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Photo Gallery: Greece's Herculean Task

Foto: Nikolas Giakoumidis/ AP

Herculean Task Ahead Is It Already Too Late to Save Greece?

The International Monetary Fund and the European Union are coming to Greece's aid with a financial commitment worth billions. But is it already too late to rescue the cash-strapped country? By SPIEGEL staff.

One of Greece's purported saviors is a short, rotund, 72-year-old man named Leandros Rakintzis. He was once a respected constitutional judge on the country's highest court, the Areopagus. Since 2004, he has been the head of a government agency that is the first of its kind for Greece. Rakintzis is Greece's general inspector of public administration.

His body twitches and shakes with delight as he talks about his successes and discoveries. For example, he discovered that on weekends, hospitals admit elderly people who require nursing care or are confused because their children bring them there so that they can take a few days of vacation. This, of course, drives up healthcare costs.

He also discusses an administrative office called Kopais, named after the lake of the same name near Thebes, which was established in 1957. The purpose of the office was to prepare for the draining of the lake so that roads could then be built in the lakebed.

In that same year -- which is now over half a century ago -- the lake disappeared forever. But there are still 30 employees working at Kopais today. When employees retire or are let go, their positions are filled with new employees, who are paid monthly salaries of up to €2,500 ($3,175). They supposedly work on drainage issues, but no one knows exactly what those issues are or who benefits from their work.

Unbelievable Stories

Rakintzis has stories to tell that take place throughout Greece, and some are downright unbelievable. For example, the government agency that was created to manage a bid to make Greece's second-largest city, Thessaloniki, a European cultural capital in 1997 is still humming away. Its employees are supposedly working on winding down the major event and settling up the accounts -- 13 years later.

How many people work there? "I don't know. Not even the government knows that," says Rakintzis. He adds, in an almost threatening tone: "Not yet." Rakintzis and his staff are now in the process of investigating about 4,000 government offices and agencies in similar situations.

In addition to Rakintzis, the IMF, officials with the European statistical office Eurostat and economists from many countries are hard at work to bring order to Greece's ramshackle finances. Rakintzis and the others are painstakingly searching for the holes into which Greek government funds have been seeping.

It is a Sisyphean task for Rakintzis, who has a staff of only 30 people to assist him. There is probably no other government agency in Greece that faces such a massive task with so few employees.

Bloated Public Sector

Greece has more than five times as many civil servants per capita than the United Kingdom. The country's inflated government apparatus consumes tens of billions of euros a year. It's money the Greek state doesn't have -- and actually never did. Greece's gross domestic product is only slighter higher than that of the German state of Hesse and is just one-tenth the size of Germany's total economic output.

For this reason, the government has been borrowing fresh funds on the international capital markets for years, generously and cheerfully spreading the wealth among its citizens. The introduction of the euro made it even easier to incur debts because, by joining the common currency, Greece qualified for lower interest rates than anyone would ever have thought possible.

But now the bubble has burst. Greece threatens to turn into another Lehman Brothers -- except on a whole new scale. The €300 billion in debt that the country has accumulated poses a threat to the entire European community.

If Greece falls, other shaky economies like Portugal, Spain and Italy could be next. As a result, the philosophical ideal of a politically and culturally united EU family is gradually crumbling.

Many people in Europe are asking themselves the following question: How many more countries will be affected?

Lost Confidence

The financial markets, at any rate, have lost their confidence in the erstwhile cradle of democracy. Without the promised loans of €110 billion  from other countries in the euro zone and the International Monetary Fund (IMF), Greece would have been bankrupt by no later than May 19, when it will be required to repay a 10-year bond worth €8.1 billion. And that is only the first of many tranches that will mature in the coming months and years.

In approving the Greek bailout plan, the international community is more intent on saving its own banks than rescuing Greece itself. The Greek government owes €162 billion to foreign banks and private industry worldwide. German banks hold €33 billion in Greek government bonds.

Creditors must surely realize that the loans are no longer collectable, says Ulrich Blum, the president of the Halle Institute for Economic Research in eastern Germany. "The verdict on Greece is already in."

In return for the loans, the Greek government is expected to cut costs and finally reduce its massive budget deficit, introduce sound budget-management practices and pay off its debts. But is this even possible anymore? Is the Greek economy even capable of withstanding such kill-or-cure remedies?

Harsh Measures

In specific terms, the donor nations and the IMF are requiring additional wage cuts for public employees and a further increase in the retirement age from 63 to 65.

In addition, only one-fifth of civil servant positions that become available are to be filled, and the value-added tax will be raised a second time this year, to 23 percent.

Finally, the government will be required to take decisive action against tax evasion, which is practically a national sport in Greece, as well as tackle rampant corruption.

These are drastic measures, and they will deprive the Greeks of the last of their money -- money that will then be unavailable for consumption, which will hamper the economy even further.

Tragic Deaths

Thousands are now protesting against the austerity in Athens each week. Last week, the protests turned violent when three bank employees, including a pregnant woman, died when demonstrators torched their bank on Wednesday. Protestors had thrown a Molotov cocktail through the window of the building.

The images of terror, fire and anger in the streets have unsettled the world. There are growing doubts that the radical cuts into the established rights of citizens are politically enforceable. At the same time, hopes are waning that Greece will ever be able to repay its debts.

The doubts are justified. After the end of the bailout program, the Greek deficit will still comprise at least 125 percent of GDP. And no one has a clue as to how the country will ever pay off its mountain of debt.

Almost all experts agree that the Greek economy cannot perform this Herculean task. In fact, it will not even be able to begin to repay the billions in loans.

'Not Even Competitive in Tourism'

Greece is often described in the media as a trading and service economy, but that is an enormous embellishment. In reality, the country has completed the transition from an agrarian society to a republic of bureaucrats.

The country has no industry to speak of, no products capable of competing in global markets, and no research community that could develop such products for the future. Some 70 percent of the Greek economy is dependent on consumer spending.

In other words, even when the billions from Europe start arriving, the money will not solve the country's problems by a long shot. The Greek economy will certainly not become more competitive as a result of the bailout.

For a while, the EU's billions will reduce the debt pressures weighing so heavily on the Greeks. But the money will not achieve anything more than that. The trade deficit has been growing steadily since the mid-1990, meaning that the country imports more than it exports.

Economists see this as a fundamental competitive weakness. "The Greeks aren't even competitive in tourism anymore," says a senior official in the German government. "The standards have been below those of Turkey for some time, but the prices are comparable with those in Italy."

Where is the necessary energy supposed to come from, the drive that will enable a devastated country to pull itself together again? No one knows, particularly as the worst of Greece's problems are yet to come. The austerity program the IMF has imposed on the government will exacerbate the recession in Greece.

No Work Available

One man who is clearly feeling the effects is Gerasimos Drimaropoulos. The 55-year-old architect wistfully remembers the "years of euphoria," as he calls them. He is referring to 2004 and 2005. The Greeks had just successfully hosted the Olympic Games, which hardly anyone in Europe had thought possible. Riding a wave of success and new national pride, anyone who could halfway afford to, invested in real estate, particularly houses and condominiums.

Drimaropoulos planned and built them. He and his wife specialize in designing apartment buildings in attractive coastal areas like Glyfada, a suburb southeast of Athens on a hillside overlooking the sea, with private marinas and plenty of beaches.

It was a profitable and crisis-proof profession for many years. More than 70 percent of Greeks own their homes or condominiums. In good years, Drimaropoulos earned a taxable income of about €100,000, making his architectural firm relatively successful by Greek standards.

Last year he reported earnings of only about €30,000, and there is no improvement in sight. He says that he has "never seen" as many people knocking on his door, looking for work, than in recent months: concrete workers, bricklayers, electricians. But he has no work for them.

He has already met with 150 prospective buyers for his most recent development, a multifamily building with seven apartments in Voula, an upscale coastal suburb of Athens, but none of them has led to a sale. Drimaropoulos is now forced to dig into his savings. The only projects he completed in 2009 were for existing contracts, and by last week he had not managed to land any new jobs yet for this year.

Rife with Corruption

Many Greeks do not understand what is happening to their country. The results of recent opinion polls indicate that 80 percent of the population supports the radical reforms to a Greek government rife with corruption and bribery. However, the protests send a different message and are reaching a new dimension, as evidenced by the crowd of more than 100,000 people that took to the streets last week.

The three deaths could mark a turning point in the government's fight against the resistance of special interest groups.

In a dramatic address to the parliament, Prime Minister George Papandreou argued that "a time of responsibility" had arrived, and that "we must all assume" that responsibility. He said that "no one has the right to violence," and that the offenders would be caught and brought to justice. Papandreou made a passionate appeal to the political parties and his fellow Greeks to stand together as one in the future.

Perhaps the shock of the bank employees' deaths will have a calming effect on the opponents of the government. If so, Papandreou stands at least a chance of winning what appears to be a hopeless struggle, at least politically.

'Why Are You Striking?'

Economist Jens Bastian also believes that Papandreou's appeal could work. For the last 13 years, he has been living in Athens, where he is responsible for Greece at the Hellenic Foundation for European and Foreign Policy (ELIAMEP). "As a result of the tragic events, the underlying situation has changed," says Bastian, noting that "the hour of Greek democracy" has now arrived.

At any rate, the situation has changed abruptly for the trade unions, which are spearheading the protests. During the recent general strike, union members were loudly berated by passersby. "Why are you striking?" one man said angrily. "You have good jobs."

Nikos Kioutsoukis is one of the protestors, one of those seeking to preserve civil servants' privileges, privileges which are at times absurd. The 46-year-old cannot accept that his life will have to change -- and will change -- which is why he is taking to the streets, together with many thousands of other protestors in similar situations. As president of the railroad workers' union, Kioutsoukis is the spitting image of a political intellectual.

Wearing fashionable narrow glasses, a chic, casual suit and with his shirt open at the collar, he is standing in the first row of a large crowd of protestors, as he and the people next to him hold up a giant banner. The banner reads, in large blue and red letters: "Tens of billions for the thieves," and "No to the Holocaust of our rights."

Kioutsoukis is a technician who took advantage of training programs offered by the government employment office and worked his way up to become a mechanic with the Greek national railroad. Today he is one of the powerful leaders in the struggle against the Papandreou government and its radical austerity program, which is intended to avert a national bankruptcy.

The reforms "exclusively affect and are a burden to workers and retirees," says the union leader. "They will set us back years." He talks about his family and his two children, for whom he will have 30 percent less money available in the future.

He claims he "cannot feed" his family on a monthly household income of €2,000 after taxes, and announces, somewhat dramatically: "The government is demanding that I kill one of my children so that I can survive."

In fact, Kioutsoukis is protesting despite being comparatively well off. His railroad workers' union has about 6,100 members who are employed by the state-owned railroads, from conductors to technicians to administrators to locomotive engineers, and they are 100 percent organized. They earn an average net monthly salary of €3,300, which is significantly higher than Greece's average net monthly income of €789.

Many of the railroad workers, the 500 locomotive engineers, for example, make significantly more money, up to €7,000 a month after taxes. When the cost of living in Greece, which according to Eurostat is about 10 percent lower than in Germany, is taken into account, these are truly breathtaking salaries.

Why Greece Should Be Grateful to the IMF

How can it be that Greek government employees are among the country's highest-paid workers, that they have job security and, most of all, are largely relieved of having to do any real work? How can it be that 450 doctors report annual salaries of only €10,000 on their tax returns? And how can it be that so many people in Greece work under the table that their combined earnings make up, according to experts, 25 percent of GDP? And how can it be that 8,401 Greeks, as the IMF has now found, owe their own country a total of over €20 billion in back taxes?

In truth, the question of whether the Greek economy will ever be able to pay off its massive debt is mainly a matter of social justice. The economy cannot thrive in a society in which everyone looks on as neighbors, friends or colleagues shamelessly derive benefits for themselves at the expense of the community.

"We should be grateful to the IMF. Its reform program is the best thing that could have happened to us," says Yannis Stournaras, an economics professor. This is an opinion rarely heard in Athens these days, but this doesn't seem to bother Stournaras.

He taught at Oxford for years before returning to Athens in 1986. In addition to his teaching job at the university, he heads the only private economic institute whose opinions are also respected outside of Greece.

Anyone who spends time listening to Stournaras can almost begin to hope that his country still stands a chance of extricating itself from its tangle of debts. As he sees it, his fellow Greeks are merely waiting to finally be liberated from the clutches of the government, which suffocates all individual initiative. "Greece is probably one of the last economic systems based on the Soviet model," says the economist.

Back to the Stone Age

In fact, there is hardly a profession that is not subject to strict rules and restrictions and measures to limit the number of people working in that occupation. Truck drivers are a case in point. At some point, the government came up with the idea to limit the number of licenses and to set fixed rates for transporting goods in Greece. Today it is much cheaper to send a truck from Düsseldorf to Athens than from Athens to Thessaloniki.

Stournaras has run complex computer models to calculate the economic effect of the kind of deregulation the IMF now expects from the government. He believes that up to 16 percent growth over the next five years is possible in those industries that have up until now been under state control, assuming the reforms are implemented quickly and decisively. And if they are not? "Then Greece will return to the Stone Age, where it will stay."

Everything now depends on whether the Greeks accept the reform program. And people like Kostas Papantoniou are in control over whether the country descends into chaos or finds its way out of the crisis. The 59-year-old is vice-president of ADEDY, a government employees' union, which makes him one of the powerful behind-the-scenes players who until recently no Greek politician would have dared to defy. Papantoniou lives in an opulent townhouse in downtown Athens. A large photo of a May Day demonstration hangs in the painstakingly restored vestibule, while a photo of Che Guevara hangs on the wall.

Papantoniou wants to force the government to return to the negotiating table to reexamine the reform package. It's what he is fighting for and what he is mobilizing his supporters to do. But his job is becoming more and more difficult.

He can no longer rely on old feelings of solidarity. Although he invokes the "broad alliance of the 90 percent of hard-working Greeks" against the 10 percent at the top "who control the country," these are the words of a bygone era. People are perfectly aware of how well-off government employees are compared to them, so why should they take to the streets to defend their privileges?

Looking for an Answer

On Wednesday, it was almost exclusively union members and members of the Communist Party who came together on Athens' Syntagma Square for two large protest marches. As a result, resignation is already taking hold further down the union ranks, among ordinary members.

"No one knows what will happen next," sighs Naja Giannakitsa, who has been a high-school teacher of Modern Greek for the last 25 years and a loyal union member for just as long. "Everyone is wondering what happened to all the money? No one seems to have an answer."

Giannakitsa has quietly resigned herself to the fact that her pay will be cut in the future. When that happens, she says, she will simply work fewer hours at school and give more private lessons. She'll manage somehow, she says.

Papandreou, a Socialist, has recognized the mood against government employees and their representatives, and is cleverly using it to his advantage. Partly to secure his own political survival, he intends to destroy his civil servants' comfortable lifestyles. He is determined not to allow the vocal opposition of government employees, who are at the head of the resistance movement, to deter him from his course of action.

'War Against Corruption'

Leandros Rakintzis, the former constitutional judge, has the job of smoothing the way for Papandreou. He sees his task as a "war against corruption." Corruption is, in fact, the name of the game in the Greek civil service, and the prime minister mentions it almost daily.

Politicians provide for their helpers and supporters, fathers for their family members and agency heads for their minions. Whenever there was a change in government, thousands of new government employees were hired, but the old ones were not let go. This has been going on for decades, and no one seemed particularly offended by the practice until now, just as long as their own prospects of landing a cushy job remained sufficiently attractive.

The system operated according to the principle: Once you're in, you're in for good. Government employees were set for life.

Rakintzis isn't just talking about bribes. He also cites the problems of abuse of office, waste and unjust enrichment, corruption and the small financial favors known as fakelaki, the notorious "little envelopes" that speed up service. And he complains about the lack of efficiency in many government agencies, whose reason for existing is sometimes not even clear to members of senior management.

"The municipalities hire personnel that they don't need," says Rakintzis. They put projects out to tender that often make little sense. "All municipalities are running deficits," says the former constitutional judge.

'People Are Tired'

This is why Papandreou wants to see his major municipal reform, dubbed "Kallikratis," approved this summer. Rakintzis has already done the preparatory work for it. The number of municipalities is to be reduced from 1,034 to only 370, and the number of municipal companies to two per municipality. About 6,000 of these institutions still exist today. But that is expected to change. As Rakintzis says, "this is a gigantic step forward and a good new beginning."

The prime minister also wants to mercilessly close government agencies and offices that have no real duties and that make little sense, and that employ staffs of people who do nothing but have been paid for years. The government plans to remain steadfast and to make a clean break with such pointless bureaucracy.

Athens therefore has grand plans. But whether all of this will be sufficient is questionable. There is "a feeling of exhaustion in many parts of society," says economist Jens Bastian. "People are tired." Although that fact will cause protests to die off, in his opinion, he wonders whether an exhausted populace will be able to sort out the huge mess that Greek is in.

Thorsten Polleit, the chief economist at Barclays Capital Deutschland, isn't even interested in Greece's economic capacity. Instead, he questions the Greeks' desire to pay off their debts. "Why are people willing to pay taxes, even though the finance minister uses much of the tax revenue to pay the interest on debt that was not caused by those taxpayers?" he asks.

Keeping the Debt Carousel Turning

The economist promptly answers his own question. "We do it because we benefit from it," says Polleit. Only when interest is paid can the government take out new loans. And only then can the debt carousel, which benefits everybody, continue to rotate.

In Greece, however, interest rates and the debt level have now risen to such heights that the costs of maintaining a lifestyle based on borrowed money are becoming too high.

People have the feeling that they can no longer benefit from more and more new debt, irrespective of whether they are the ones who pay the interest on that debt or not. "This means, however, that the political incentive to implement the austerity measures is gone," says Polleit.

A factor that is, in Polleit's opinion, even more important is the fact that a large share of Greek government bonds are held outside the nation's borders -- by, as he puts it, "non-voters."

BY FERRY BATZOGLOU, MANFRED ERTEL, JAN FLEISCHHAUER, WOLFGANG REUTER

Translated from the German by Christopher Sultan
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