarliament election, followed by the 2005 local elections.

His support of the reforms wavered through white-hot opposition from Synaspismos in 2006. Synaspismos managed to stage massive street rallies with the help of the secondary teachers’ union, which rightly feared that should universities become more accountable, the appetite for change would push its members towards greater accountability too. The party’s approval ratings soared to 17 percent. In January 2007 Pasok officially reversed its bipartisan position on a pretext – New Democracy foolishly offended Pasok MPs over a constitutional amendment on the environment - and announced that it would fight all constitutional reform, including that on education.

Yannakou’s liberalisation hopes were dead, but she bravely passed her law to depoliticise campuses, albeit a year late. Such was the headwind of public opinion Pasok and Synaspismos had by now whipped up, though, that she lost her seat and cabinet post in that year’s general election.

Since then Papandreou has suppressed any grand pronouncements on education, but his education minister, Anna Diamantopoulou, seems to want to do the right thing, albeit through the back door. In May 2010 she passed a presidential decree recognising the professional qualifications of those with EU educations as long as they were recognised by their professional guild. Although this reform came three years late, in theory it made graduates of private colleges offering EU degrees on Greek soil eligible for public sector positions, a long-standing demand. Nonetheless, problems have remained in implementation. A private college graduate cannot, as a rule, gain acceptance into the technical chamber of commerce, and applications are now being routed through the ministry itself.

Although reform seems to be creeping along, it is far from complete. The European Commission sent Diamantopoulou a Reasoned Opinion on January 28, threatening Greece with a European Court indictment for dragging its feet. Not only is Greece, a European Commission debtor, long overdue to recognise its 26 EU partners’ degrees; it is also shooting itself in the foot by delaying reform. The back door method of recognition also means that most Greeks will continue to ignore non-state higher education as a potential growth sector and export industry for Greece. That is sheer folly in an economy that shrank by four percent for each of the last two years, and is expected to shrink by another 2.5 percent in 2011.

The number of students enrolled in universities outside their country of origin is rising at an accelerating pace. After the OECD started measuring this market in 1980, it took 20 years to double to two million and another seven years to triple to three million. America still holds the largest piece of that pie at 20%, but other countries now understand the economic and intellectual benefits of universities with regional or global reach. Greece could sow and harvest a fallow field in the Balkans and the Middle East with English-language degree programmes that Greeks could also attend; but it cannot do so as a country that has a political issue with higher education that doesn’t come from an overbearing and defunct state.

Honesty is More Important Than Cash (or, Value is More Important Than Liquidity)

2011-03-28T21:28:00.006+03:00

Never in over a generation has a Greek government asked its voters to accept pay cuts from the public sector. Now local government has faced the harsh reality of not renewing contract hires, amounting to 25,000 layoffs. (Municipal workers occupied city hall, seen in this photo on March 30, blaring music from the windows and being as ostentatiously idle as possible). The question of layoffs is now sneaking closer to loss-making state enterprises, which are no longer to live off the state bounty. All this is being done under the dictates of our new troika of creditors, the European Central Bank, the International Monetary Fund and the European Commission. Perhaps the terms seem colonial, but Greece is only being asked to do what it has avoided doing for over a decade, against its better judgment.

If the woes of the present seem insurmountable, we need only look at the difficulties from which Greece has extricated itself in the past. Greece is recorded as having bankrupted itself no fewer than eight times in its nearly 200 years of independence; but it has never been more precariously perched than it was during its struggle for that independence. The process of raising two revolutionary loans for the fight against the Ottoman Empire is instructive. Greece’s present indebtedness to banks and stockholders around the world began with its very inception and was due to poor money management and a weak political centre.

As William St. Clair tells us in his classic story of the Philhellenes’ part in the revolution, That Greece Might Still Be Free (1972), the first revolutionary loan was floated in London in 1824 and was nominally valued at 800,000 pounds sterling. But its shares were issued at a 41 percent discount, so an investor only needed to pay 59 pounds to secure a 100 pound share. Greece was under further obligation to pay the shareholders a five percent annual interest rate, the first two years’ worth of which was withheld at source. To cap it all, the loan’s brokers, Messrs. Loughnam, Son, and O’Brien, extracted 38,000 pounds in “commissions and expenses”. Thus, out of an 800,000 pound loan, only 300,000 were available to the Greek cause – and that only on paper as investors were only asked to pay 10 pounds of the 59 in advance, the rest being payable in instalments. In the event, 80,000 pounds were dispatched to Greece.

On the back of the bonds was written, “To the payment of the annuities are appropriated all the revenues of Greece. The whole of the national property of Greece is hereby pledged to the holders of all obligations granted in virtue of this loan...”.

If the terms of this first loan seem colonial, the second, floated exactly a year later, was additonally marked by rampant corruption. It was valued at 980,000 pounds, but St. Clair tells us that 113,000 were spent boosting the value of the previous loan, whose trading value had fallen from 59 to 54 pounds, “in other words playing the market in order to keep the price up, an activity affording innumerable opportunities for the exchanging of favours and the lining of pockets.” Hundreds of thousands of pounds were spent on an abortive scheme to build a Greek fleet; and the London Greek Committee’s British and Greek directors simply embezzled large sums. “For example,” says St. Clair, “a sum of 2,695 pounds was charged as lost owing to the failure of a Greek merchant in London: the merchant’s books showed only 500 pounds. The sum of 1,200 pounds was credited as received from Calcutta from a subscription there, but the Calcutta accounts showed that 2,200 pounds was sent.”

Once the money did become available to Alexandros Mavrokordatos, the nominal head of the Greek civilian government, he was forced to spend it on the personal militias built up by the captains who effectively comprised the revolutionary fighting force and could blackmail the weak central government. Rather than entering the market and creating an economy, the money was stashed away in a relatively small number of households.

It is highly doubtful, in sum, that Greece’s first borrowings had any beneficial effect on its development. Quite the opposite, in fact, is likely. The bondholders of the two Greek loans, whose value collapsed as Greece never made a single interest payment, made sure that the newly independent country was barred from ever gaining credit in Europe’s stock markets until 1878. Greece’s debt on 1.78 million pounds’ worth of capital had by then accrued to more than 10 million pounds. As the country was running an irreducible deficit it became apparent that it would never schedule repayments, and the bondholders compromised on a write-down for all interest payments hitherto due in return for the issuing of 1.2 million pounds’ worth of new bonds at five percent. It was a severe haircut for Greece’s creditors on loans that had done Greece little good.

Greece had, in 1824 and 1825, benefited from a speculative wave in the fortunes of far-flung states. That wave was not born of a sudden altruism on the behalf of struggling peoples. It came about because the Bank of England reduced the interest paid on its bonds from five percent to 3.5 percent, leaving speculators looking for higher returns but ignoring the higher risk. The speculative bubble collapsed with the Bank of England bailing out investors and banks. Both in the 19th century and recently, therefore, Greece has simply been the victim of the combined venality and greed of its own politicians and that of the banking system.

Nor would this be the last such collapse in creditworthiness. As Professor Thanos Veremis recently wrote, Greece’s nation building prime minister, Harilaos Trikoupis, would avail himself of loans at the end of the 19th century, a time when Western banks were looking for new business on the periphery of Europe to counter a recession at home. Once again he would lead Greece to overborrowing and bankruptcy; but Trikoupis managed the loans in such a way as to leave Greece with its first serious infrastructure in road, rail and harbours, in an effort to render Greece’s agricultural produce exportable.

Trikoupis’ bankruptcy may have led to years of stagnation, but it also generated economic growth. The lesson seems clear: Economic cycles and speculation may cause periodic collapses in growth and credit, but they will be most strongly positioned to weather such collapses who have quietly spent the good times building real value into their economies. Money, equities and bonds rise and fall; productivity and competitiveness cannot be argued with.

As good as our bond (and other thoughts)

2011-03-16T09:20:00.004+02:00

The stipulations of the May 2010 memorandum between Greece and the troika overseeing its 110 billion euro bailout are patently useful and necessary. Completing a limping privatization programme, reducing the state’s million-strong workforce and improving public transparency in major areas of expenditure such as healthcare are long overdue. So are a slew of development measures such as the opening of closed professions and markets and the parting of a Red Sea of bureaucracy.

But more than the obvious is needed. One of Greece’s greatest assets is its intellectual potential coupled with a national obsession with education. Drawing ideas from as many people as possible, something the government has tried to do by airing bills on www.opengov.gr, is a potential source of strength and innovation.

The country now needs the most imaginative, forward-looking and prescriptive ideas for policies it can generate, which could be implemented over the remaining two and a half years of the government's term and could boost competitiveness at relatively low cost. Here are a few to start with.

Bonds for taxes: The government wants to secure a level of funding from its shrinking tax base that will persuade the troika to release vital loan instalments. But its tax measures are becoming increasingly shrill and desperate. While it has refrained from raising income tax, its capitulation to higher consumer taxes (VAT has gone from 19 percent to 23 percent) penalises the poor.

The government will be under increasing pressure to be strict about tax collection. Already it has sent audit papers to thousands of businesses and self-employed professionals, reassessing their obligations as far back as ten years. Putting the squeeze on a shrinking tax base will only encourage flight and discourage business. The government, which no longer returns VAT as it is obliged to do, will only appear unpopular and unfair if it persists in being strict on tax collection and lax in cost-cutting and meeting its own obligations.

This is being done to create a steady income on the basis of which the government can borrow. It could instead tie a carrot to the stick of tax collection by allowing taxpayers to divert a proportion of their tax obligations, say 15 percent to begin with, to government bonds. This would turn taxpayers into investors, giving them a return on their money, and could encourage many people to declare their full earnings. In this way the government could actually increase government revenue, while offering the benefit of interest payments to its own subjects rather than foreign bankers. By entering the Greek economy, those interest payments would then boost Greek banks’ liquidity and help loosen up credit. The plan would also send a signal to money markets that the Greek people are backing up their faith in their future, encouraging others to do the same. In short, by selling more of its debt to its tax base, Greece could better control its credit history, repatriate capital and boost national solidarity, a vital component of credibility. Financial health begins at home.

A further annex to this plan could be to emulate Ireland’s recent pension reform and make third pillar retirement insurance mandatory. Greece’s 13 major funds are either tottering or in danger of doing so. It is inevitable that they will at some point shift from defined benefits to defined contributions schemes, meaning that benefits will vary according to funds’ abilities to pay. People under 50 will have to boost their retirement with a private plan in which the government will have no guarantor role. Making such a plan mandatory – to the tune of, say, two percent of salary earnings - would effectively introduce a limited 401K plan to every company Greece and create new growth in the banking and insurance industries.

Charter schools: Secondary education in Greece is, by the common consent of both parents and academics, where the system founders. Outdated textbooks, lack of critical thought, poorly funded computer and science laboratories, serial strikes and student sit-ins are the major problems plaguing public education. The private sector has flourished, to some extent, but it is still beholden to a poorly designed national curriculum, and also creates a divide between those who can afford good schooling and those who can’t.

One answer would be to allow charter schools, a regime unknown in Greece. These would be recognised by the education ministry and offer national diplomas, but would have a degree of freedom to hire and fire their teachers according to ability. They would also be able to veer away from state textbooks and towards better courses produced by independent publishers, and mould their curriculum outside a core of mandatory courses.

The benefits of such a system would be manifold. A well-governed school could become a paradigm of meritocracy, teaching students by example; legitimising non-state textbooks would galvanise nonfiction publishers and authors, an area where Greece has tremendous intellectual resources; and better educated graduates would be an enormous boon to the economy.

It is an alomst unnecessary addendum to say that the liberalisation of higher education would give the tertiary sector in Greece wings with which to turn education into an export industry.

Give the church a stronger social role: The Church of Greece has vast, unused real estate holdings dating back to revolutionary times. Many of these go undeclared by the 100 metropolitanates that make up the church’s constituency. A proper auditing of church property would strengthen the hand of the Holy Synod, and enable it to begin to put this property to good use.

Under Archbishop Christodoulos the church applied for a license to build a hotel on some of its land. But merely commercial use of church land lacks imagination and moral depth. Unlike the Catholic church, the Orthodox church has not, in recent history, made a name for itself in secondary or tertiary education. Church-sponsored schools in Greece are held in very low esteem for their tendency to indoctrinate rather than teach. The church could very well work with the state in co-financing a small number of secular, high-quality charter schools that could charge modest fees and command tax-deductible, corporate social responsibility contributions. These could in turn become feeder schools for a church-owned but secular campus university. Should the church enter the fray of Greek secondary and tertiary education, it could strengthen the role of other non-state schools in trying to break a culture of mediocrity that condemns generations of students to uncompetitive and uncreative ways of thinking.

Liberalise energy: The other great potential export industry is energy, but not on the model of centralised, large generating plants. In order to have the green energy revolution the Pasok government claims to want, Greece needs to go into micro-generation. A revolution in solar water heaters popularised green energy in the 1970s. The same can happen today with solar panels on roofs, but only if the finance ministry offers tax incentives.

Power is worth 10 percent of Greek GDP today. With the right incentives and, above all, liberalisation, it can become an export industry worth much more. There is also a security reason for micro-generation. With generating capacity spread over roofs across the country, it is much more difficult for power supplies to be knocked out by earthquakes, floods or bombs.

Give parliament’s audit committee the power to check political parties: A 2001 constitutional revision introduced representatives of the country’s three top courts – the Supreme Court, the Council of State and the Court of Audit – in a parliamentary Audit Committee that checks the annual financial declarations of parties and their deputies (previously it was peopled exclusively by party appointees).

A law the following year obliged “political parties and coalitions in receipt of state funding [to] publish annual balance sheets showing income and expenditure.” These balance sheets, published in summary form in the first two months of each year, are subject to review by parliament’s Audit Committee, which employs the services of chartered accountants.

Yet the system remains vulnerable to massive fraud. The Audit Committee may only work on the basis of documents submitted by the parties and MPs; lacking prosecutorial powers to raid offices and open bank accounts, it can only check the internal consistency of what it is given. A second weakness of the Committee is that it may not prosecute legally.

George Papandreou came to power on a commitment to unprecedented transparency in government. He should now prove his commitment by giving the Audit Committee the legal teeth to act independently of political power, and act as a check. The committee should be given power to initiate raids and investigations, solicit documents and follow money trails. Merely the provision that the auditor’s report, and possibly its minutes, should become a matter of public record would provide a powerful bulwark against mollification.

The parties that have molded the political scene since democracy was restored in 1974 are increasingly seen as the architects of Greece’s crisis through their nonchalance and corruption. Casting out of those who are demonstrably corrupt is now necessary to their survival. Failure to shore up principle and build institutional depth will have greater costs for the socialists and conservatives than all the upheaval of change. If the inducements of high office are irresistible, they are also self-destructive.

Spinning myth back into history

2011-02-21T10:57:00.003+02:00

David Brewer ends his narrative of the Ottoman occupation of Greece with a word of warning against over-sanitising history: “If all Greek nationalist bias against Turks is to be removed, Turks cannot be blamed for anything, even if they are clearly responsible for it. History with false judgments is replaced with history containing no judgments at all.”

Brewer hits upon the central dilemma of historiography. If we don’t have an opinion about past events, knowing them is pointless; but we cannot come to know them until we put our opinions aside.

The question of how history should be taught arises particularly in the long and violent relationship between Greeks and Turks. Brewer’s warning is a reaction to a recent attempt by the Greek curriculum to over-purge a sixth form textbook of gory detail. But such political correctness runs a risk of doing exactly what it is trying to overcome – the mythologizing of history through the purging of facts.

In Greece, The Hidden Centuries, Brewer exemplifies how history should be taught. He neither sanitises nor takes an overall standpoint on what he knows well to be a highly controversial era. The almost four century-long tourkokratia, or Turkish domination, is the darkest period in Greek history, because the loss of Constantinople and its possessions in 1453 definitively ended the Greek-dominated Eastern Roman Empire, or Byzantium, which had stood for over a millennium. In retrospect, it also ended a 2,000-year period in which Greeks wrote many of history’s headlines, and ushered in an era of stagnation and decline from which they are, in many ways, still trying to recover.

Brewer’s concise, sane and independent assessment is an achievement on its own, but a further contribution is to connect Greek events to the wider political, economic and ideological shifts that swept the European scene. The book really comes to life in the telling of events that took place on Greek soil with international importance.

I owe a word of disclosure. As Editor-in-chief of the Athens News, Greece’s English-language newspaper, in 2004 I published a series of essays by Brewer entitled The Tourkokratia – Was it Really That Bad?, which formed the original attempt at this book. Brewer’s thesis was that if one viewed Greek tribulations against a European backdrop, they were on balance neither greater nor lesser. Yes, Greeks went from holders of the Byzantine Empire to tributary subjects; yes, they had to give up young boys to the janissary corps; but they were spared the denominational Christian hatreds that tore through the continent as well as the Napoleonic wars, and they enjoyed complete freedom of worship. Those judgments are largely effaced in the final product, which sticks to a journalistic concept of the facts with little overt editorialising.
The bulk of The Hidden Centuries follows the period from May 1453, when the Ottoman conqueror Mehmed Ali II took Constantinople, to March 1821, when the Greek War of Independence broke out in the Peloponnese, devoting two final chapters to the war itself.

Constantinople’s great opponent was initially Venice, which held Cyprus, Crete and the central cluster of Aegean islands, the Cyclades. These were the remnants of a Venetian conquest of Constantinople 250 years before that of the Turks, followed by a brief resurgence of Byzantium. Brewer describes in detail how Venice and Ottoman Constantinople faced each other across the Aegean. The dilemma facing ordinary Greeks was whether they wanted to be ruled by Catholics or Muslims.

The distance of Venice from its possessions and its inability to face the Ottomans alone ultimately led to the loss of its possessions. The Turks took the Cyclades in 1538, Cyprus in 1571 and Crete a century later. Venice was ejected from its fortresses in the Peloponnese, but as Brewer notes, it was not the only loser. Genoa lost Chios to the sultan in the 16th century. The Order of the Knights of St. John lost Rhodes and moved to Malta.

The Venetians did score one remarkable naval victory, to which Brewer devotes a chapter. The Battle of Lepanto three weeks after the fall of Cyprus did not change the broader course of history, but it did wipe out the Turkish fleet – 200 out of 251 Turkish ships were captured or destroyed – and although the grand vizier ensured that they were rebuilt within a mere seven months, the entire Turkish fleet never put out to sea again.

The Venetians had one last hurrah. In 1683 they mounted an alliance with Austria and the Papal States to take back the Peloponnese. Though initially successful, they were repulsed definitively by 1715 and never followed up on their Greek ambitions again. For two generations, the Ottoman Empire would enjoy unrivalled control over Greece.

The Turks’ next serious challenger would be Russia under Catherine the Great, who authorised the Orlov brothers, Alexis and Theodore, to lead a revolt in Greece. Russia was already at war with Turkey in Romania and the Crimea. Brewer’s broad historical perspective makes evident that Catherine seems to have thought that a Greek front might divide Turkish forces. It was an unlikely method of securing access to the Mediterranean, and she seems to have treated it as such. The 19 ships she sent in the first wave of the expedition were so shoddy that only nine arrived, while the second and third waves left too late to do any good. Catherine thus fielded only 600 men, and dampened Greek enthusiasm by demanding an oath of allegiance to Russia.

The Orlov rebellion ended in disaster, with Russia leaving thousands of followers to their fate in Turkish hands. Brewer describes in details how the sultan authorised Albanian brigands to mete out punishment on recalcitrant areas. They exacted a revenge of plunder and murder for fully nine years before Turkish troops were sent in to eliminate them. The relief of the Greeks is amply illustrated by the fact that “at the eastern gate of Tripolis, a pyramid of Albanian heads was set up, held together by mortar.”

Since Greece was mired in poverty, fear, maladministration and lack of education, it is perhaps hardly surprising that the money and planning necessary for a successful revolution eventually came from Diaspora Greeks. The Philike Etaireia, or Association of Friends, was founded in Odessa by three penniless young professionals, who sought out the revolution’s leaders in Alexandros Ypsilantis, an officer in the Russian artillery, and Alexandros Mavrokordatos, a westernising Greek.
Brewer does not dwell on the cynicism with which the viability of the new Greek state was undermined because that is the scope of an earlier book, The Flame of Freedom. But he does devote a dense chapter to how, after three years of military success, traditional Greek vices caught up with the revolution. Two loans raised in London (in 1824-5) were largely squandered on parasites and hangers on Factionalism turned to civil war between the naval forces under the Hydriot captains and land forces under the legendary Theodoros Kolokotronis, who briefly established separate national governments. In the end the Greeks were only saved by foreign intervention. The combined naval forces of Britain, France and Russia defeated the Turkish fleet at the Battle of Navarino in 1827, only a few miles north of the battle of Lepanto 250 years earlier.

Although Brewer does not draw parallels with the present, how much of modern Greece is recognisable in his narrative of Ottoman Greece is mind-boggling and forms a large part of the value of his book to the student of Greek society. That Greece’s present indebtedness to banks and stockholders around the world began with its very inception and was due to poor money management and a weak political centre is only the most obvious of these. Greek society’s tendency to brittleness is another. A century after independence the nation would again be split between rival governments, this time a Royalist one versus a reformist one under the great Liberal statesman Eleftherios Venizelos, and a second civil war between national forces and communists would ensue in 1946-49. This lack of national tensile strength goes back to the weakness of early central authority. So do Greece’s faith in organic authority as opposed to statutory office and euergetism as opposed to redistributed wealth. The favour-seeking the Greek economy is now famous for follows inevitably in a society that did not fully establish the authority of its elected or appointed officials.

Diplomats, clerics, antiquarians and naturalists who witnessed the country in its darkest hour came away with disheartening accounts of the contrast between the greatness of its past and its degenerate state under the Ottomans. These accounts, accompanied by two centuries of classical scholarship that saw Greece from a northern European point of view, have contributed to the modern Greek inferiority complex. The Greeks’ determination to win and successfully host the 2004 Olympics stemmed from nothing more than a desire to provide evidence of their patrilineage.

Under the last four decades of Ottoman rule Greeks re-discovered their propensity for shipping and ship-building, when Russia’s growing power enabled them to fly the Russian flag and trade freely across the Mediterranean and the Black Sea. The Napoleonic Wars added to profit margins as the Greeks ran British blockades with great success. The next great explosion in Greek shipping would not occur until the United States sold its mass-produced Liberty Ships for the price of scrap metal after World War Two.

The saddest revelations, however, come in connection with the state of education and intellectual development. The Greeks never adopted the value system of inalienable individual freedoms that accompanied the Enlightenment in Western Europe, partly because they were shut out of it and partly because their outlook was determined by their purist Orthodox faith. That faith was governed by a church that had come to abhor scientific or literary education and whose stewards, as travellers to Greece witness, were rarely literate.

“All the Greeks... are in such an amazing state of ignorance that there is not a single city in the entire country that has a university and not a trace of pleasure in learning the arts and sciences,” wrote the French naturalist Pierre Belon in 1553. His trip to Mount Athos, then home to some 6,000 monks, left him with the impression that “one can scarcely find in each monastery two or three who know how to read and write.”

The church has since changed little. Notwithstanding an educated and capable minority, it is often used as a repository for those family members who are less competitive in the labour market. Now as then, its monasteries are often dens of embezzlement and intrigue, as revealed most recently in the Vatopaidi scandal, still under investigation in the Greek parliament. Now, as then, the Greek Orthodox Church spends but a fraction of its resources on community work and none on higher education, continuing to believe in faith without works.

Greece cannot easily extricate its sense of nationhood from religion. The Church of Greece is an autocephalous national church, stemming from its disobedience to patriarchal policy against the revolution of 1821; hence the religious designation Greek Orthodox as opposed to just Orthodox. Union of church and state continues to be enshrined in the first three articles of the Greek constitution in defiance of European Union rules and Enlightenment values. Nor can many individual Greeks easily accept a secular identity. The socialist government caused clerical and congregational uproar in 2001, when it removed religious affiliation from identity cards.

The Diaspora was key in sparking, organising and maintaining the revolution, yet Greeks of the time refused to recognise it. A similar distrust continues between Greece and its far-flung communities to this day. In its efforts to attract Diaspora investment, the Greek government must overcome a mountain of bureaucracy designed to fleece outsiders. Now, as in 1821, a critical mass of new blood, badly needed to bring about rapid as opposed to generational change, still seems to frighten as much as inspire Greeks. Progressive politicians have periodically floated the idea of an overseas postal ballot (most recently in 2007), but parliament’s nerve ultimately fails it because most deputies are insecure about their ability to appeal to a bilingual audience.

Brewer does not fall into the trap of blaming the Greeks for their own troubles. He casts light on the Ottoman government’s inability to train a civil service, meaning that policies which looked perfectly good on paper were poorly delivered, or not at all. An aspect of this institutional ineptitude was the encroaching inability to collect taxes, resulting in a privatisation of the practice to unscrupulous local masters. And the practice of forcible conscription of Greek boys was so unpopular that even the Turks abandoned it.

While Brewer’s narrative pegs itself on events of international importance it remains strong, but is intermittently weakened by thematic chapters on farming, island life, piracy and administrative structures, which are of mixed success. To make interesting reading out of everyday life a historian depends entirely on good sources, and Brewer does not have the knowledge of Arabic-scripted Turkish to delve into the Ottoman archive, the supreme source for the Mediaeval Greek economy, that is only now opening up to researchers. Another criticism of The Hidden Centuries is that more detail on military tactics and technology between the great powers would have been appreciated, because it was largely the neglect of technology that undermined Ottoman hegemony. For instance, the Venetians introduced a massive, new kind of warship at the Battle of Lepanto, the Galleasses, which was a key to success. It would be interesting to know why size was effective against the Turks whereas it had been a liability for the Spanish Armada only a few decades earlier. The Orlov brothers failed to take the Turkish citadel of Koroni, because “bombardment from the ships was ineffective” and mines were met with counter-mines. The details of these tactics and devices would have added spice. The publishers have also failed to edit out small errors in numbers. The ascent of Suleyman the Magnificent is at one point dated at 1520, and later at 1522. Cypriot independence is dated both to 1959 and 1960.
But the book scores high marks for its scope, its international frame of reference and its objectivity. In Greece, The Hidden Centuries, Brewer has demonstrated that he is not simply a Philhellene; he is the best sort of Philhellene, seeing the Greeks exactly for what they are and not despising or condescending to them, but regarding them as the product of their circumstances. In this he stands firmly in the tradition of Byron, whose knowledge of Greece and Albania from an extended stay in 1809 immunised him against the crushing disillusionment suffered by continental Philhellenes in the first year of the revolution.

The clash of European and Greek cultures that emasculated the Philhellenic movement as an effective military force, and Byron’s attempts to redeem it, form the core of William St Clair’s classic account of the Greek War of Independence, That Greece Might Still Be Free, recently reissued by OpenBooks, which usefully also provides a searchable online text of its publications. The 1972 accountsees the revolution in terms of the dichotomy between Europeanised Greeks and Philhellenes, who sought the regeneration of Classical Greece, and the newly liberated Greeks, who were unconscious of cultural continuity and served feudal captains intent on carving Greece up into autonomous fiefdoms. The priority of these captains was to plunder Turkish forts, expand the payroll of their private armies and consolidate their political base. They tolerated a purely symbolic national government created by the Diaspora Greeks in hopes that it would raise European money and arms, and actively discouraged the national regiment which, starved of any of the spoils of war, never exceeded a couple of hundred men.

The captains did not seem to realise that central political and military authority would be needed quickly to repulse the inevitable Turkish counter-attack. Initial successes against two Turkish armies sent to crush the rebellion in the Peloponnese in 1822 seemed to confirm the captains’ view. By 1824, however, the revolution would be in serious trouble.
St Clair minces no words in his description of the atrocities committed by both sides. The Greeks were bent on revenge and spared no civilians, as was the case in Navarino, which surrendered in August 1821 on assurances of safe passage: “When the gates were opened the Greeks rushed in and the whole population of between 2,000 and 3,000 were killed with the exception of about 160 who managed to escape. Some of the Turks were left to starve on an uninhabited island in the harbour. A Greek priest who was a witness described the scene as the Turkish women were stripped and searched to see if they were concealing any valuables. Naked women plunged into the sea and were shot in the water. Children of three and four were thrown in to drown, and babies were taken from their mothers and beaten against the rocks.”

The Turks reciprocated in kind. Greek populations in Constantinople and Ottoman domains were arrested in their houses, mutilated and executed in their hundreds. Their women and children were sold as slaves. The entire Greek mercantile quarter of Constantinople was left to the mercy of a killing and burning mob. The suppression of the revolution on Chios in 1822 was particularly violent. Thousands of Turkish irregulars were imported from the mainland to exact a revenge the imperial army evidently did not want to record. Almost overnight, Chios was unpeopled. The men were put to death. Of a total peacetime population of just over 100,000, 41,000 mainly women and boys were exported for sale as sex slaves. “The recalcitrant and the inconsolable were killed off as being of no commercial value and their bodies left to rot in the streets or by the water’s edge in the usual Turkish way with their severed heads between their legs, to be devoured in time by scavenging dogs.”

Unlike Brewer, who fosters objectivity by keeping his readers’ minds largely free of passion, St Clair induces agnosticism through a form of tragic catharsis. European illusions, Turkish barbarity and Greek vainglory and short-sightedness all created a catastrophe for civilian populations across the Ottoman Empire. The dilemma of how such singularly violent history should be taught to the young and impressionable mind remains. Brewer and St Clair teach faith in facts. In this war of independence of the heart and mind, Greek and Turkish textbooks should follow the Philhellenes.

This article appears edited in the current edition of the Times Literary Supplement.

Greece's IMF deal marked by pain and loud protest

2010-11-17T13:01:00.000+02:00

GREECE CAME under International Monetary Fund supervision of its own volition on May 9th. That is when a memorandum of understanding between the government, the IMF, the European Central Bank and the European Commission passed into law, binding the Greeks to reform their economy in return for €110 billion over three years.

Two tranches of the money have so far been released, with a third due next month. With each instalment, the Greeks have to prove that they have taken specified steps to cut the deficit.

At the time, the socialist government of George Papandreou called its restructuring plans the most ambitious fiscal adjustment ever undertaken by a European country. The gambit is to eradicate a €29.2 billion deficit over three years – no small feat for an economy like Greece’s, now over $292 billion in debt. The government twice raised consumer taxes like VAT and twice reduced public sector salaries – above-salary benefits were cut by 10 per cent, then slashed a further 8 per cent.

So far those steps have proven painful – economically, socially and politically. The powerful civil servants’ union, claiming to represent 600,000 people, joined forces with the General Confederation of Labour in Greece, the largest private sector union umbrella organisation, claiming to represent a further two million. Together they have held a series of one-day strikes this year, often immobilising the capital and disrupting travel to and from Greece.

Greece hit the nadir of its press coverage when three bank employees died of smoke inhalation days after the memorandum was first announced, after anarchists lobbed Molotov cocktails through their high street window.

The socialists tried to introduce the reforms deliberatively and diplomatically. Even so, they faced fierce opposition. A major memorandum commitment was the liberalisation of transport. June, July and September were marked by truckers’ strikes that choked off petrol supplies as a few thousand unionised drivers fought the end of an era when they set haulage rates and traded licenses for hundreds of thousands of euro.

October saw the Acropolis itself put out of action when contract workers came to the end of their employment and sought to become open-ended hires. Such practices often led to mass inductions into the public sector in the past. Not this year.

The government’s fatigue was apparent on the eve of the November 7th local elections. Papandreou declared he would interpret a protest vote as a loss of confidence in his government and seek a new popular mandate. He held enough of the status quo, losing half the administrative regions but retaining some of the largest town halls, to declare a stalemate.

Greeks may not have punished his government, but neither are they thrilled with it. At 60 per cent, voter turnout was 12 points lower than four years ago.

In a brief speech on the night of the elections, Papandreou let slip he does not expect growth until 2012. “Let 2011 be the last year of recession,” he said, urging Greeks to bite the reform of painful reforms now rather than later. The economy contracted by 4 per cent last year and is set to repeat the performance in 2010, but the latest Bank of Greece forecast was for modest growth next year. That idea has effectively been denied.

The amount of social and political upheaval Greece has demonstrated it is not necessarily a recipe for Ireland. When Greece was forced to reform its social security system to lower benefits and increase retirement age, the event was marked by street protests.

When Ireland announced it would raise the retirement age from 65 to 68, it passed without notice, as did its early slashing of Civil Service salaries by 20 per cent. That is partly because Ireland does not have a militant left wing (Greece has two communist parties) eager to break the stranglehold on power; and perhaps because it spent less of the past two decades of EU subsidies raising expectations that an uncompetitive economy could last.

This article was published in the Irish Times on November 12.

The marriage of press and political parties is finally beginning to break down

2010-10-06T10:33:00.007+03:00

This week the Lambrakis Press, Greece's largest publisher and owner of two national dailies, laid off more than 40 employees. The number represents about 4-5 percent of the company's payroll.

The layoff was foreshadowed by a leading article in DOL's flagship, To Vima, last Sunday, in which its editor cited the end of the company's creditworthiness and the lack of assistance from the public purse as the main reasons. "The combination of what we call the press crisis with the economic crisis has led to an asphyxiating pressure on media, leading to simply unsustainable [financial] results," wrote Pantelis Kapsis. "And we're talking about a timeframe of months if not weeks. Many newspapers have mortgaged their fixed assets and are paying salaries from loans, even as banks refuse to extend their credit. For how long can things continue this way?"

It would not be surprising if the exercise were repeated to the tune of four percent next month. The company, also known by its acronym, DOL, has been dogged by overstaffing problems for a decade. In 2000 its share price tumbled after the Athens Stock Exchange crashed. The company shed some of its non-core assets but never dismissed workers, and its stock and results never recovered. DOL's decision in 2005 to recover through attrition, a patent failure, was attributable to three factors: family ownership, union pressure and the marriage between the press and political parties.

DOL's key assets, its tabloid daily, Ta Nea, and its flagship, To Vima, were founded in 1922 by Dimitris Lambrakis. The majority owners, the Lambrakis family, have taken a paternal attitude towards workers over the decades, even baptising their children in some cases and giving the company a reputation as a bastion of labour security. DOL traditionally paid better than its competitors, attracted some of the best talent in the market and deposited salaries in advance of work. That sense of prestige and noblesse oblige changed with the death of Christos Lambrakis, Dimitris' son, last December. Christos had no children and the family produced no capable heirs. The company is now 25 percent owned by the Lambrakis Foundation and a large tranche of shares remains in the hands of Lambrakis' two surviving sisters and his mother. But the family has no involvement in major decisions any more. Executive management rests with its CEO, Stavros Psyharis, Lambrakis' protege, who also owns 21 percent of shares.

DOL's unofficial alliance with the once-powerful journalists' union, ESIEA, has also ended. DOL has frequently supplied ESIEA's board members and presidents. In better times this made for consensual decisions and peace between management and labour when annual pay rises were negotiated. War with ESIEA meant a strike and lost daily editions, which no publisher wanted to contemplate. But that has now changed. Unionists' persistent refusal to compromise with employers over measured staff cuts has finally led to an open breach betweent the two. On September 30 ESIEA declared a 48-hour strike at DOL and another major publisher, Pegasus, which produces the national daily To Ethnos. The publishers had the strike annulled by the prosecutor, but open war has been declared. According to one blog, employees at To Vima have already held a meeting resulting in a possible 24 hour strike.

DOL's political clout with governments has given it high prestige and the ability to sell advertising to the state. To Vima was founded as the mouthpiece of the anti-Royalist, Liberal movement of Eleftherios Venizelos. After that faction's demise it adopted the left-of-centre Centre Union of Yiorgos Papandreou, grandfather of today's prime minister. For the past 30 years To Vima has been considered the unofficial mouthpiece of the socialist party, Pasok, which became the Centre Union's new incarnation in 1974.

That traditional marriage holds true for every major political division. The Communist party's official mouthpiece is Rizospastis; conservative New Democracy's unofficial mouthpuieces are Eleftheros Typos and Apoyevmatini, and once included Kathimerini. This tradition may have given DOL hope that once Pasok regained power its coffers would fill through public advertising and loan guarantees. But the ideological marriage between press and parties is deteriorating. What makes the To Vima editorial noteworthy is its political broadside on the socialist government of Yiorgos Papandreou. "The government not only has no policy for the issue, but even ignores its existence," it says.

Papandreou and To Vima have had run-ins before. When Papandreou lost his second general election in September 2007, To Vima backed his rival for the leadership, former culture minister Evangelos Venizelos. Papandreou ultimately prevailed in an election opened to the party base, but it took until the following spring for his relationship with To Vima to thaw. A few days before the October 2009 election, which brought Papandreou to power, he signalled that it would not be business as usual for the press under his premiership. He told reporters at the Thessaloniki International Fair that he knew they were not, presently, free to report the news as they wished, and that he planned to establish a new and healthier relationship between the government and the media that did not create mutual compromises. That new relationship has come inasmuch as the old publishing model of selling advetising to the government and using the income to hold sway over it is now simply unaffordable for the public sector.

The changes at DOL will likely be followed by changes in the other major national dailies. They are even less well protected against the ravages of the marketplace, and DOL has now showed them the way.

2010-09-20T10:32:00.001+03:00

Greek bank stress tests delayed
FT: The international community has postponed bank stress tests for Greece to give the country breathing space as Athens prepares to test the success of its European roadshow last week by raising more money in the capital markets.

The so-called “troika” – the International Monetary Fund, European Commission and European Central Bank – has agreed with Greece’s central bank to delay testing the solvency of the country’s struggling bank sector by one month to the end of October.
See full article.

Greek truckers step up action.
See full article.

New Democracy strikes back
Conservative opposition leader Antonis Samaras says the government has lied about the necessity of the austerity measures now being implemented in a speech at the country's highest-profile trade event.
Read the speech.
Read the Q&A.

Greece rules out possibiity of default
FT: Greece’s finance minister has strongly rejected the idea that Athens will be forced to restructure its debts, saying that a default would break the eurozone.

On a two-day visit to London, Paris and Frankfurt to convince investors that Athens has turned a corner in its year-long economic crisis, George Papaconstantinou told the Financial Times that a Greek default would spark selling in other so-called peripheral bond markets of Portugal and Ireland.
See full article.

Sarrazin cleaves Germany in two
Der Spiegel: Rarely has a man influenced the German public discourse as much as central bank board member Thilo Sarrazin has done with his book "Deutschland schafft sich ab" ("Germany Does Itself In"). In just two weeks, Germany has been hit by three waves of debate stemming from the tome.

Criticism bordering on revulsion dominated the first wave of the reaction. Politicians and opinion leaders condemned Sarrazin almost unanimously. But then it slowly became apparent that many citizens agreed with Sarrazin.
See full article.

Interview with David Petraeus
Der Spiegel: "The construction of Improvised Explosive Devices as well as home-made explosives, tragically, is quite advanced and sometimes even innovative. They know how to use off-the-shelf technology and use it effectively. That is why this symbiotic relationship between the many different groups is so important: Al-Qaida might have a particularly skillful IED maker who shares his expertise with other organizations. Another group might have effective skills in information technology that is passed on to others. There may be some who are good in false documents, again others in weaponry -- and they all share their knowledge, which all adds to our great concern. We're not talking about a threat to Afghanistan alone. It's a threat to the world. The attack on Times Square was not done by al-Qaida, it was launched by a Pakistani Taliban. And other groups are carrying out or wanting to expand their own transnational attacks, too."
See full interview.

Greek economy dying

2010-09-10T09:41:00.008+03:00

The latest figures show that the Greek economy is not only shrinking; it is also showing no signs of reform and recovery in the medium term. According to the chamber of commerce for small manufacturers, bunkruptcies were twice as many as startups in the first eight months of this year - 2,076 against 1,088. Greece fell a further 12 places in the World Economic Forum's Competitiveness Index to 83rd out of 139 countries surveyed. The index combines a basket of 121 indicators of public trust in institutions, ease and security of the investment environment, efficiency of government and the judiciary, infrastructure, health, education, innovation, market sophistication and more.

The head of JP Morgan's European interest rate strategy in London told Bloomberg that Greece may have to extend its loan from the EU and IMF by three to six years in order to avoid default, adding his voice to a growing chorus of economists who consider default inevitable.

Trichet: Explore suspension of EU voting rights for indebted
European Central Bank chief Jean-Claude Trichet argues that in future, if eurozone members break the rules on deficits the suspension of their voting rights in Brussels "should be explored".
See full article.

Norway funds boosts Greece
Norway's sovereign wealth fund has boosted market confidence in Greek bonds, and the bonds of other weak European economies, by stepping up purchases.
See full article.

Labour relations heating up at OTE
Hellenic Telecommunications Organisation (OTE) chairman and CEO Panagis Vourloumis, who turned the company around in the last six years and saw it through a successful privatisation, has declared war on its powerful labour union. In a letter he sent to the head of OTE's labour leader on August 30, he says he seeks the abolition of tenure for OTE's 10,000-odd employees, a two-year wage freeze, abolition of seniority-based pay rises, and changes to the company's hiring and firing rules and disciplinary code.
See full article.

Muslim hatefest suspended
A Gainesville, Florida pastor who led a campaign to burn copies of the Koran on the 9th anniversary of the World Trade Center attack has "temporarily suspended" the event after a global outcry. The reason, he says, is that a planned islamic centre in the lower Manhattan area will now be relocated.
See BBC article.
See Guardian article.

Turkish referendum puts AKP in spotlight
FT: Turkey's reformist government is seeking to limit the power of the military futher, with constitutional changes that are turning into a referendum on the party itself. "The package presented to the electorate contains measures all parties accept, including limits on the powers of military courts. But there is no consensus on its core provisions, which give parliament more say in appointments to the constitutional court and the judiciary’s watchdog."
See full article.

Back door recognition for education?

2010-09-02T12:48:00.003+03:00

The ministry of education has submitted a bill to boost workers' marketability, which could especially benefit those with a non-state education.

Graduates of universities in Europe and North America may not compete for public sector jobs, about one quarter of the job market, or enrol at a Greek university for posgraduate study.

This is because Greece is the only European Union member not to recognise degrees issued by non-state universities and universities of other member states, owing to strong support within the ruling socialist party and the left wing parties for a constitutional guarantee of free higher education for all.

An attempt to amend the constitution led to street protests and riots lasting weeks during the summers of 2006 and 2007.

The Life-long Learning bill would create a point system for any type of degree, diploma or other certificate of learning acquired by an individual during the course of their life. The points accrued could be used to apply for public sector jobs.

The government took a further step towards integrating non-state degree holders into the full economy in May, when it issued a presidential decree harmonising EU directives on professional qualifications. The decree states that a worker's profession is recognised by the state regardless of where their degree came from, as long as they are recognised in the relevant professional body.

But there has so far been no movement under the socialist government, elected in October last year, to harmonise EU rules on mutual recognition of university degrees as academic titles.

The great social divide

2010-08-31T10:28:00.001+03:00

FT: US companies are going to have to disclose the precise difference between their corporate pay packages and average salaries, in a move bound to embarrass a great many executives. The new rule is part of an overhaul of the US financial system, the Dodd-Frank Act, passed in July.
"S&P 500 chief executives last year received median pay packages of $7.5m, according to executive compensation research firm Equilar. By comparison, official statistics show the average private sector employee was paid just over $40,000."
See full story.
University of Chicago economist Raghuram Rajan argues that since the extension of easy credit by the US government and markets in an effort to extend the American Dream of home ownership to middle and low income households backfired, we should be wary of renewed attempts to bring about equality.
"The problem, as often is the case with government policies, was not intent. It rarely is. But when lots of easy money pushed by a deep-pocketed government comes into contact with the profit motive of a sophisticated, competitive, and amoral financial sector, matters get taken far beyond the government’s intent."
See How Inequality Fueled the Crisis.

IPCC criticised
Economist: Ahead of its next plenarey meeting in October, the Intergovernmental Panel on Climate Change faces stiff criticism from a probe carried out by the umbrella group of the world's academies. "The report finds problems with the way the IPCC handles reviews of its work, the degree to which it shows fairness when considering areas that are disputed, and the way it communicates the certainty, or lack of it, wherewith it speaks."
See full story.
Guardian: Bjorn Lomborg, the 'sceptical environmentalist', will argue in a new book out next month that the world should invest tens of billions of dollars a year to combat climate change. '"Investing $100bn annually would mean that we could essentially resolve the climate change problem by the end of this century," the book concludes.'
See preview.

Peace talks start under a cloud
The Israeli and Palestinian leaders meet in Washington on Thursday for the ninth historical attempt to reach a peaceful settlement. But the Obama administration already faces a possible deal-breaking date. On September 26, Israel says it plans to restart settlement construction after the end of a moratorium.
See full story.
Palestinian PM Salaam Fayyad says "talks can and must" succeed.
See interview.
Iraq's former PM Ayad Allawi says "the environment is not right" for these talks to succeed. In an interview published as the US declares the official end of its combat presence in Iraq, he believes Iraq could still tip into chaos, with devastating results for the region. The country still has no government (Allawi is in talks with al-Maliki for a form of power-sharing) and its security forces are facing a resurgence in terrorism.

America should rethink its police across the Mideast and Asia, says Allawi, because it is a failure from Palestine to Afghanistan.
"Everybody is frightened. Every corner of the region is frightened. Even America is frightened, even Iran is frightened. We are heading towards a situation which almost compares to the Cuban crisis in 1962. There is an umbrella of fear spreading above us."
See interview.
US VP Joe Biden is in Iraq for the transitional ceremony in which the remaining 50,000 US troops will be baptised as supporting troops.
See full story.

Greek pessimism
79.6 percent of Greeks declared themselves slightly or not at all optimistic about the country's immediate future in a GPO poll released by Mega TV station yesterday. 20.1 percent said they were optimistic. Even among Pasok voters the pessimistic proportion was 65 percent. About 44 percent of voters do not believe the government's claim that further austerity measures will not be necessary this year. About 55 percent of Greeks believe the measures will lead back to economic recovery, but just under 43 percent fear bankruptcy. Asked which party's policy they trusted most to resolve the economic crisis, 31 percent said Pasok, 13.4 percent said New Democracy and 39.5 percent said neither. The poll showed that Pasok had lost a couple of points of its support since April this year to come to 28.6 percent of the vote were elections to happen now, while ND stood steady at 21 percent.
See full TV report.

Germany's new immigration debate
A new book by Thilo Sarrazin, a member of Detsche Bank's board, has sparked renewed debate in Germany about whether immigration is a good thing. Sarraziin argues that Germany's ageing population is being infiltrated by poorly educated Turkish labour. Many politicians have asked for Sarrazin's resignation.
See full story.

Ireland faces bank test
Ireland's banks will attempt to refinance 25bn euros' worth of debt in September, creating a test of whether they can do so at affordable rates.
See full story.

The education spiral

2010-08-27T10:35:00.009+03:00

The following three paragraphs are from a July 15 Economist article on Egyptian education:

"Before the revolution Egypt’s schools and universities were few but their standard was excellent. The push to boost numbers came at the cost of a drastic fall in quality. Instead of following tested Western models, school textbooks were rewritten to emphasise “nationalist values”, scientific formulas and lists of facts rather than critical thinking. By the 1980s class sizes in government schools averaged more than 60. With student numbers in several big state universities up to six-digit figures, hundreds, even thousands of students were packed into lecture halls. Some of the better staff emigrated to Gulf countries, where salaries were many times higher.

Those left behind began to exploit an obvious market opportunity, offering private lessons on the side. This practice became so pervasive that by 2005 some 64% of urban students and 54% of rural ones resorted to private crammers in addition to regular schooling, according to Egypt’s Human Development Report. A 2002 World Bank study found that private tuition accounted for fully 1.6% of GDP, and other studies suggest it devours a whopping 20% of household spending in families with school-age children. A big reason why families are willing to spend so much is that the education system relies heavily on national exams, not only for rating students but also for placing them in the various faculties of the state universities that still account for 95% of college enrolment.

Since the 1960s these have been ranked by prestige, with medicine and engineering accepting only the highest-scoring students. The humanities, including law and education, are left with the dross. In effect, this creates a tyranny of exams largely based on rote learning. It forces unhappy students into disciplines they would not have chosen for themselves and produces a chronic imbalance between the skills of graduates and the needs of the marketplace. Egypt has a surplus of would-be lawyers, slapdash engineers and scarcely numerate accountants but few trained librarians, architects or actuaries."

The similarities with Greece's education system should be obvious, and worrying. There is the tyranny of after-school frontisteria, which sap household incomes and belabour students. There is the rote learning and lack of critical thought seen in Greek high schools and universities. There is the vast class size. There is the cascading placement system, which puts university entrants in disciplines not of their choosing. All these are the hallmarks of a centrally controlled, politicised education system that does not tend towards excellence.

This year the socialist government enormously broadened the university intake by abolishing the 50% pass grade established by former education minister Marietta Yiannakou in 2006. There are good reasons for this. Greece is in recession (the economy contracted by 3.5 percent in the second quarter, year-on-year, according to Bank of Greece figures released this week), and putting young people in study for four years (the minimum duration of a Greek Bachelor's degree) is a way of keeping unemployment figures a bit lower than they might otherwise be (officially they are topping 12.5 percent).

A similar broadening is happening elsewhere. In Britain, for instance, the number of students eligible for 'clearing' - late placement in courses that were not a student's first choice - is up by 48,000 this year to 182,000. But in the effort to place as many applicants as possible, the Greek system has plumbed new depths. The lowest-achieving entrants to the university system scored 2.3 out of 20, and to technical colleges 0.9 out of 20.

The dilemma for the public higher education system is therefore starker than ever. Are they a political instrument fulfilling a constitutional pledge to provide free higher education or are they competitive institutions improving Greek society and its economy with every passing generation? Will Greece's universities remain politically controlled, their intake dictated by government quotas, or will they be released from the state and allowed to compete with the rest of the world? There are concomitants to that state control. If the university system is not allowed to be more autonomous and accountable, it will be difficult for it to acquire transparent academic and financial management, because academic and administrative appointments come with party political backing - as do some student transfers.

Public education should not serve the interests of whichever political party is in power. The current socialist policy of broadening the intake is understandable in the interest of social stability in a recession, but ultimately an enlightened government must plot a course of radical reform and face the unions and other deeply vested interests that will fight it, even though their students will be used as hostages.

Greek truckers on strike

2010-07-30T00:31:00.000+03:00

Petrol stations across Greece are closed because they have no petrol to sell. Haulers parked their trucks on Sunday, and then blockaded refineries so that even privately owned tanker fleets couldn’t deliver. That has brought panic at the pump, just as Greeks are poised to go on their summer holidays. The government is now ordering truckers back to work. If they refuse, their trucks could be confiscated and driven by the army – an emergency measure not implemented in a generation. But the truckers say they will not back down down. The dispute began after the government said it will make trucking licenses free within three years, to introduce more competition. New trucking licenses have been frozen for a decade under pressure from the union, but Greece has committed itself to competitive measures in an agreement with the EU and IMF, which are keeping the country solvent.

Revolutionary Sect claims Giolias

2010-07-28T00:31:00.001+03:00

Terrorist organisation Revolutionary Sect has claimed responsibility for the assassination a week ago of a journalist at his home. Revolutionary sect says it targeted Sokratis Giolias because of his blog posts insulting urban guerrillas and the anarchist movement. Giolias had written a condemnation of terrorism after a bomb left outside a government building killed a 15 year old Afghan passer-by earlier this year. He had also allegedly humiliated anarchists after an attempt to burn down his internet news service headquarters. Revolutionary Sect launched itself in February last year with an unsuccessful Oklahoma City-style attempt to destroy a Citibank building in Athens. Its inaugural proclamation said the group’s targets would include journalists it deemed to be in the pocket of big business.

Greek Expressionism

2010-06-23T10:52:00.001+03:00

As artistic movements come and go, so do political ones. Greece is currently venting a torrent of frustration that has made the rounds of international media. We could call it Greek Expressionism. It is a self-indulgent and politically motivated attempt to preserve the uncompetitive status quo of a spoonfed economy. At the same time, it is an outpouring of righteous anger by honest middle class workers who are struggling to keep their children middle class and are fed up of being lied to by governments who mismanage their taxes.

When Pasok came to power last October the mood was quite different. There was a measure of optimism that, despite the demoralisation and empty coffers, an ambitious government peopled by a new generation of ministers and led by a not-altogether-Greek premier might pull the nation out of the comeuppance of all-too-Greek habits.

The government decided to tell its European partners a shocking truth: that its 2009 deficit would be in the order of 12.7 percent of GDP, not the 5.7 percent announced after the election. European Union finance ministers erupted in indignation, and spent the rest of 2009 telling Greece to cut its deficit. A first slate of public cost-cutting announced at the time was made more severe in an EU-doctored stability plan in January. Public sector jobs lost some of their sheen for the first time in living memory. But by then, international markets had already taken the situation out of the hands of governments. The Greek bond was reduced to junk status and carried an interest rate so high as to be prohibitive.

In early February Greece asked the EU to cobble together a financial safety net the mere existence of which would hopefully be enough to calm markets. The EU argued about whether spendthrift states should be bailed out by responsible ones. By the time it had agreed to the safety net in principle on March 25, markets were unimpressed. The announcement of specific pledges the following month amounting to 45 billion euros provided an ephemeral boost. On April 23 Greece asked for the terms of the package, signalling that it would make use of it. On May 2 the government announced those terms to an already frightened public, leading to the largest protest in decades three days later. Anger against banks spilled over. A Marfin Popular Bank branch was torched, killing three employees.

The socialist government of Yiorgos Papandreou faces multiple problems – ideological, demographic and political. First, it cannot behave in a classically socialist manner. The handout economy that enabled the public sector to swell to roughly 50 percent of the economy today is over. Pre-election rhetoric about reversing privatisations was quickly forgotten. The Hellenic Telecommunications Organisation privatisation has been left in the hands of Deutsche Telekom. Olympic Airways, recast as Olympic Air, is still Marfin-owned, despite the lack of funds to pay severances to employees who agreed to go. The long-term lease of a container terminal to China Ocean Shipping Company (Cosco) was briefly disputed, then adhered to.

Social policy rhetoric has also been toned down. A 2008 law stiffening social security was not repealed; on the contrary, a new bill will raise the retirement age and reduce payouts. A pledge to top up pensioners penalised by splitting their contributions between different funds has been dropped.

Some of Pasok’s ideological platform made it through. The government eked out a one-off recession handout to the poor before the end of 2009. The tax scale was recalibrated to penalise higher earners and absorb flat-tax professions. But the halving of the tax-free threshold to 6,000 euros (in the absence of sales receipts) and the raising of Value Added Tax (sales tax) by four points have flattened notions of social justice for the poor, leaving Pasok more vulnerable to left-wing accusations of being an ideological impostor. Pasok’s turnaround was nowhere clearer than in its implementation of an election promise to give civil servants a pay rise, followed by a slashing of benefits and bonuses.

Parties can ultimately survive even the most dramatic changes of ideology as circumstances demand. But Greece’s demographic problems are severe and difficult to reverse. The worst is the declining productivity of the population. According to the General Confederation of labour (GSEE), the largest grouping of private sector unions, the active workforce comprises only 4.5 million out of Greece’s 11 million people. One million of those workers are on the public payroll, and at least half a million are unemployed (officially 12 percent). This means that three million workers or fewer are generating the productive income that carries the other eight million.

Given Greece’s negative population growth, legalising immigrants on the basis that they work and pay into the system increasingly seems like the only way to keep this problem at bay. Concerns about moral justice aside, this may have been a large part of the rationale behind this year’s revolutionary immigration law, which for the first time gives citizenship to the children of legal immigrants.

If it were a society that paid its way, these demographics would render Greek living standards akin to those of an eastern European country. As it is, Greece seems prosperous. That is because of three things. The deregulation of banking and membership in the euro lowered interest rates and boosted private borrowing. For a while, Greeks spent money they did not fully realise they would have to pay back and pushed up inflation in the process. Governments did worse, leveraging the economy to a very high degree and borrowing close to 300 billion euros, a national debt that will, at its peak, amount to one and a half times the size of the economy, the European Commission predicts. And European Union subsidies continue to pour into the country, boosting GDP by an estimated percentage point.

All three of these sources of wealth are now drying up. The country cannot afford to roll over old debt, let alone borrow new money. Banks have tightened the money supply to the private sector and consumers. And European Union subsidies will be sharply curtailed after the current financial period runs out in 2013. There will be less money from net contributors such as Germany, and newer, poorer member states will want to claim a larger share of it. Farmers used to living off EU money will simply go bust and sell the family land in a last-ditch effort to change profession, or become workers on corporate farms.

Under ordinary circumstances, Greece could plan to grow its way to a healthier economy by boosting competitiveness and exports, and spending more government money to cushion economic reform. With the world in recession and credit unavailable, it needs to reform a shrinking economy even as the government shrinks, enduring two forms of pain at once.

Devaluing the currency to boost export-driven growth is not an option while Greece remains in the euro. Departing from the euro would lead to such a large devaluation (about 30 percent, former Prime Minister Kostas Simitis recently estimated), that savings would be wiped out and the debt, calibrated in euros, dollars and yen, would skyrocket overnight.

The only options left to Papandreou’s government are therefore bold ones. But here enter the political problems. Greece has a powerful left wing. Together the Communist Party (KKE) and its offspring, the Left Coalition, garner 12 percent of the vote. Together with the civil servants’ union (ADEDY) and GSEE they can mobilise tens of thousands on the streets and largely dictate the political climate. The opposition conservatives are in the throes of internal redefinition after a humiliating defeat at last October’s polls. Rather than forging a consensus position with the government, they are distancing themselves as much as possible. Thus the austerity measures passed by Papandreou on May 9 received support only from the right wing minority party, Popular Orthodox Rally (LAOS).

The left lives in a separate vision of reality. The KKE wants Greece to abdicate from membership of the EU, NATO and the capitalist free market. The left and the unions have fought for the status quo and fought economic reform, privatisation and liberalisation for over a decade. But the conservatives have no excuse for undermining socialist efforts other than revenge.

Can such an isolated government maintain social cohesion and a political majority while eliminating the deficit and reforming the economy?

Seen through the eyes of television networks, Greece seems to be falling apart. But the lens can be misleading. Vandalism makes for good footage, but television does not put that picture in its correct perspective. Greeks are indeed unhappy about the recession and want their politicians to be more accountable, but the majority are not about to overthrow the government by putsch, let alone suspend the constitution.

Papandreou needs to calm Greek society as he has sought to calm markets. He admirably faced the opposition with its share of responsibility on the day the three bank workers died, saying that extreme language lays the groundwork for extreme actions. Despite its troubles, Greece maintains an admirable freedom of expression, in contrast to the violent treatment of anti-capitalist protesters in Seattle (2000) and Genoa (2001). And despite realising too late how much had to be done to curb the deficit, the government has stuck to its guns and kept its nerve – more than can be said for the Karamanlis administration.

The challenge ahead is to focus on development and new growth while sticking to the agreed spending cuts. Many economists are pessimistic about whether the plan can work. Growth cannot come for at least a couple of years, they say, by which time the EU-IMF money will have run out, and Greece will again be faced with market reality. But Greece has shown that it can rebound very quickly from economic disaster, especially with outside help. A liberalised economy boomed in 1950-1955 thanks in part to the Marshall Plan. Liberalisation and outside assistance can work again. Then, as now, Greece had to contend with a defeated and disgruntled left clinging to a discredited ideology. Capitalism will have to prove itself through success coupled with social justice. Against these, the KKE’s apocalyptic ramblings can do little.

Through all this, Papandreou must work towards greater political transparency – one of the main planks of his election platform. If money has been misappropriated, this has been done by elected governments. Greek voters no longer feel it is enough for them to have a say once every four years. Papandreou’s promise to put government procurements online is in the right spirit. If he also gives parliament’s audit committee greater power to investigate the finances of parties and politicians, he may sufficiently frighten the political system into behaving, and surviving.

This analysis is the editorial in the spring issue of Odyssey Magazine (www.odyssey.gr)

Greece on strike today

2010-05-20T10:30:00.002+03:00

Greece is paralysed by another general strike today, affecting the public and private sectors. Unions are protesting against austerity measures adopted on May 9 to cut the deficit by about ten billion euros this year.

On strike are civil servants, most public transport in Athens, rail, local and regional government, public school teachers and academics, customs workers, passenger shipping, pension funds, banks and many private sector workers. Athens International Airport is remaining open, though Olympic Air has unilaterally cancelled some flights.

Tax evasion higher than deficit

The government estimates that it is owed 25 billion euros in tax arrears and fines, says the finance ministry's man in charge of tax collection. Dimitris Georgakopoulos, General Secretary for Tax Revenue and Customs, told an open meeting of Athens and Peiraieus chambers of commerce yesterday that the sum is equal to about 40 percent of budget revenues. The government's austerity measures, in contrast, aim to curb about 10 billion euros in public spending this year.

'Stop making money from Greek misery'
Green Europarliamentarian Daniel Cohn-Bendit has called on European Union states to stop making money from Greece's misery, as he describes it. He told Europarliament that selling European arms to Greece and lending it money at a markup amounts to profiteering. He called on leaders to set up a European Monetary Fund and give Greece time to massage in reform rather than rush it through. The speech was made on May 5, the day three Greek bank employees died in a fire set by anarchists on the sidelines of a protest march.
See the video with Greek or English subtitles.

Deputy minister resigns over tax debts

2010-05-18T07:36:00.001+03:00

Deputy Culture Minister Angela Gerekou resigned last night after newsapers revealed that her husband, former singer Tolis Voskopoulos, owes 5.5 million euros in taxes, Greek media report. "Today's news articles refer to my husband's pending legal tax case which stems from long before our personal acquaintance," she said in a brief statement. "I could never allow my husband's case to form a basis for blunt accusations against against the government and premier, especially at this exceptionally difficult time," she said.

Gerekou is the socialist government's first loss after almost eight months in power, and demonstrates a newfound political sensitivity to tax arrears after waves of austerity measures this year. Also remarkable is the fact that the tax arrears were revealed by a nominally pro-socialist newspaper, Eleftherotypia.

Comments

2010-05-17T08:00:00.000+03:00

Some recent commentaries on the Greek and broader European crisis worth noting:

Economist: No going back - Ambitious but incomplete, the rescue plan for the euro could change the way Europe is run

Der Spiegel: The Mother of All Bubbles - Huge National Debts Could Push Euro Zone into Bankruptcy

Turkish PM in Athens

2010-05-14T12:05:00.001+03:00

Turkish Prime Minister Recep Tayyip Erdogan is in Athens today to discuss and sign more than a dozen agreements on economic, environmental, cultural and economic co-operation. A press conference is scheduled for the late afternoon.

Best news item yesterday: A hypoglycemic man fainted behind the wheel of his jeep during his morning commute. He crashed into a patisserie.

Strikes today

2010-05-13T10:26:00.000+03:00

Tour guides and guards on the Acropolis are on strike today, Thursday. Also on strike are tug boat operators and pilots in the port of Peiraieus. This caused the cruise ship Musica an alleged three-hour delay in tying at port this morning, delaying a shore excursion to Athens monuments (some of which, as previously mentioned, are inaccessible). A nationwide strike has been declared by public and private sector unions for next Thursday, May 20.

Reform around the corner?

2010-05-11T22:52:00.002+03:00

Athens is bracing for another rally by private and public sector workers on Wednesday evening, and further strikes may be announced before then. Adding to the ire of unionists and opposition leaders is a social security reform bill announced on Monday, a day after deeply unpopular public expenditure cuts were voted through parliament. The social security bill will reduce pensions for some categories of workers and raise the retirement age for those entering the workforce after 2015.

Opposition parties have called it a dismantling of the social state put in place over the last three decades.

Greece was set to ask for the release of 20 billion euros of an EU-IMF safety net on Wednesday, reports said. 14.5bn would come from the EU, while 5.5bn would come from the IMF.

Transparency

There were preliminary reports from parliamentary correspondents on Tuesday evening that the government is also proposing to stiffen the Audit Committee, which oversees MPs' tax returns. Five MPs currently sit on the committee, and there is allegedly a proposal to replace them. The understanding is that this would remove any collegiate sentiments on the committee towards transgressing MPs.

The oversight of parliamentary deputies' tax returns is a the key point of political accountability. Another is the immunity from prosecution enjoyed by MPs. Yet a third is a law limiting the liabilities of cabinet ministers to five years after they leave office, or the end of the second parliamentary session following an election, whichever comes sooner. Political observers and constitutional experts have long decried these as creating a double standard. Following Greece's effective bankruptcy and the financial scandals attendant upon the last government, there is more pressure than ever on the political system to change.

Transparency was a key election promise made by the socialist party last September. It had also been the main plank of a platform that helped elect the conservative party in March 2004.

Calls for change

"The prospect of bankruptcy has not become any more distant," said President of the Hellenic Federation of Enterprises Dimitris Daskalopoulos in an address to the annual general meeting of the private sector's leading body today. "The political system will face a survival test," he added.

In a blunt broadside against the political system, he accused parties and politicians of resisting change because they are lining their pockets with taxpayer money. "They feel that a smaller state... would shrink their power and privileges," he said. "The political system is called upon to surpass itself. If it does not change, it will become obsolete."

Greek parliamentary democracy was restored 36 years ago this July after a seven-year dictatorship. This is a period known as the meta-political period, or metapolitefsi. Daskalopoulos said we are "witnessing the disintegration of the metapolitefsi, which is characterised chiefly by political clientelism, fiscal indiscipline, endemic corruption and the populism to which our parties are wont."

Government isolated

Despite the national nature of the crisis Greece faces, the ruling socialist government is almost completely isolated in the three waves of public cost-cutting it has so far voted through parliament, and in the reforms it proposes.

Conservative opposition leader Antonis Samaras said on Monday he refused to back the latest socialist austerity package, a condition of the EU-IMF support package, because the government would not rescind a law that grants citizenship to the children of legal immigrants, or back down from a plan to reduce local governments by two thirds. Samaras said he also demands more support for the poor and more emphasis on development rather than public cost-cutting.

The New Athenian on CBS, PBS

2010-05-07T17:46:00.000+03:00

Follow The New Athenian's chats over satellite with CBS's Katie Couric and PBS's Judy Woodruff.

Chilling

2010-05-07T15:19:00.001+03:00

"Burn your neighbourhood bank," reads a graffito on the glass front of Marfin Popular Bank on Stadiou Avenue in central Athens. The photo, taken by photographer Marie Mauzy around noon on Wednesday, approximately two hours before the bank was torched, clearly demonstrates that words are linked to deeds. The anarchists who burned this branch, like vampires, were invited. Below, the same window as photographed yesterday.

Are unionists and politicians giving anarchists the nod?

2010-05-06T12:41:00.001+03:00

Eye-witness reports are emerging through the media today about the behaviour of the 'peaceful' marchers outside the torched Marfin Popular Bank building yesterday.

When several violent protesters smashed the bank's windows and hurled in molotov cocktails, a cheer rose from the crowd, say witnesses. Later, as the first fire engines tried to approach, they were met with a hail of stones. Certainly, march leaders were bent on pushing the protest past the burning bank building yesterday even as the fire brigade struggled to rescue trapped people, as though the success of the march were on a par with the lives that were at stake. These circumstances suggest two things: that the violent protesters meant harm to the people inside the bank, and obstructed the timely extinction of the fire; and that the trumpeted divide between legitimate political expression and criminal anarchy is eroding.

To his credit, Prime Minister Yiorgos Papandreou told parliament last night that all parties were responsible for the political climate. Violent expressions provide a basis of legitimacy for violent acts, he said. The conservative opposition has said that it will neither support nor obstruct today's bill instituting the austerity measures tied to the EU-IMF package. In other words, conservative leader Antonis Samaras understands that now is not the time for populism, but he is leaving his options open.

However, it is doubtful whether the prime minister's call for responsibility will have much effect on union leaders and communists. Union leaders in Greece are cut from a populist cloth. As far as they are concerned, labour and capital are natural enemies. The communists, divided between the Communist Part of Greece and the Left Coalition, have spent the last 35 years as plaintiffs for their post-civil war persecution, and are determined to have their day. They know they will never seize power and will allow themselves to speak and act as eternal sophomores. On the basis of just 12 percent of the popular vote in last October's election, they will have a disproportionate effect on the political climate, as they always have done. Papandreou controls parliament, but they largely control the streets.

The rhetoric against banks is directly related to the anti-capitalist sentiments of the left, and so is the persistent violence that takes place against them on the fringes of popular rallies. Yesterday's torching of a bank full of people was the culmination of hundreds of exercises in window smashing, the driving of crowbars through ATM screens and the torching of closed branches over the past few years.

Which way will Greece go? There is no option but to follow through on the IMF-EU package. It offers Greece a top interest rate of 5 percent over the next three years, which is less than half what it would pay on open markets today. But how the government implements the concomitant austerity can, to a large extent, determine the success of the outcome.

Athens riots claim lives

2010-05-05T16:21:00.007+03:00

Two women and a man were killed in a bank in central Athens today after rioters set their building alight on Stadiou, a major avenue leading to parliament. Protesters marched past the building chanting slogans against the government, as smoke billowed out of second storey windows and firemen struggled to lower two women trapped on a balcony, their eyes wide with panic against smoke-blackened faces. “The fire is out, everything’s ok here. Move along,” shouted a communist party functionary employed to shepherd the protest to parliament. The marchers pushed through the one lane left open beside nine fire engines that lined the bank.

A block away, near Athens University, violent protesters ripped the marble facing off buildings, smashed it and hurled the pieces at police, who responded with teargas and stun grenades. The air was made even more acrid by burning plastic rubbish dumpsters and wooden benches.

Peaceful marchers approaching parliament were turned back by bursts of teargas, and dived into public fountains to relieve the sting. Hotels and retail businesses rolled down steel shutters to protect themselves from damage. Those who didn’t suffered. Ianos, a large bookstore, had its plate glass windows smashed with crowbars.

The protests embellished a one-day strike by the country's biggest unions against a new wave of austerity measures announced by the government on Sunday. Those measures vastly reduce seasonal bonuses from the salaries of civil servants and pensioners, and raise consumer taxes. They are the third wave of spending cuts announced this year and were a condition of a 110 billion euro bailout of the Greek public sector by the Eurogroup and the International Monetary Fund.

The government has pledged to trim spending by 30 billion euros over three years, and reduce a 2009 deficit of 13.6 percent of GDP to 3 percent by 2014 - two years later than it originally planned. Just over 10 billion euros’ worth of those cuts are planned for this year. In theory, Greece must be creditworthy enough to borrow from financial markets again sometime in 2012, when the bailout money will run out.

But the government is treading a tightrope between social unrest and bankruptcy. It cannot spend the bailout money without economising, or it will not have time to reform and revive an uncompetitive economy. Spending cuts, on the other hand, help drive the Greek recession. Contraction was 2 percent last year and is forecast to double this year.

The pain of austerity is being unfairly passed on to workers, say the unions. They marched to parliament today with slogans like "Get out IMF" and "No to the dictatorship of the markets" - the last a reference to Greece's inability to affordably refinance debt in financial markets because of the precipitous fall in its creditworthiness.

"Every citizen has the right to protest, but no one has the right to violence - particularly the violence that leads to the murder of our fellow men," said Prime Minister Yiorgos Papandreou in an address to parliament late on Wednesday. He pledged to track down the perpetrators.

While he did not blame unions and the communist party for the deaths, he did blame them for creating an inflammable environment. "You know well that the statements made in the last few days did not help - that the country is under a dictatorship or that the constitution is somehow in doubt. You know how much these words legitimise violence."

The communist party said the killings were deliberate acts of provocation aimed at framing it and marginalising it politically.

The three victims were identified as Paraskevi Zoulia, 34, Angeliki Papathanasopoulou, 32, and Epameinondas Tsakalis, 38.

The strike largely brought Athens to a standstill. Its international airport has ceased all flights and ships are tied at harbour. Central and local government are closed, as are hospitals, schools and universities. Even privileged private sector professions such as lawyers and journalists went on strike, though the journalists’ union lifted its broadcast ban following the three deaths. Public transport worked a 6-hour day, largely to ferry protesters to and from the centre.

The strike began on Tuesday before broadening today. Civil servants were off the job. Contract teachers besieged the education ministry in protest at the expected reduction in hiring this September. A separate group was protesting outside the Athens University downtown campus with banners and loud music. Representatives of PAME, the Commuist Party of Greece union arm, unfurled two giant banners from the walls of the Acropolis reading “Peoples of Europe Rise up”.

“What people are angry about is that employees with low salaries are being made to pay for the mishandling of the country’s finances over so many years,” says Mirka Dimitriadis, a retired journalist. “Not one politician has been put in the dock to answer for what happened.”

The General Confederation of Labour, the country’s largest private sector union group, calls the 5 percent interest rate charged to Greece by the Eurogroup “usury”, despite the fact that Greece would today borrow at more than twice that rate from money markets.

See this article in the Irish Times.
See the live report on the PBS News Hour.

World reactions to the riots

The Guardian's Larry Elliott:
while demand is going to be sucked out of the Greek economy through a three-year pay and pension freeze, together with a big jump in VAT, there is unlikely to be a pick-up in exports to compensate. Instead, the slump will deepen. Greece, without the benefit of stronger growth, will be unable to meet its ambitious targets for reducing the deficit, which in turn will lead to demands for even deeper budgetary cuts, which will weaken demand still further. That is not a recovery plan. It is an economic death spiral.

The FT's Kerin Hope:
Greek prime minister George Papandreou has vowed to push through draconian economic measures demanded as part of a €110bn rescue package for his debt-burdened country despite the death of three people during demonstration.

Bloomberg:
“The Greece issues are raising concerns about the health of the financial system globally and slowing down the flow of money in markets,” said Ayako Sera, a strategist at Tokyo-based Sumitomo Trust & Banking Co., which manages $300 billion.

Can Greek reform succeed? Doubts persist

2010-05-05T07:38:00.000+03:00

The FT's Martin Wolf:
It is hard to believe that Greece can avoid debt restructuring. First, assume, for the moment, that all goes to plan. Assume, too, that Greece’s average interest on long-term debt turns out to be as low as 5 per cent. The country must then run a primary surplus of 4.5 per cent of GDP, with revenue equal to 7.5 per cent of GDP devoted to interest payments. Will the Greek public bear that burden year after weary year? Second, even the IMF’s new forecasts look optimistic to me. Given the huge fiscal retrenchment now planned and the absence of exchange rate or monetary policy offsets, Greece is likely to find itself in a prolonged slump. Would structural reform do the trick? Not unless it delivers a huge fall in nominal unit labour costs, since Greece will need a prolonged surge in net exports to offset the fiscal tightening. The alternative would be a huge expansion in the financial deficit of the Greek private sector. That seems inconceivable. Moreover, if nominal wages did fall, the debt burden would become worse than forecast.

The crises now unfolding confirm the wisdom of those who saw the euro as a highly risky venture. These shocks are not that surprising. On the contrary, they could have been expected. The fear that yoking together such diverse countries would increase tension, rather than reduce it, also appears vindicated: look at the surge of anti-European sentiment inside Germany. Yet, now that the eurozone has been created, it must work. The attempted rescue of Greece is just the beginning of the story. Much more still needs to be done, in responding to the immediate crisis and in reforming the eurozone itself, in the not too distant future.

The NYT's Paul Krugman:
Consider what Greece would get if it simply stopped paying any interest or principal on its debt. All it would have to do then is run a zero primary deficit — taking in as much in taxes as it spends on things other than interest on its debt. But here’s the thing: Greece is currently running a huge primary deficit — 8.5 percent of GDP in 2009. So even a complete debt default wouldn’t save Greece from the necessity of savage fiscal austerity.

It follows, then, that a debt restructuring wouldn’t help all that much — not unless you believe that getting forgiveness on much of Greece’s existing debt would make it possible to take on substantial new debt, which doesn’t seem very likely.

The point is that the only way to seriously reduce Greek pain would be to find a way to limit the costs of fiscal austerity to the Greek economy. And debt restructuring wouldn’t do that.

Politicians knew the problem

2010-05-04T09:51:00.004+03:00

Bank of Greece Governor Yiorgos Provopoulos tells Skai television that Greece's political leaders knew the extent of the deficit since before the 2009 election; that leaving the eurozone would be sheer folly for Greece; and that since Greece entered the euro in 2001, not once did it achieve the required three percent deficit threshold. Government expenditure climbed seven points between 2001 and 2007, Provopoulos revealed, but governments did nothing to forestall high deficits because the economy was growing sufficiently quickly to overshadow the problem.
http://www.skai.gr/articles/news/finance/Κυβέρνησηκαιαντιπολίτευσηγνώριζαν/

Siege today, Strike tomorrow
Contract teachers were besieging the education ministry this morning in protest at the expected reduction in hiring this September, against the social security cuts and against the austerity measures announced by the finance minister on Sunday. A separate group was protesting outside the Athens University downtown campus with banners and loud music. Representatives of PAME, the Commuist Party of Greece union arm, unfurled two giant banners from the walls of the Acropolis reading "Peoples of Europe Rise up. Civil servants are on strike today and tomorrow.

The civil servants' union will be joined by the General Confederation of labour tomorrow, leading to a standstill for a number of services including ministries, banks, lawyers, journalists, local government, Athens International Airport, pension funds, hospitals and schools. Public transport will operate from 10am to 4pm.

Greek bailout comes with painful measures

2010-05-02T13:29:00.013+03:00

The Greek government has announced that it is undertaking a new round of painful cost-cutting and restructuring measures in response to a three-year bailout jointly sponsored by the European Union and International Monetary Fund.

The prime minister and finance minister made the announcement on Sunday morning after securing a three-year financial safety net amounting to 110 billion euros.

They are billing the joint EU-IMF bailout as the biggest in history, and in response have launched what Finance Minister Yiorgos Papakonstantinou called the most ambitious fiscal adjustment ever undertaken by a European country. The gambit is to eradicate a 30bn euro deficit over the next three years – no small feat for an economy like Greece’s, now over 300 billion euros in debt.

The government will raise consumer taxes and reduce public sector salaries for the second time this year. Easter, summer and Christmas bonuses, normally amounting to two extra salaries, are being reduced to flat payments totalling 1,000 euros. Above salary benefits, already cut by 10 percent, are being slashed a further eight percent. In a social security bill to be announced separately, Easter, summer and Christmas pension bonuses will also become flat sums and the retirement age raised.

On the positive side, the transport and energy markets are to be liberalised in order to create new growth. Both liberalisations have been mandated by the European Union and are years overdue. The finance ministry is also promising to simplify procedures for setting up a business.

The government says it will not back down in the face of protests against these measures, but will ignore their political cost, because the choice Greece faces is between salvation and annihilation.

See the Financial Times article.
See the Bloomberg article.

Comment
The FT's Walter Munchau:
Angela Merkel and her inexperienced economic advisers have no idea about the dynamics of sovereign crises. They never bothered to look at the experience of other countries, notably Argentina. Waiting until the moment a country is about to fail – which is how the German chancellor interpreted the political agreement she accepted in February – constitutes an abrogation of leadership that is bound to end in financial ruin. It means that everybody, Germany especially, has to pay billions of euros more than would have been the case if the EU had sealed this in February...

...Three things are required if the eurozone is to survive in the medium term: a crisis resolution system, better fiscal policy co-ordination, and policies to reduce intra-eurozone imbalances. But this is only the minimum necessary to get through the next few years. Beyond that, the eurozone will almost certainly need both an embryonic fiscal union and a single European bond.

I used to think that such constructions would be desirable, albeit politically unrealistic. Now I believe they are without alternative, as the experiment of a monetary union without political union has failed. The EU is thus about to confront a historic choice between integration and disintegration.

The NYT's Paul Krugman:
The Greek fiscal problem has been turning into a death spiral, in which fear of default is driving up borrowing costs, making default even more likely. The EU has now, in effect, given up on trying to restore market confidence; instead, it’s going to break the death spiral by main force, providing Greece with all or almost all the financing it needs directly, at an interest rate much lower than the market was demanding.

The BBC's Gavin Hewitt:
This is a day of humiliation. It was never envisaged that a eurozone country would need bailing out. Today the EU had to launch one of the biggest financial rescues ever attempted. What the plan does do is to buy time and to shelter Greece from the fierce winds of the markets. What it doesn't do is to answer the questions of whether economies so fundamentally different as Greece and say Germany can be part of the same monetary union.

The Economist (before Sunday's bailout announcement):
If Portugal comes under intense pressure, contagion might then spread to Ireland, Italy or Spain, the other euro-area countries with some mixture of big budget deficits, poor growth prospects and high debts. Only swift and decisive action by the leaders of Europe's big economies is likely to head off the current crisis. Default by a smaller member such as Greece would be a body blow to the euro's standing but it need not spell the end of the currency. However, that might not be the case if the problems spread further afield.

Greeks brace for a painful bailout

2010-05-02T10:05:00.000+03:00

Greek unions are planning more strikes and protests in reaction to a new austerity package widely expected to be announced today. It is thought that a package of austerity measures would be a condition for the activation of the 100+ billion euro financial aid package lined up by the Eurogroup and the International Monetary Fund. Representatives of the IMF and EU left Athens on Tuesday after a few days of consultations with the government.

Local media have reported a series of Drakonian measures said to be included in the package. Among them is the complete severance of Easter, summer and Christmas bonuses in the public sector, amounting to two extra salaries a year. The government already trimmed these by 30 percent in the last austerity package, announced in early March. Their complete removal would be a historic irony, as they, along with much of the welfare state, were introduced in the early 1980s by then prime minister Andreas Papandreou, father of current Prime Minister Yiorgos Papandreou.

There could be more public sector pain in a further reduction in above-salary benefits. These are awarded for rank, length of service, educational level and children, among other things, and can as much as double nominal salary. The government already trimmed benefits by 10 percent this year, giving rise to four one-day strikes in the civil service.

Also allegedly planned is the abolition of Easter, summer and Christmas pension bonuses in both the public and the private sectors, since the state underwrites pension funds in both.

A further hike in VAT could be on the cards, despite a 1-2 point rise earlier in the year that has now begun to come through in retail prices and utility bills. Indirect taxes, though unfair on the poor, are an attractive option for the government because Greeks are notorious evaders of direct taxation. Greek governments raise only about 2.5 billion euros a year through direct taxation on individual income, compared to tens of billions from VAT.

Labour reaction has been mixed. Union leaders, who discussed the measures with Papandreou today, described them in the darkest terms. “This is the most savage, unprovoked and unjust assault,” said civil servants’ union leader Spyros Papaspyros last week, adding that the measures would “render salaried employees, pensioners and the unemployed wretched.”

The head of the largest private sector union group, the General Confederation of Labour (GSEE), said its answer would be delivered “on the streets”.

But the head of the Greek Economic and Social Committee, a former head of GSEE, said the measures were tough but would have to be fought through.

Organised labour is polarizing opinion through what some see as its excesses. Last Wednesday, a group of communist party activists and passenger shipping unionists harassed passengers attempting to board their cruise ship, the Zenith, in Piraieus harbor. In response, the ship’s operator, Spanish-based Pullmantur cruises, announced it will withdraw the ship from Greek waters. The Association of Greek Tourism Enterprises estimated the loss at 10 million euros and 400 jobs this year. Tourism is Greece’s biggest industry, amounting to 20 percent of GDP.

Yet strikes are set to intensify over the short term. A number of labour groups went on strike on Mayday, and journalists are walking off the job next Wednesday.

See this on the Irish Times:
http://www.irishtimes.com/newspaper/finance/2010/0430/1224269362868.html
The Financial Times reports that German bankers are considering supporting their government's pro-Greek bailout position through a parallel private lending initiative:
http://www.ft.com/cms/s/0/4b7b4770-5483-11df-8bef-00144feab49a.html

Greece asks EU to activate 30bn euro aid package

2010-04-23T13:23:00.003+03:00

Greece has become the first eurozone economy to ask for an emergency financing package from the European Union and International Monetary Fund. The Greek government today officially asked European partners to activate a 30 billion euro mechanism set up for the country a month ago.

Prime Minister Yiorgos Papandreou described the financial aid as “a national and urgent necessity”, a safe harbour in which Greece could rebuild its ship with sound and lasting materials. The government’s real goal, he said, was long-term reform of a flagging economy. But the country’s lack of credibility in money markets was sapping the time in which to carry this out.

Imminent reforms in social security and the labour market are already raising hackles. Greece suffered a triple whammy yesterday, resulting in the highest borrowing rates for the most beleaguered European economy in twelve years.

Eurostat, the European Union’s statistical agency, upwardly revised Greece’s 2009 deficit to 13.6 percent of GDP, almost a point above the previous estimate of 12.7 percent. That suggests that Greek efforts to reduce the deficit by four points this year will not set as promising a course as previously thought towards eliminating the deficit by 2013 as promised in the Stability and Growth Plan.

The second blow was a downward revision of Greek bonds from A2 to A3 by Moody’s Investment Service. Moody’s took Greek bonds down from A1 status only last November – a precipitous rate of decline.

The third blow to the economy was a one-day strike by an estimated half million public sector workers, that brought ministries to a standstill. Public universities and polytechnics barely opened, public hospitals operated on a skeleton staff, and passenger shipping workers walked off the job, bringing the main Athenian port of Piraieus to a complete standstill. Shipping workers are planning more one-day strikes next week. Civil aviation workers decided to stay on the job to help clear a backlog of travellers stranded on account of Icelandic volcanic smog-related travel restrictions.

Greek spreads on the ten-year bond rose to a high of 622 basis points, a rate not seen since 1998, four years before Greece adopted the euro, and were hovering at roughly 537 basis points as this post went online. That effectively put the rate at which Greece would have borrowed yesterday above 8 percent.

Greek policymakers believe that cost to be prohibitively high. Last week Prime Minister Yiorgos Papandreou asked the European Commission to explain the terms on which Greece might borrow some of the 30 billion euros its eurozone partners have earmarked as a financial safety net. The EU has promised a rate of 5 percent.

Yesterday’s strike was organised jointly by the civil servants’ union and the communist party to protest against an austerity plan announced in March. They want the government to restore bonuses axed from a million public sector workers, and to shore up social security rather than slashing it. The Government has recently said it will introduce legislation to lower its share of the cost of pensions, estimated to rise to a quarter of GDP by the middle of the century. The unions are also unhappy about legislation to telescope local governments from just over 1,000 to 366, resulting in about 15,000 layoffs of contract workers at the end of the year.

The General Confederation of Greek Workers, the country’s biggest umbrella grouping of private sector unions, is also unhappy with the path of austerity and reform. It says the official unemployment rate of 11.3 translates into a real unemployment rate of 17.5 percent once undeclared unemployment and underemployment are factored in.

See also: http://www.ft.com/cms/s/0/35fe6cfe-4ec7-11df-abb5-00144feab49a.html

Greece moves towards EU, IMF rescue

2010-04-16T09:27:00.012+03:00

Greece yesterday requested the opening of talks on activation of a financial safety net created at its behest last month by eurozone partners in collaboration with the International Monetary Fund. The move came after a dramatic rise in Greek bond spreads that peaked at 426 basis points, coming dangerously close to the historic high of more than 450 points reached on April 6. Greece had evidently hoped that the very existence of the safety net would guarantee it against default on existing loans, and encourage markets to refinance its debt at viable rates. But upward market pressure continued even after eurozone partners and the IMF announced specific pledges to the plan amounting to 45 billion euros this year.
Greek request: http://www.ft.com/cms/s/0/b75c2950-489e-11df-9a5d-00144feab49a.html
Bond plunge: http://www.ft.com/cms/s/0/726d25d0-4851-11df-9a5d-00144feab49a.html
Pledges on April 11: http://www.economist.com/business-finance/displaystory.cfm?story_id=15892064&source=most_commented

Social security cuts imminent
A Greek government plan will cut top ups to pensions over 1,400 euros as soon as this November, and limit basic pensions to under 360 euros a month by 2018, reveals a Greek newspaper today.
In other details leaked by Kathimerini, which is in apparent possession of a version of a bill to be presented to European finance ministers on April 26, top pensions may come down by as much as 20 percent.
http://news.kathimerini.gr/4dcgi/_w_articles_economy_2_16/04/2010_397663

Police deal blow to terrorists
Greek police may have dealt a death blow to the group Revolutionary Struggle, beginning with the arrest of six suspected members several days ago. This week they recovered what they believe to be the organisation's main computer, detailing 13 operations involving high explosive, targets that include politicians, journalists and businesspeople, and a vehicle belonging to one of the six. Police also recovered more than 100,000 euros in cash, two pistols and fake identity cards.

http://news.kathimerini.gr/4dcgi/_w_articles_ell_100011_16/04/2010_397709

Eurozone earmarks 30bn for Greece

2010-04-12T14:46:00.001+03:00

Greece's fellow Eurogroup members on Sunday pledged 30 billion euros for a financial rescue package for the beleaguered nation, should it be needed. A further 15 billion euros are earmarked by the International Monetary Fund, media say. The European money would be disbursed at 5 percent, slightly above the IMF's lending rate.

It is the first time that the rescue package, under discussion since early Febraury, has been accompanied by specific figures.Greece stressed that it has not yet asked for the activation of the rescue plan, and feels that its mere existence with specifics is enough to calm money market fears enough to allow Greece to borrow viably.

The news seemed on Monday to have lowered Greek bond spreads with the German bond (spreads for the 10-year bond stood at 343 basis points at the time of this posting, down from a high of 456 basis points last week, which would have led to borrowing rates of about 7.5 percent). The Athens Exchnage rallied 3.5 percent and the euro also rallied on Monday.

Financial Times: http://www.ft.com/cms/s/0/91ee3adc-458d-11df-9e46-00144feab49a.html
Spreads: http://www.naftemporiki.gr/markets/spread.asp
Rally: http://www.ft.com/cms/s/0/99dbf63c-4667-11df-9713-00144feab49a.html

Greece poised to ask for IMF, EU money

2010-04-11T01:52:00.005+03:00

Greece is poised to ask for financial assistance from the International Monetary Fund or the European Union within days, possibly hours, Greek and international media report. Greek Prime Minister Yiorgos Papandreou on Thursday asked the European Council of government leaders to finalise the details of a eurozone rescue package as quickly as possible. The leaders of the Eurogroup on Saturday held a teleconference to finalise technical aspects of how a bilateral loan system from other EU members to Greece would work, and with what interest rates. Reuters allegedly quotes a senior EU diplomat as quoting 5 percent, which is far below the current rate Greece pays on the market.

The interest rate has been a focal point of the European debate, because it determines the extent to which countries will be encouraged to fall back on EU government-to-government money, broadening the redistribution of wealth between member states, rather than facing the harsher judment of the markets. The Financial Times reported that "Germany was sticking to its demand that the eurozone portion of the loans would have to be made at or near Greek market rates." But on Saturday an official told Bloomberg that "Germany is prepared to give Greece loans at below-market interest rates, dropping its opposition to aid subsidies," as long as the rate remains above that of the IMF. The March 25 announcement of the bilateral loan facility for Greece said the loans would be "non-concessional".

The imminence of Greece's request is due to the fact that its borrowing rates rose to record rates on Tuesday and Thursday last week. As this post went to air, spreads between the German and Greek bonds stood at 393 basis points - almost four percentage points. The urgency to the Eurogroup stems from pressure on the euro resulting from fear of a Greek default on servicing its existing loans. Whereas the euro rallied on Friday following market interest in the aid package for Greece becoming reality, Bloomberg financial agency reports on an almost 11-month low for the euro against the dollar yesterday. Fitch's rating agency on Friday cut Greece's credit rating from BBB+ to BBB-, only one level above junk.

Greece needs 10-12 billion euros in new loans during May to refinance itself, according to the Economist. Finance Minister Yiorgos Papakonstantinou is to undertake a roadshow in the US during the last ten days of April to raise most of that money. Failing to do so, some analysts think, Greece will certainly need to ask for IMF and EU assistance then.

The Greek government is also to accelerate its timeframe for the structural reform of the economy. According to media reports, it will bring forward the reform of social security, privatisations and use of public property, the opening up of closed professions, the simplification of the procedure to open a business and reduction of bureaucracy, and the telescoping of the country's system of local government from over a thousand municipalities to 366, with an equivalent reduction in prefectures. This will effectively dismiss 15,000 contract workers, by some estimates, and save 1.8 billion euros a year.

The new timeframe was announced by Papandreou in an interview to the Sunday edition of To Vima. "I think the time has come to open up all the fronts," he said. "because I believe that we must do things now so that they will have an effect after two or three years."

Kathimerini: http://news.kathimerini.gr/4dcgi/_w_articles_politics_100076_11/04/2010_397213
Mega TV on local government: http://www.megatv.com/megagegonota/summary.asp?catid=17634&subid=2&pubid=6637748
Bloomberg on the falling euro: "April 10 (Bloomberg) -- The euro dropped to within one cent of an 11-month low against the dollar this week as rising yields on Greece’s debt fueled speculation the nation would default, damping investor appetite for the European currency."
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=avcV5alq.u38
Bloomberg on German aid terms:
http://www.bloomberg.com/apps/news?pid=20601087&sid=ayrDD1C91buc&pos=2
Financial Times on the rescue package:
http://www.ft.com/cms/s/0/d8ff4548-4401-11df-9235-00144feab49a.html
The Economist analysis: http://www.economist.com/business-finance/displaystory.cfm?story_id=15877579&source=most_commented

Comment: How Germany drives Greece to default
Paul Krugman's NYT blog opens with this analysis on April 8: "The debt crisis in Greece is approaching the point of no return. As prospects for a rescue plan seem to be fading, largely thanks to German obduracy, nervous investors have driven interest rates on Greek government bonds sky-high, sharply raising the country’s borrowing costs. This will push Greece even deeper into debt, further undermining confidence. At this point it’s hard to see how the nation can escape from this death spiral into default."
http://www.nytimes.com/2010/04/09/opinion/09krugman.html?partner=rssnyt&emc=rss

2010-04-06T23:42:00.002+03:00

Is the EU safety net helping Greece?
The interest paid by Greece to finance its debt continues to rise, despite a European Union credit safety net announced on March 25. Today, the Financial Times reports, its spread with the Germand bond rose to four percentage points, the highest ever. Greece reached a peak interest rate of 7.16 percent on its ten-year bond. The FT also reports that Eurostat will report a slightly higher-than-predicted Greek deficit of over 13 percent for 2009, further undermining the government's credibility. Greece has covered its borrowing requirements for April, but needs another 10bn euros in May. It may seek to raise that through a bond issue to US investors, says the FT.

Financial commentators have pointed out that the EU safety net is not reassuring to investors, because a) it does not reduce Greece's cost of borrowing but insists on roughly market rates, and b) is not activated until Greece has been rejected by markets, and even then only with unanimous eurozone approval.
Record highs: http://www.ft.com/cms/s/0/2403d946-41a5-11df-865a-00144feabdc0.html
US sale: http://www.ft.com/cms/s/0/5427bfe4-40f0-11df-94c2-00144feabdc0.html
NYT blog by Paul Taylor: http://www.nytimes.com/2010/04/06/business/global/06inside.html?scp=3&sq=Greece&st=cse

Comment: The real crisis is lack of demand
The FT's Martin Wolf argues that Germany is being dishonest about wanting smaller fiscal deficits from its EU partners, such as Greece. Were Greece, Spain, Portugal, Ireland and others to tighten their public finances, they would deliver such a shock to their private sectors that demand for German products would be as low in the European periphery as it is in Germany itself. The European Central Bank, Wolf argues, contributed to fiscal profligacy with its incentive interest rates, determined partly in order to stimulate demand on Germany's behalf. The argument is subversive, courageous and, if correct, truly worrying. If public and private economic discipline, hard work, environmental conscientiousness and an avoidance of acquiring stuff you do not need (the German way of life) lead your economic model to a dead end because it depends on spendthrift, materialistic societies, what hope is there for capitalism?
http://www.ft.com/cms/s/0/d598e6fc-3c2c-11df-b40c-00144feabdc0.html

Video shows US killing of Reuters employees
A military video showing a US Apache helicopter firing upon and killing a Reuters photographer and driver in Iraq in 2007 has been released on the web. Reuters had been pressing unsuccessfully for a release of the video under the Freedom of Information Act.
http://www.nytimes.com/2010/04/06/world/middleeast/06baghdad.html?hp

2010-03-31T07:46:00.000+03:00

Market faith in Greece wabbles (but look at Ireland)
Buyers of a 5bn euro Greek bond on Monday sold off larger than expected quantities of the government paper yesterday, leading yields to rise from 5.9 percent to 6.3 percent, representing a 3.5 point spread with German bonds. The re-opening of a 12-year bond also fared poorly. Greek analysts said the poor sentiment was largely temporary.

Ireland faced more spectacularly bad news with the discovery that the country's banks faced a 32 billion euro cash shortfall, largely due to bad real estate loans- the equivalent of a fifth of the economy. The government could be liable to cough up 24bn of that, becoming the majority shareholder of every bank bar one.
http://www.ft.com/cms/s/0/abbc5f4a-3c21-11df-b40c-00144feabdc0.html
http://www.ft.com/cms/s/0/9b667690-3c07-11df-9412-00144feabdc0.html

2010-03-30T08:23:00.000+03:00

EU safety net fails to lower Greek spreads
Greece went to the money markets yesterday for the first time since a European emergency credit mechanism was set up on March 25. It successfully raised a bond issue of five billion euros, but failed to restrain interest rates, continuing to borrow at high rates. The interest Greece will pay on that money is 5.9 percent.
http://www.ft.com/cms/s/0/b1699ebc-3b1d-11df-a1e7-00144feabdc0.html

2010-03-29T01:24:00.001+03:00

Athens explosion kills one

An explosion in Athens has resulted in the death of a man and is being investigated as a possible terrorist attack. Police say the explosion is almost certainly the result of a bomb rather than an accident. Their main lead is the body of the dead man, who is dismembered from the waist up and whose facial features are indistinguishable. Police believe he may have been carrying the bomb or been an unlucky passer by. Injured in the attack were a mother and her ten year-old daughter, both allegedly of Afghan origin. Police say their lives are not in danger. The explosion took place outside a government building, although it's not known if that was intentional. The area is heavily populated by immigrants from south Asia and Africa. There was no warning via telephone. A warning is standard practice for terrorist organisations in Greece. The last terrorism-related death in Greece was that of British Brigadier Stephen Saunders at the hands of 17 November in July 2000.

2010-03-27T13:32:00.001+02:00

EU approves emergency financing for Greece. Now comes the hard part

Following a German-French compromise proposal, the Council of European Union heads of government yesterday approved an emergency financing package for Greece, extendable to other member states. It is to consist of contributions from the International Monetary Fund and bilateral loans from EU members.

The statement they issued made it clear that this mechanism is to be used only if a member cannot finance itself on open money markets, and is meant only as a stopgap measure:

"This mechanism, complementing International Monetary Fund financing, has to be considered ultima ratio, meaning in particular that market financing is insufficient.... The objective of this mechanism will not be to provide financing at average euro area interest rates, but to set incentives to return to market financing as soon as possible."

Greek Prime Minister Yiorgos Papandreou declared it a victory for the EU as well as a national victory. "The European Union today found itself before an enormous challenge and stood up to it," Papandreou said on Thursday, which was Greece's independence day.

Greece has lobbied for this safety net since a summit convened on February 11-12 to discuss the Greek economic crisis, which has seen the country's spreads wander to record distances from the German bund and brought market opprobrium onto the euro. The March 25-26 summit was the third convention of EU leaders this year to deal almost exclusively with Greece.

Of perhaps equal importance to the EU decision was the announcement from European Central Bank President Jean-Claude Trichet of a one-year extension to Greek government bonds' acceptability as collateral. The bonds would have ceased to hold that status at the end of 2010, leaving many Greek banks in danger of a downgrade. Roughly half of Greece's 300 billion euros of public debt has been bought by high street banks.

With the emergency finance mechanism in place, Greek and EU attention will now focus on the root of the problem: the high cost of Greek government, which keeps producing deficits. Slimming administration and boosting private sector production are the difficulties that now lie ahead, and are likely to produce great social and political difficulties for the reformist government of Papandreou.

EU statement: http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/113563.pdf
Papandreou statement: http://www.primeminister.gr/2010/03/25/1420

2010-03-24T07:44:00.000+02:00

Why many Republicans cannot stand Obama
"Beyond the health reform’s effect on the medical system, healthcare reform is the centerpiece of Obama's deliberate effort to end what historians have called the age of Reagan."
http://www.nytimes.com/2010/03/24/business/24leonhardt.html?hp

EU G-to-G credit mechanism still a possibility this week
Eurozone leaders battled it out last night over whether to extend a credit mechanism, consisting of bilateral loans, to ailing Greece. At the centre of the debate was German insistence on this being offered only as a last resort, not as a source of cheap credit, and being tied to rules of iron fiscal discipline. Germany, like the European Commission, also seems willing to have the IMF involved.
Economist: http://www.economist.com/blogs/charlemagne/2010/03/letting_greece_sink_bit_deeper
FT: http://www.ft.com/cms/s/0/ae54db14-3673-11df-8151-00144feabdc0.html
Comment: http://www.bbc.co.uk/blogs/thereporters/gavinhewitt/

Barroso insists on a deal this week
European Commission President Jose Manuel Barroso urged EU member states to agree on a credit mechanism for ailing governments this week, saying that the process begun on February 11 had gone non long enough. "I hope Member States will take determined and coordinated action. I urge them to take some decisions," he told the FT in an interview yesterday.

"No bail out does not mean no help," Barroso said. He points out that under EU rules there have already been bilateral loans across the Union to several countries, most recently Latvia. "I know Chancellor Merkel. She is a committed European, and I have no doubt that she will, if needed, be in favour of providing financial assistance to Greece," he said.

Why bilateral loans and not a eurozone system? "From consultations taken so far, and we have been working on this for some time now, it seems that coordinated financial loans is the more appropriate mechanism. It is fully compatible with the no bailout clause. It can be implemented with strict conditionality."
Interview: http://www.ft.com/cms/s/0/4da90494-35f0-11df-aa43-00144feabdc0.html
Transcript: http://www.ft.com/cms/s/0/36484548-35c4-11df-963f-00144feabdc0.html

2010-03-23T05:22:00.001+02:00

Papandreou defends Greece's ability to pull through the crisis
Prime Minister Yiorgos Papandreou yesterday said that Greece would pull itself through recession without external help. "I assure you that we Greeks will make it, and we will make it on our own," he told parliament in a speech supporting a new tax bill. "We've got to the point where we're hearing fantastic scenarios about leaving the euro," he said. "It's a joke."

Amid intense speculation yesterday about a possible expulsion of Greece from the eurozone, European Central Bank president Jean-Claude Trichet also felt it necessary to issue a denial of such an eventuality. "There is no legal way for it to happen," he said.

Papandreou blamed "certain politicians and media, playing on the prejudices of their people, to make Greece the scapegoat for everyone else's problems."

Papandreou also alluded to the "second, greater battle" that lies ahead - of resurrecting the Greek economy on the basis of a perceived social justice and equality before the law.

"I've said it before - corruption and deceit are not in our DNA. Greeks manage to distinguishe themselves in every corner of the world, as long as they get a chance - the right environment, the right institutions. As long as they are not disappointed by any sort of unfair treatment."

He called the crisis "a great opportunity" to set Greece to rights, and his government's tax bill "a true revolution".

The debate over Greece also raged in Brussels yesterday, with European Commission President Jose Manuel Barroso going up against German Chancellor Angela Merkel on aid to Greece.

“I know Chancellor Merkel. She is a committed European and I have no doubts that she will, if needed, be in favour of providing financial assistance to Greece,” Mr Barroso told the Financial Times. Merkel, who leads a fragile coalition, has been under pressure not to commit financial resources to bail out Greece. An FT poll on Sunday confirmed the overwhelmingly anti-bailout popular feeling in Germany.

Partly as a result of German opposition to a safety net for eurozone defaulters, European Union members have become increasingly supportive of an IMF intervention towards Greece if necessary. Barroso openly supported the idea yesterday.

A scheduled meeting yesterday of MEPs with Trichet and Eurogroup President Jean-Claude Juncker focused exclsuively on Greece. The European parliament's press office reported as folows: "Mr Juncker refrained from detailing instruments to help Greece, saying that current commitments from the Member States were enough for the moment. Mr Trichet added that financial backing for Greece must take the form of a loan, not a subsidy, and should be provided only if worsening conditions cause a problem for the eurozone as whole."

Papandreou: http://www.primeminister.gr/2010/03/22/1375
Barroso: http://www.ft.com/cms/s/0/4da90494-35f0-11df-aa43-00144feabdc0.html
MEPs: http://www.europarl.europa.eu/news/expert/infopress_page/008-71099-081-03-13-901-20100322IPR71098-22-03-2010-2010-false/default_el.htm

2010-03-22T07:48:00.029+02:00

German poll confirms anti-bailout position
An FT/Harris poll of European countries on a bailout for Greece yesterday confirmed overwhelming opposition from Germans to the idea. Sixty percent of Germans were opposed, while only about 20 percent were supportive. About a third of Germans felt Greece should temporarily leave the eurozone, while 40 percent felt Germany would itself be better off outside the single currency. In answer to the question, "Would you support your government helping Greece cope with its budget deficit?" the most positive country in the poll was Spain, with just over 40 percent.
http://www.ft.com/cms/s/0/ee055e82-3529-11df-9cfb-00144feabdc0.html

Tenured position in the public sector 'not a given'
Greek Interior Minister Yannis Ragousis says in an interview with To Vima that civil servants with court condemnations for bribery will in future be dismissed from the public sector, thanks to a new legislative amendment.He also wants to discuss and draft a new ethical code that will introduce "substantial procedures" to weed out bad apples.

Ragousis is the second cabinet member to suggest that Pasok will take a different attitude to public tenure. Deputy Prime Minister Theodoros Pangalos had dropped a cryptic comment to that effect in an interview with Ta Nea earlier this year.

Ragousis also said that he has submitted to parliament a long-awaited bill to reduce the country's municipalities by two thirds. The so-called "Kallikratis" plan was among Pasok's electoral promises and is designed to reduce the cost of public administration. The government wants to vote the bill into law during May, giving the interior ministry time to implement it well ahead of local elections in November. It would reduce the country's 1,000-odd municipalities to 370, and get rid of, or conflate, over 4,000 boards of directors of municipal companies.

In the spirit of economy, Ragousis says, the government has reduced this year's contract workers by 35 percent, while the hiring freeze, announced earlier this year, has spared the public payroll 35,000 new employees.
http://www.tovima.gr/default.asp?pid=2&ct=32&artId=321370&dt=21/03/2010

2010-03-19T07:37:00.000+02:00

Germany shifts on IMF aid to Greece
Germany may be inching closer to acquiescence of an IMF assistance package for Greece, should the country fail to raise money on world markets, the Financial Times reports. The shift is apparently due to both legal and political concerns about allowing a euro-area bailout. A day ago, the FT reported that Italy, Finland and the Netherlands were now openly supportive of IMF assistance to Greece. It is worth noting that the FT and The Economist have, in editorials and Op/Ed pieces, supported IMF involvement in the eurozone, in contrast to continental European political positions.
http://www.ft.com/cms/s/0/3943e114-327f-11df-bf20-00144feabdc0.html

Yesterday was a bad day for the euro and the Athens Exchange: "The FTSE All-World equity index fell back 0.4 per cent from eight-week highs and the euro came under heavy pressure. The costs of insuring eurozone so-called peripheral economies against default were pushed sharply higher, and the Athens stock market fell 3.4 per cent."
FT article: http://www.ft.com/cms/s/0/414787b0-3259-11df-bf20-00144feabdc0.html
http://www.ft.com/cms/s/0/7b74f8ba-32da-11df-a767-00144feabdc0.html

New tax bill
Kathimerini reports on the new tax bill unveiled yesterday in parliament.
http://www.ft.com/cms/s/0/7b74f8ba-32da-11df-a767-00144feabdc0.html

2010-03-18T07:44:00.005+02:00

Split appears on IMF aid to Greece
Three eurozone members are increasingly veering towards supporting a direct application by Greece to the IMF, the Financial Times reports. Italy, Finland and the Netherlands are apparently supportive of IMF emergency intervention in the euro area - something that France and Germany consider a loss of credibility to the euro currency and the European project.
http://www.ft.com/cms/s/0/bc84626a-31fd-11df-a8d1-00144feabdc0.html

Greek Prime Minister Yiorgos Papandreou said on Wednesday that an application to the IMF was still on the cards, but he hoped for a European solution after meeting with European Commission President Jose Manuel Barroso.
http://www.kathimerini.gr/4dcgi/_w_articles_kathremote_1_17/03/2010_329029

On Tuesday Papandreou had expressed some disappointment that the Eurogroup, meeting the previous day, had "taken a step forward, without reaching a final decision." He made the remark in a joint press conference with Hungarian Premier Gordon Bajnai in Budapest.
http://www.primeminister.gr/2010/03/16/1289

Today Papandreou will address the European Parliament on the economic and financial crisis.

2010-03-17T13:57:00.000+02:00

Greece avoids S&P downgrade
Standard and Poor's on Tuesday said it would not further downgrade Greece from BBB+ status - the result of two downgrades last year - but that the country would retain its negative outlook. The prospect of further downgrades therefore remains.
FT news article: http://www.ft.com/cms/s/0/96c374ce-30dd-11df-b057-00144feabdc0.html
Guardian comment: http://www.guardian.co.uk/business/2010/mar/16/greece-ratings-standard-poors-doubts

No financial aid package yet..
The Eurogroup failed to announce specific measures on Tuesday to assist Greece and other troubled eurozone economies should the need arise, pushing its deadline to March 25. This was in contrast to a statement the previous day by the Eurogroup president, Jean-Claude Juncker, to the effect that the group had come up with an emergency mechanism that could be activated when needed. Greek Finance Minister Yiorgos Papakonstantinou expressed satisfaction at the prospect of a package, but the Greek government is still worried that its cost of borrowing remains too high compared to the rates of other eurozone members.
Juncker press conference: http://tvnewsroom.consilium.europa.eu/media/render-summary-list/vocabulary_id/tags/term_id/246
Monday Eurogroup comment: http://www.reuters.com/article/idUSTRE62E58620100315

2010-03-14T02:44:00.002+02:00

Greek economy forecast to shrink up to 4% this year
Deutsche Bank predicts a 4 percent drop in the size of the Greek economy this year in a report released on Wednesday - far more than the 0.3 percent contraction predicted by the Greek stability and growth plan. A European Commission report on the Greek economy forecasts a smaller contraction of 2.25 percent, according to media that have seen leaked versions. The Greek government revised its own original forecast last week and expects the economy to shrink by 0.8 percent of GDP.

Whichever is closer to the mark, the larger-than-expected negative growth gives rise to fears that Greece's fiscal adjustment of four points of GDP this year cannot be realised since GDP will also change. Even so, the Commission apparently says that measures taken so far "appear sufficient to safeguard the 2010 budgetary targets."

The Financial Times reports that members of the eurozone are working out a financial assistance package for Greece to be announced at the meeting of the currency's 16 finance ministers on Monday and Tuesday. It would likely take the form of bilateral loans from other eurozone members backed by state guarantees. Tuesday is also the day when Greece is scheduled to make public a study into how to save its social security system, while a new tax bill goes to parliament on Wednesday.
http://news.kathimerini.gr/4dcgi/_w_articles_economy_100016_13/03/2010_393925
http://www.bloomberg.com/apps/news?pid=20601068&sid=aFP9NpGWixSo
http://www.ft.com/cms/s/0/9a9beaee-2e13-11df-b85c-00144feabdc0.html?nclick_check=1

Comment: The FT's Brussels Blog opines that German conditions towards the rest of Europe stand in the way of a European Monetary Fund:
http://blogs.ft.com/brusselsblog/2010/03/german-ambiguities-underlie-confusion-over-eu-monetary-fund/#more-3636

2010-03-12T11:58:00.001+02:00

President Papoulias in second swearing in
Greek President Karolos Papoulias was scheduled to be sworn in at 11:30 on Friday morning for a second term. The question of his re-election in parliament triggered a general election last autumn, after then-opposition Pasok said it would not vote for him. The conservative government in power at the time needed socialist support to gain a two-thirds majority. The New Athenian wrote extensively about the constitutional question raised by the socialists at the time.
http://www.in.gr/news/article.asp?lngEntityID=1114985&lngDtrID=244

New strike paralyses Greece
The third one-day strike this year in protest against austerity measures was probably the widest-reaching, with transport, schools, the public sector and even landfills shut down. Anarchists also made their presence felt chiefly in the Athens Polytechnic area, their traditional haunt. Three bank branches and four hotels suffered damage, as well as shops, according to reports.
http://www.nytimes.com/2010/03/12/world/europe/12greece.html?scp=2&sq=greece&st=cse
http://www.enet.gr/?i=news.el.ellada&id=140408

Scandal file goes missing
A key government file that could shed light on a scandalous land exchange between the last conservative government and Vatopaidi Monastery has gone missing, Kathimerini reports. The file, thought to contain over 1,500 documents, was requested from the agricultural ministry by a parliamentary committee of inquiry now underway into the New Democracy government's economic management. The ministry's general secretary, Yiorgos Kanellopoulos, told Skai television that a now retired civil servant, a Ms. Manteli, took the file home by her own admission, in order to defend herself against charges in the case. The scandal involved the exchange of valuable parcels of public land in Attica and the Halkidike peninsula in northern Greece for land nominally held by Vatopaidi around Lake Vistonida in Thrace, but disputed by farmers in the area.
http://www.kathimerini.gr/4dcgi/_w_articles_kathremote_1_12/03/2010_328026

ECHR ruling boosts Turkish-Cypriots
For many years, Greek-Cypriots have been taking their claims for land compensation to the European Court of Human Rights and winning. The claims concern properties seized by a Turkish invasion in 1974, which continues to occupy more than a third of the island. A new ruling by the court now forces Greek-Cypriots to apply first to a Turkish-Cypriot property commission, the Economist reports. The commission has the power to restore property or award compensation.
http://www.economist.com/world/europe/displayStory.cfm?story_id=15663646&source=hptextfeature

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.