Slow Progress Greece Struggles to Make Necessary Reforms

The troika of the EU, the ECB and the IMF is in Athens this week to negotiate the next tranche of funds for Greece. But the Greek government is making little headway with the necessary reforms. The slow progress is jeopardizing the second bailout for the country.

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Panagiotis Karkatsoulis has removed his jacket, spread out his powerful arms on the table and turned his palms upward. His cufflinks are scraping across the wooden tabletop. Once again, Karkatsoulis has talked himself into a rage. "Everyone says the crisis is to blame. The troika is to blame. Merkel is to blame," he says. But all of this is wrong, he adds. "We Greeks can only blame ourselves for our plight."

It is the morning of Wednesday, Jan. 11, and Karkatsoulis, 54, is speaking at the Secretariat General for the Aegean and Island Policy of the Ministry of Maritime Affairs, a beautiful Ottoman-era building in Mytilene on the Greek island of Lesbos. High winds are whipping across the deep-blue Aegean Sea outside, while 10 skeptical-looking government officials sit in front of Karkatsoulis, holding pads of paper and ring binders. Karkatsoulis explains his plan for a more efficient island policy, a plan based on the so-called principle of subsidiarity: "You have responsibility, and we need change." The government is in urgent need of reform, he says. The state is a monster, he adds, too centralized and too sluggish.

Karkatsoulis is also a government official. He works for the Ministry of Administrative Reform and e-Governance, where he is in charge of administrative reform. The American Society for Public Administration recently named him the world's best government official, and he will travel to Las Vegas in March to receive the Society's International Public Administration Award. The world's best civil servant is Greek? Many people would find that paradoxical.

In any case, not much progress has been made so far in the effort to reform the Greek state. Karkatsoulis, an affable, good-natured, corpulent man, sums it up in a nutshell: "It's a disaster!"

People have been predicting disaster for Greece for some time now. But in recent days the warnings have become arguably stronger than ever before.

The critical phase for the future of the Greek economy has arrived, says Prime Minister Lucas Papademos. It is unclear whether Greece will remain in the euro zone. The Institute of International Finance (IIF), which is representing Greece's private-sector creditors, has openly warned that a deal involving private lenders writing off about €100 billion ($127 billion) worth of Greek debt could fail. The negotiations on the so-called debt haircut were postponed on Friday evening.

Unemployment has climbed to a record high of more than 18 percent, and the economy will continue to contract this year, for the fifth year in a row -- by 7 percent, as economists at the London-based Economist Intelligence Unit predict. The only country with a less promising outlook is Sudan.

Resistant to Reform

Slow growth in the rest of Europe and the world is partly to blame, but so are the Greeks themselves, who critics accuse of being resistant to reform. But it isn't just the country's international creditors who hold this view. "Incapable of Change?" the daily newspaper Kathimerini asked self-critically a few days ago, pointing a finger at Greek society's unwillingness to reform itself. According to the newspaper, Greek society was subjected to "years of brainwashing" by populist politicians.

When the hated troika consisting of representatives of the European Union, the European Central Bank (ECB) and the International Monetary Fund (IMF) arrives in Athens on Tuesday, partly to negotiate new conditions for the disbursement of the next loan tranche, new criticism will be leveled at the Greeks for failing to bring about reform. Once again, it will probably be IMF mission chief Poul Thomsen's job to articulate the sad truth: that nothing is moving forward, or at least that far too little headway has been made, and that things are moving too slowly.

The Greeks are trying to counteract this impression with some high-profile arrests. On Thursday morning of last week, the police arrested a 48-year-old management consultant in the northern Greek city of Thessaloniki, who allegedly owes the government €10.6 million. In the afternoon, the 51-year-old former chairman of the local football club, PAOK, followed her into jail. He allegedly owes the government at least €1 million.

The arrests of suspected tax evaders are quickly reported to the press, as a sign that the police is indeed taking action against tax fraud.

On Jan. 3, Anastasios Kiologlou, 66, owner of the Vieka sanitation company, was arrested in Thessaloniki. He owed the government exactly €19,333,927.62. Two days later a court, in expedited proceedings, sentenced him to five years without parole. This is the most severe sentence handed down for a tax offense to date.

In reality, however, the reforms are hardly making any progress at all -- neither when it comes to taxation nor to the opening up of the so-called closed professions, like the taxi industry with its license restrictions. The Greeks are also making little headway with their attempt to bring a little more efficiency to their bloated bureaucracy.

Meager Results

Karkatsoulis has worked for the EU and the Organization for Economic Cooperation and Development (OECD), and he has supervised administrative reforms in Kosovo and Uzbekistan. "We should have implemented 80 percent of the reforms Europe is now requiring years ago," he says.

On behalf of the troika, Karkatsoulis, together with 200 colleagues from various ministries and the OECD, has prepared a report that, in its five sections, describes how the Greek governmental machinery and its administration work, and where the problems lie. The teams spent five months compiling existing data and gathering new information. Prior to the study, it was not even clear how many Greek government officials there were.

Now that the report is out, Karkatsoulis has at least one possible answer to each of the questions that have been asked again and again.

For example: Why doesn't Greece, even under substantial pressure, manage to comply with budgetary requirements?

Because, he explains, the annual budget is recorded in thick volumes with confusing tables, and it is only gradually being digitized. And because there is "not exactly a profusion of well-trained civil servants in the Greek administration," as the report states. And, finally, because the budget forecasts are simply "based on incorrect assumptions."

And why is the privatization of state-owned companies proceeding so slowly?

The sale of these companies was supposed to generate €5 billion in revenues in 2011, but the final figure was only €1.5 billion. The lottery company OPAP and the postal service are to be privatized this year. But the meager results to date aren't stopping the government from continuing to set ambitious goals. It expects to raise more than €9 billion from the sale of state assets, including the sale of shares in the natural gas company Depa and weapons maker Hellenic Defense Systems.

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tnt_ynot 01/17/2012
1. Dracma time
Isn't it Drachma time? The greek people need to save themselves with arms length help from the EU. The Euro is too great a burden for the uncompetitive nation. What they are experienced is unworthy. The way out is at: http://euro-meltdown.blogspot.com/ Anthony
poliman 01/21/2012
2.
Very reason that Greece in this situation is why Greeks will not be impliment the reforms needed. Political and social culture is not able to handle such change in grassroots level. I am afraid it is time for Greek treasury to bring out the Drachma plates from the secret vaults. It is time to print.
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