The euro-zone crisis

A Greek drama
Nov 1st 2011, 22:03 by K.H. | ATHENS GREECE is not only the cradle of democracy, but of drama. The latter in particular was in rich supply after George Papandreou, the countrys prime minister, hastily announced a plan for a referendum on the new bail-out package that had been approved at last weeks European Union (EU) summit. First Mr Papandreou had to confront a hostile cabinet (although it has since endorsed the idea of a referendum). Then he faced the threat of a rebellion by his Panhellenic Socialist Movement (Pasok). And on November 2nd he will miss the opening session of a threeday confidence debate in parliament: Angela Merkel, Germanys chancellor, and Nicolas Sarkozy, Frances president, have summoned Mr Papandreou to emergency talks in Cannes. They will try to dissuade him from what one western European observer called political suicide and financial ruin for Greece. Pasok lawmakers erupted in fury at the idea of a referendum, which may be held as early as December, but could not happen at all if the Greek government loses the vote of confidence. Two socialist backbenchers said they would henceforth sit as independents, reducing the partys parliamentary majority to a bare minimum of 151 seats in the 300-member chamber. A third socialist deputy, former development minister Vasso Papandreou (no relation), said she had asked Greeks president Carolos Papoulias to call a meeting to organise a government of national unity. It would push through fiscal and structural reforms, then take the country to elections. Greece faces imminent bankruptcy, Ms Papandreou warned. Separately, six veteran Pasok members urged the prime minister to resign, saying he was taking Greece back to the 1950s a grim period in the countrys history, which was marked by widespread poverty and mass emigration. Politicians from both sides of the aisle have joined the call for a snap election. Antonis Samaras, leader of New Democracy, the conservative opposition party, said that elections are a national imperative. A referendum would put the country and the future of Europe at risk. Alexis Tsipras, leader of the leftwing Syriza faction, also called for elections, saying Mr Papandreou is finally being dragged to the polls under asphyxiating popular pressure, but it will be an election, not a referendum. The political crisis could provoke Evangelos Venizelos, the ambitious finance minister and deputy premier, to stage a bid for power. Mr Venizelos dropped out of sight as the crisis erupted. He was taken to hospital complaining of stomach pains, according to aides. But that did not stop him from making calls to Wolfgang Schuble, his German counterpart, and other senior Europeans. Mr Venizelos later told Greek journalists that Mr Papendreou should have informed EU leaders by letter of the referendum plan. Many Greeks blame politicians for most of the countrys woes. Yet thoughtful souls wonder why they kept on voting for a corrupt, ineffectual elite. Its our fault, too. We cant say we didnt

know what they were like, says Dimitris, a computer technician. Like many young selfemployed Greeks he wonders whether he should stop trying to keep his business afloat and emigrate to Australia instead. The latest bail-out package will not improve the mood. Banks face nationalisation following a 50% haircut on their government bond holdings. About 100,000 more public sector jobs will be cut. The recession is expected to last until 2013, with unemployment likely to exceed 20%. Until Mr Papandreou stepped out of line, Greece was due to receive another 8 billion tranche of its current bail-out loan, enough to cover wages and pensions until the end of the year and pay back some 2 billion of debt maturing in December. He will be reminded in Cannes that the money could still be withheld: disbursement is due next week. The progress report by experts from the EU and the International Monetary Fund (IMF) praised the governments reform efforts, but a quick skim through the annex listing to do measures reveals dozens of gaps. Not a single reform has been completed this year, says one western European observer. Privatisation is a particularly sore point with international creditors. Agricultural Bank of Greece, a loss-making state lender that has several hundred million euros in loans outstanding to political parties, was due to be sold early this year. It has just asked the finance ministry for a fresh capital injection of 290m to keep going for another six months. The new privatisation agency, which was supposed to raise5bn by December, have cut back the target to 1.7bn because of delays in packaging state-owned real estate for sale. Why has Greece failed to put its house in order in the year and a half since Mr Papandreou sought bail-out cash and technical assistance from the EU and the IMF? Lack of political will in his cabinet, where fellow reformers are in the minority, is one reason. Another is incompetence among old-fashioned, deeply politicised civil servants. And with civil servants hard-hit by the latest round of austerity cuts, working to rule has become the norm. Recent strikes by tax and customs officials and other finance ministry staff mean more delays in collecting revenues. The whole public sector apparatus is paralysed. Nothing is getting done, says Yannis Stournaras, director of IOBE, a think-tank. Without a last-ditch effort, delays in collecting the new income and property taxes, announced in September, means that this years budget deficit target will be missed by an even wider margin. Instead of 7.6%the original target for this yearthe deficit could hit 10% of GDP, pessimists say. That would put the 2012 budget off-track even before the year startand trigger yet more spending cuts and tax increases. A third reason for foot-dragging is the powerful public sector unions that are fighting to derail reform. Their leaders are hardline socialists who disagree with Mr Papandreous efforts to modernise Greece. They sound confident that the EU and IMF will bankroll Greece indefinitely. They cant do otherwise, even if we go bankrupt, because of the knock-on effect it would have in southern Europe, one leader says. Union leaders have led the pressure on wavering socialist lawmakers to bring down the government and force an election that might end Mr Papandreous political career. After his

hasty announcement and the events that followed, they could finally get what they want. That may be democratic, but it will not end Greece's drama and certainly not do away with its debts.