George Papandreou’s new government has passed its first pressing test. But disaster may still loom
Jun 23rd 2011 | ATHENS | from the print edition
IN THE middle of Syntagma Square in central Athens, flanked on one side by parliament and on another by luxury hotels, would-be revolutionaries jostle for space with phlegmatic African street-traders selling handbags. On June 22nd one group of youngsters conducted a spontaneous “economics lesson” in which terms such as “credit event” and “haircut” were explained and deconstructed. Petrograd 1917, or even Paris 1968, it was not.
Nonetheless, the stakes are very high. It is entirely possible that in the weeks to come the situation in Athens could go from being strained, angry and confused to plain catastrophic: negotiations between Greece’s economic rescuers and its political leaders may fail, and the state may run out of money and/or crash out of the euro, triggering a financial crisis that would reverberate round the world.
Even if that were avoided, Greece’s fundamental problems would hardly improve. For the country is not just bust, it is deeply uncompetitive, and dealing with that will require years of painful reforms.
But those gritty realities seem to have escaped most of the actors in the drama which is unfolding inside and outside the Greek parliament. In time-honoured fashion, the country’s political parties are jockeying for advantage, with little regard for the disaster that they might help to bring about. Meanwhile, the demonstrators outside are chanting slogans implying that the happy days of living well on borrowed money can come back if they only shout loud enough, and if the “traitors” and “thieves” who spoiled the party are given their just deserts.
In the short term, the Socialist government has gained some breathing space in its struggle to endure the twin pressures of popular discontent (over the austerity already imposed) and international demands for reform. The ruling party’s fractious legislators, galvanised by fears they might lose power, rallied behind George Papandreou, the prime minister, in the early hours of June 22nd to give his new cabinet a vote of confidence. All 155 Socialists turned out for the roll-call vote, which went strictly along party lines.
Minutes before the vote the opposition walked out because of a noisy, petty argument over whether “democracy” had returned to Greece in 1974, when the military dictatorship fell, or in 1981 when the first left-of-centre administration was elected. Mr Papandreou managed to coax his opponents back by pointing out what an appalling impression such squabbles make on the rest of the world at such a grave hour in the country’s history.
New Democracy, the centre-right opposition party, is withholding support for an internationally agreed austerity and privatisation plan on the ground that it can and should be renegotiated, with more emphasis on tax cuts. Few people outside Greece see much scope for that. But some of the government’s critics, especially on the left, gleefully observed that Greece’s international partners seemed to soften their stance slightly around June 15th, when street protests came to a head and the country looked ungovernable.
This week’s small successes for the government left the anti-austerity protesters outside parliament unimpressed. They said they were issuing their own vote of no confidence in the country’s entire political class. Admittedly, their four-week-old tent village (modelled on the Spanish version) looks scruffier by the day. But the protesters say they will stick it out at least until the next critical vote, on a five-year austerity package intended to prevent a default and put the country on the road to recovery. They are planning a “day of action” as the vote takes place.
Regardless of the atmosphere on the streets, there are big question-marks over Greece’s future. The current €110 billion ($159 billion) bail-out package from its European partners and the International Monetary Fund will not be enough. Mr Papandreou is betting that the EU and the IMF will come up with another €100 billion (or so) to keep the country going until well into 2014, when, perhaps, it can move seamlessly into the EU’s new stability mechanism for propping up fiscal miscreants.
The vote reassured anxious European bureaucrats who have been relying on Mr Papandreou to impose fiscal discipline, setting aside his “soft” Socialist credentials. The prime minister had already won a standing ovation from his Panhellenic Socialist Movement’s (Pasok’s) parliamentary group after reneging on an earlier suggestion that he might make way for a non-political premier—Lucas Papademos, a respected former deputy president of the European Central Bank—and a group of technocrats to handle the next crucial round of reform.
Some of Mr Papandreou’s party faithful were riled by the fact that he mooted the idea of a national-unity government at a meeting with Antonis Samaras, the leader of New Democracy, before he had cleared it with his Socialist colleagues. Aides to Mr Papandreou say his proposal to Mr Samaras, made in the highest interests of the country, was torpedoed within hours when New Democracy leaked the content of their discussion to the press. So it was clear enough who had acted in a statesmanlike way, and who was playing small-time politics.
Tough men to the fore
The prime minister moved quickly to shore up his own position within the party by promoting some old Socialist warhorses and dispensing with some young protégés who were seen as personal friends. Out went Tina Birbili, the environment and energy minister, who opposed privatisation of the state electricity company, and Dimitris Droutsas, whose youth and inexperience had made him a surprising choice as foreign minister. Also demoted was Louka Katseli, an American-trained economist who, as labour minister, had got involved in public disagreements with number-crunchers from the IMF.
Papandreou keeps order, just
Into the forefront of politics came a group of tough Socialists led by Evangelos Venizelos, formerly the defence minister, who has now been appointed finance minister. Mr Venizelos was once a rival of Mr Papandreou’s, challenging him unsuccessfully for the party leadership after Pasok’s 2007 election defeat. The burly constitutional lawyer, a powerful orator whose manner is both earthy and cerebral, took over from George Papaconstantinou, a technocratic figure who had become a liability because of his indefatigable efforts to carry out EU- and IMF-mandated reforms to the letter.
Mr Venizelos has held seven previous cabinet posts; he oversaw preparations for the 2004 Athens Olympics, which were considered a huge success in spite of serious cost overruns and a graveyard of white-elephant buildings left behind. In a passionate speech during the confidence vote, he caught public attention by saying that whatever the numbers might show, the government understood how desperate things were for many ordinary folk.
On the debit side, Mr Venizelos has never held a finance portfolio. And he annoyed his colleagues at his first meeting of euro-area finance ministers by suggesting, in a piece of posturing, that the euro zone needed Greece just as much as Greece needed the zone (see Charlemagne).
Will the new cabinet prove any more effective at reforming? The lenders’ demands seem huge: cutting 150,000 public jobs and raising €50 billion from privatisation sales by 2015. Job protection in the public sector and keeping control of state-owned utilities are two of Pasok’s most cherished sacred cows. Mr Venizelos may chip away at the edges by closing down some outdated state entities and selling shares in some profitable state companies. But the sweeping changes required by the EU and the IMF are unlikely to happen, at least in the short term.
Mr Samaras, as opposition leader, has taken an equivocal position. He argues that the medium-term budget targets are correct, but the methods proposed to hit them are wrong. The economy, he says, has already been squeezed to the point of collapsing.
The depth of Greece’s recession, with the economy set to shrink by another 3.8-4% this year—more than projected—after dwindling by 4.5% in 2010, suggests that Mr Samaras has a point. The conservatives voted for more than a dozen pieces of legislation required under the current bail-out, but are insistent that they will vote against the new package. This stance infuriates both the EU and the IMF, who worry that if Greece’s fractious politicians cannot unite even when bankruptcy threatens, then they have little chance of avoiding that fate.
The stakes are rising. Greece needs to get a €12 billion loan tranche by mid-July or risk being unable to pay wages and pensions at the end of the month. EU and IMF officials arrived on June 22nd to help fine-tune €6 billion of emergency fiscal measures aimed at bringing this year’s budget back on track, as well as the €22 billion medium-term package—just as Mr Venizelos and Mr Papaconstantinou, now the energy minister, were tweaking some unpopular measures to make them more palatable to voters. Mistrust between Greece and its international lenders runs high, after months of near-standstill in Athens on the reform effort.
With his new government in place, Mr Papandreou has a good chance of winning the votes on the new package and an enabling law to ensure that individual measures can be implemented quickly. Greeks will then start feeling moderately hopeful that euro-zone finance ministers will sign off on the July loan tranche and, if all goes better than expected, even reach a deal on the second, €100 billion-odd bail-out loan for their country.
The political mood in Greece improves almost automatically in July and August as the urban population heads en masse for family villages in the islands or mountains. There are few human woes that cannot be eased a little by exposure to the dreamlike beauty of the Aegean. But this year may yet prove an exception, especially if politicians and protesters alike insist on behaving as if they lived almost anywhere except on planet Earth.