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Papandreou Unwinds Greek Socialist Past to Confront Corruption

https://www.chemnet.com   Jun 11,2010 (Bloomberg)
June 11 -- Socialist Prime Minister George Papandreou promised to undo decades of welfare policy to win an international bailout for Greece. Keeping the lifeline will force him to reverse another legacy left by past leaders, including his father: corruption and a bloated bureaucracy.

Papandreou has promised“clean hands”to win public support for austerity measures that will cost all 11 million Greeks -- from newborns to retirees -- as he introduces in coming weeks a plan to overhaul the pension system, the fattest target in his deficit-cutting campaign.

The nation’s financial crisis, which has sparked dozens of anti-government demonstrations including one in which three bank employees were killed, presents an opportunity for a political and economic overhaul that Papandreou must grasp, analysts and investors say. Failure by the 57-year-old, U.S.-born leader threatens default and a cataclysm that may undermine the euro.

“Papandreou has a window,”said Loukas Tsoukalis, an economist at Athens University.“If he proves he can deliver the goods, and that the situation is changing, not just in terms of the budget, but the reality in Greece is changing, then he has a great chance of success.”

Euro-area governments and the International Monetary Fund have vowed to halt payments from the 110 billion-euro ($132 billion) aid package approved last month should quarterly reviews show Papandreou is failing to meet targets. The threat reflects Greece’s history of understating its budget deficit.

Papandreou’s challenge to Greek political tradition extends to his own family. His late father, Andreas Papandreou, founded the Socialist Pasok party. In 1981, he led Greece’s first Socialist government and increased wages for state employees.

Anything Goes

“It was under Andreas Papandreou that a mindset of‘anything is allowed and nothing is controlled’developed,”said Christos Giannaras, a philosophy professor at Aristotle University of Thessaloniki in the northern part of the country.“Policies such as getting rid of wage increases based on merit, skill and level of responsibility had unbelievable social repercussions.”

Greece’s so-called core public sector has about 403,000 workers based on the latest data, according to Spyros Papaspyros, chairman of the federation of civil servants’unions. Finance Minister George Papaconstantinou plans to start documenting the number of state employees and a report is scheduled to be published later this year.

The younger Papandreou has promised austerity measures equal to 14 percent of gross domestic product in a bid to bring Greece’s deficit within the European Union limit of 3 percent of GDP in 2014 from 13.6 percent last year. He has reduced wages and pensions, increased levies on tobacco, alcohol and fuel, pledged to limit public-sector hiring to one employee for every five that depart, and promised a crackdown on tax evasion.

Pension Overhaul

Papandreou faces his toughest test as he seeks to overhaul the pension system. With some retirees earning more than when they worked, Greece may spend 25 percent of GDP on pension costs by 2050 unless policies are changed, the government estimates.

Papandreou’s proposals would raise the retirement age to 65 from 62.5, increase it with life expectancy and index benefits to prices. He also proposes to restrict early retirement.

The minimum contribution period would be raised to 40 years from 37 years by 2015 and pensions would be awarded on the basis of earnings over an entire working life, instead of the last five years.

This is an“even harsher test”than the austerity measures that lawmakers approved last month, according to Sotiris Rizas, a researcher at the Academy of Athens’s Center for the Study of Neo-Hellenic History.

‘Major Reorientation’

Overall, the goal is a“major reorientation”in the 238 billion-euro economy by scaling back the role of the state to make it more efficient and restore investor confidence, according to the EU-IMF aid agreement with Greece.

Papandreou, educated at Amherst College in Massachusetts and the London School of Economics, has a challenge on his hands as Greeks made 900 million euros of payoffs nationwide in 2008, according to Berlin-based Transparency International. The latest survey of 6,000 Greek citizens found that the rate for a bribe to pass a car-emission inspection was 300 euros and the cost to jump to the top of a waiting list for an operation in a state hospital was about 2,500 euros.

Greece ranks as the most corrupt euro country and 71st of 180 worldwide in terms of corruption, according to the organization’s survey published last year.

‘Not Attractive’

“Greece isn’t an attractive investment nation due to the bureaucracy and inefficiencies inherent in its economy and political system,”said Nick Stivactas, business manager at Ingredients Plus Pty Ltd., a Sydney, Australia-based seller of chemicals.“I commend the Pasok government for the initiatives they have put in place.”

The shrinking of the civil service must also ensure that merit-based hiring ends political parties’decades-old practice of using state jobs to reward supporters, according to Nikiforos Diamandouros, the Strasbourg, France-based official responsible for investigating complaints about EU institutions.

“I would hope that there is a sufficient degree of realization of how critical the situation is in Greece so that the government will push forward,”Diamandouros said.“The timeframe is now and not tomorrow.”

Cracking down on tax cheats is also a central government objective. Papandreou has said these people deprive the state of as much as 30 billion euros a year.

Target Tax Evaders

The finance ministry has said it will target professions in which tax evasion allegedly runs rampant. In November, the ministry put the spotlight on evasion by doctors and vowed to stamp it out. The ministry fined 11 physicians for dodging taxes and will press criminal charges against four of them as part of a“name-and-shame”crackdown.

Previous Greek governments, including the New Democracy administration of Kostas Karamanlis, whom Papandreou defeated, failed to follow through on anti-corruption promises.

Greeks increasingly realize they now have no choice, said Claude Giorno, head of the Greece desk at the Organization for Economic Cooperation and Development in Paris.

“There is a change in culture which is spreading, probably rapidly,”he said.“Most people are seeing the consequences of this poor management. They need to catch up pretty quickly, but in a sense there is not much alternative.”

Popular Support

In a poll published May 8, 54 percent of 1,000 people surveyed by ALCO for the Proto Thema newspaper said they supported the bailout and the accompanying wage and pension cuts and tax increases. A separate poll of 1,030 people by Kappa Research on May 6, the day Greece’s parliament debated the austerity program, showed 55.2 percent accepted the measures to stave off bankruptcy.

Papandreou’s government has already struggled with corruption in its ranks. Deputy Culture Minister Angela Gerekou resigned on May 18 after the government said her husband owed about 5.5 million euros in unpaid taxes and fines. In another case, former Pasok Transport Minister Anastassios Mantelis said when speaking last month to a bribery probe that he received money from the Greek unit of German engineering company Siemens AG in 1998, according to Kathimerini newspaper.

The OECD’s Giorno said controlling the budget depends on improving health care and education, steps that would help fight corruption.

As long as“the quality of services is really poor,”Greeks will continue to make under-the-table payments to doctors for better treatment, Giorno said. They’ll also spend on private education because of dissatisfaction with state schools and engage in the“national sport”of tax evasion, he said.
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