Monday, September 3, 2012

Greece And The End Of The European Dream?

Deepa Babington of Reuters reports, Greek PM sings in tune, now must hit the hard notes:

When Jean-Claude Juncker, head of the euro zone's finance ministers, arrived in Athens last week, Greek Prime Minister Antonis Samaras ran down red-carpeted steps to envelope him in a warm embrace.

In front of the man representing Greece's biggest creditor, the governments of the euro zone, Samaras was understandably eager to make an impression, and duly pledged to do his utmost to win back Europe's trust.

The conservative leader was not always so keen.

Barely nine months ago he infuriated European officials by refusing to give his written backing to austerity policies demanded in return for the rescue funds that spared Greece from financial collapse.

Given his history of dubious political choices that included voting against Greece's first bailout, Samaras has surprised many - including some officials among skeptical EU and IMF lenders - by trumpeting his resolve to push through cuts and reforms that have tripped up previous leaders.

Deftly sidestepping pre-election rhetoric of an overhaul to the bailout and pledges to avoid across-the-board wage cuts, Samaras meekly promised to restore Greek credibility and promptly set to work on new austerity cuts that include plans for controversial labor reductions.

Much of that appears tied to his determination to secure Greece's next tranche of aid of about 31 billion euros that is on hold, in the hope it will end constant speculation of a Greek exit from the euro zone and shore up its banks, ultimately setting the wheels of the depressed economy in motion again.

"He is determined to adapt because he doesn't want the grenade to explode in his hands. And at the moment there is a risk that the grenade, in other words bankruptcy, will explode in his hands," said political analyst John Loulis.

"He doesn't have a choice, because if that were to happen, apart from the disastrous effects on the country, his political career would be finished as well."

Even then, whether Samaras manages to deliver will depend on how well he reins in fractious allies and whether his weak coalition can persist in the face of anti-austerity protests from Greeks who are already at boiling point.

Samaras is to some extent basking in the reflected light of Finance Minister Yannis Stournaras, an economist well respected in Brussels, who is widely seen as having boosted the government's credibility.

But Samaras also has to contend with the dark shadows cast by Socialist ally Evangelos Venizelos, a former finance minister who has attacked the bailout he helped draft after his party was pummeled in elections.

"I'm a little concerned that Venizelos is behaving the way Samaras was in the (Lucas) Papademos government, when he was referred to as the 'head of the pro-government opposition'," said Theodore Couloumbis of the ELIAMEP think-tank, referring to Samaras's half-hearted support of the previous government.

"I think Samaras can deliver, but it's not up to him alone, because it's a tri-partite coalition."

SKILFUL CHANGES

The stakes could not be higher as Samaras embarks on his drive to reform a bloated public sector, step up long-delayed privatizations and push through nearly 12 billion euros of austerity cuts for the next two years.

Fed up with Greece's repeated failure to reform, European leaders including German Chancellor Angela Merkel and French President Francois Hollande bluntly warned Samaras during a European tour last week that the country would get no further aid, much less the two additional years it is seeking to hit budget targets, unless he can show results.

Without further aid, Greece will be staring at certain bankruptcy and a return to the drachma.

A source close to the troika said Samaras's team had made a positive start by shifting the political debate away from populist promises made during election campaigning that appeared at odds with Greece's pledges to its lenders.

"They've moved some of that behind them, and they've managed that quite well politically," the source said.

Despite Samaras's election pledge to avoid firing public sector workers, the government has resuscitated the plan for a so-called labor reserve that earmarks civil servants to be eventually laid off, as part of the 2013-2014 savings plan.

Campaign pledges to avoid cutting wages for "special" categories such as policemen and judges have also been ignored, and such cuts are back on the table.

Samaras still has to convince Venizelos and his other ally, Democratic Left leader Fotis Kouvelis, to sign up to the entire package, and some of the proposals may be shelved.

But despite weeks of wrangling, both allies say they broadly agree on the cuts and have signaled the package will have their blessing next week when troika officials arrive in Athens.

In a bid to overcome the allies' concerns about protecting poor Greeks, the government wants to force those earning more to share a bigger burden of the cuts - from a 2 percent wage cut for low-wage earners to a 12-14 percent reduction for high-income earners, a government official said.

STUMBLING BLOCKS

Far tougher for Samaras to pull off will be incremental structural reforms to make the economy more competitive and efficient, including overhauling its notoriously ineffective tax collection system.

Greece has notched up some limited progress - deregulation in the trucking industry has pushed fees for licenses down to about 2,000 euros each from as high as 180,000 euros previously. But efforts to open up other tightly guarded professions such as pharmacists have been repeatedly thwarted by powerful lobbies.

Moves to streamline the public sector, which employs almost a fifth of the country's 4.2-million workforce, are routinely blocked by unions who are quick to strike and point out that Greece's constitution bars firing civil servants.

The government is also under pressure to show it can push through long-delayed privatizations, which the source close to the troika says is still among Greece's "biggest stumbling blocks".

The administration quickly resolved the issue of troubled state lender ATEbank by handing it to rival Piraeus and now appears ready to settle the fate of another loss-making state-controlled bank, Hellenic Postbank, after saying it was not viable. But Greece is still a long way short of its targets for privatization proceeds this year.

"We need a quick win on privatizations," the government official acknowledged.

"When we came to the government, we realized that we don't only have a financial deficit, but also a deficit of credibility, which is much more dangerous, because no-one would talk to us. The first step is to regain credibility."

In order to gain credibility, Greek politicians need to make tough decisions, rein in the public sector, root out corruption and bureaucratic inefficiency, liberalize certain professions like pharmacists and lawyers, go after tax evaders and step up investment projects and privatizations. And they need to adopt a comprehensive immigration policy as things are getting way out of hand.

The 'Greek disease' is spreading around the world. Clint Eastwood was right to note that "politicians are our employees." So are all public sector workers. In Greece, over the decades, politicians from all parties found jobs for people in the public sector, repaying political favors, effectively buying votes.

This culture of entitlement began back in 1981 when Andreas Papandreou started on his socialist path, increasing the debt while buying votes by adding thousands of jobs in the public sector. Successive governments from both major parties continued this trend.

Now the chicken has come to roost. There is no more money to sustain this bloated public sector. Greece’s economy shrank 6.2 per cent on an annual basis in the second quarter. It's currently in its fifth consecutive year of economic depression, suffering record unemployment with nearly one in four Greeks without a job, undermining efforts to meet revenue targets and reduce the budget.

I'm actually impressed with Samaras since he took office and particularly impressed with Finance Minister Yannis Stournaras. The latter gets what is at stake and he couldn't care less about all the political ramblings, with every leader trying to appease their constituents. This is the type of leadership Greece needs.

Unfortunately, I watch Greek news every day and they keep arguing about the same things without dealing with the big problems. Austerity has disproportionately impacted the private sector, the poor and working class. Wages and pensions have been cut across the board but amazingly, no job losses whatsoever in the public sector!

They talk ad nauseaum about tax evasion. I have heard these arguments for 30 years. We all know most Greek tax collectors are notoriously corrupt so why don't they investigate and imprison them? Call it Operation "Xekatharisma" (meaning big clean-up).

In Canada, the RCMP recently caught tax collectors in a case involving construction fraud. This is what developed economies do, they investigate fraud and throw perpetrators in jail if found guilty of tax evasion and other fraud. This is what gives credibility to our tax system, which admittedly is far from perfect but eons ahead of what they have in Greece, Italy and Spain.

But tax evasion is the least of Greece's problems right now. The government is going after the usual suspects to shore up government revenues but Greeks are sick and tired of seeing cuts in their wages, pensions and increases in taxes to support the bloated public sector. Enough is enough.

Will Greece stay in the eurozone? I've repeatedly said they have to because I know the alternative will be even worse for Greece and the eurozone. Having said this, Germany and the ECB need to do a hell of a lot more to tackle this ongoing crisis, a point underscored by the secretary-general of the Organisation for Economic Cooperation (OECD) who said no country should quit the euro:

The European Central Bank should do more to stem the crisis in the euro zone because the current financial facilities are not enough, the secretary-general of the Organisation for Economic Cooperation and Development (OECD) said on Sunday.

"If you have the ECB which can work in the markets in order to bring down maturities then why not?» Angel Gurria told a news conference during an international business and political conference in Slovenia.

"The system is at stake, the euro should not be put at risk...the EFSF and the ESM are not enough, fast enough, reactive enough,» Gurria added.

He was referring to the European Financial Stability Facility and the European Stability Mechanism, the new, permanent euro rescue fund seen as a key fiscal pillar in Europe's efforts to stem the crisis.

Gurria said he «hoped and expected» Germany's Constitutional Court would approve the ESM on September 12, after it was endorsed by parliament in June. Failure to approve it would almost certainly doom the ESM.

Asked if the ECB should start unlimited bond buying, he said: «Yes, I believe they should, the sooner, the better."

He also forecast the euro zone would remain intact despite the current crisis.

"I believe nobody is going to leave the euro and nobody should leave the euro and I believe some other countries are going to be joining the euro in the future,» Gurria said.

He said Slovenia, which markets speculate could become the next country to ask for an international bailout, should focus on reforms and only consider any possible bailout after implementing reforms and reducing the deficit.

"If you (Slovenia) have done everything that you need to do, the banking reform, the state-owned enterprise reform, the pension reform, the labour reform...and still the markets are attacking than I would say, yes, let's ask the family to help,» Gurria said.

Not all European monetary authorities are on board. Rumors that Jens Weidmann -- head of Germany's Bundesbank -- would soon be resigning circulated on Friday as he opposes further easing actions by the European Central Bank.

I think it's high time some Germans wake up and smell the coffee. US companies are bracing for Grexit and the chancellor is right:

The new wave of cutbacks in public spending will hurt Greeks, Prime Minister Antonis Samaras has confessed, suggesting that he knows that further cuts in public sector salaries and pensions are unfair and will fall heaviest on the shoulders of the weakest members of society.

Of course, the Greek people have seen the same story repeat itself over the past two years and are no longer surprised. The premier also promised that this would be the last wave of cuts -- and Greeks have heard that story before as well. It has all been said before, and every line and limit has been crossed and will be crossed once more; and again, Greeks are being asked to have faith and confidence in their leaders, to tap into what little trace there is left of these lofty sentiments.

Samaras is not looking to bamboozle the Greeks nor to make a liar of himself. Unfortunately, the path he is following -- the path of squeezing people’s incomes even further and overtaxing those who play by the rules and those who are already treading the fine line of poverty -- inevitably leads to complete asphyxia. The cutbacks that began in 2010 and will last through 2015 have already pushed unemployment and the recession to wartime levels. How much more can the defeated and retreating Greeks take?

Meanwhile, every new austerity measure gnaws away at the state’s revenues, causing it to sink into poverty along with the people. The most dangerous facet of this kind of bankruptcy though, is that it cannot be measured in numbers: The unemployed are slowly being pushed out of the ranks of active society, bereft of a means of earning an income and even of healthcare benefits. Young people are abandoning the country as they see no rebound from the fiscal nosedive, and nobody trusts anybody anymore.

In the meantime, there appears to be no plan for rebooting the economy, no direction for the country to head in order to hope for a recovery anywhere on the horizon. There is no justice. Money that has been earned in shady ways and has not been taxed has been deposited in banks in Switzerland and vaults in other tax havens, money that if taxed could go a long way toward righting many wrongs and possibly even mean scrapping a few of the more painful measures that are being proposed today.

But, nothing is being done to look for such alternatives, so maybe German Chancellor Angela Merkel would be right to once again say that it is the only weak who are paying for the Greek crisis.

Only the weak and primarily those working in the private sector are paying for the Greek crisis! Those in the public sector have managed to keep their jobs at the expense of a dying private sector. This is what Greek newspapers fail to acknowledge because they all have an interest in maintaining public sector profligacy.

Below, leave you with a fascinating discussion from Al Jazeera on Greece and the end of the European dream. Take the time to listen to these prominent Greeks discussing what ails Greece and what needs to be done to revive the economy and bring back confidence and jobs.

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