Stalling for Time Greek Reform Effort Slows to a Crawl
The troika is back in Athens this week and with all eyes on Italy, Greece feels it has little to fear. But important reforms have stalled and the government's belt-tightening efforts seem paralyzed. Politicians are playing for time and hoping for fresh money.
The troika mission has returned to Greece, but this time things are different. No front page headlines are warning about new painful demands made by Greece's international creditors, no government officials are pleading for unity in the three-party coalition in support of unpopular measures. And there is no overhanging fear of a long drawn-out process of evaluation, full of innuendos about a catastrophic default or euro-zone exit.
For the moment, Europe is watching developments in Italy. Following the election debacle there, concerns have reawakened that the euro crisis might return. The Greek government, on the other hand, is confident that the inspection started on Monday by the troika -- comprised of officials from the European Central Bank (ECB), the European Union and the International Monetary Fund (IMF) -- will be over by March 10 and will approve the release of the next two tranches of bailout aid -- 2.8 billion in March and a further 6 billion in April. No one seems to fear a repetition of the drama of the previous troika inspection, which lasted a full five months.
On the contrary, the government in Athens is going on the offensive this time, presenting its own list of demands. The Greek government is determined to push lenders to agree on a list of concessions it hopes will help to alleviate the crisis. They include a lower VAT, or sales tax, for restaurants, the allocation of EU funds to combat unemployment and a new law aimed at making life easier for indebted households.
Reforms Lose Traction
But such complacency seems unfounded given the situation on the ground. The Greek economy remains mired in recession, and is expected to contract by another 4.5 percent of gross domestic product in 2013. The latest statistics show that 27 percent of Greeks are unemployed, and among those under the age of 24, that figure is 62 percent. Many are already fearful of the "Bulgarian syndrome," a reference to the street violence and anti-austerity protests that have shaken the government in Greece's northern neighbor.
Furthermore, it has become increasingly clear that the government in Athens is failing to implement promised reforms:
- On the privatization front, Greece is supposed to generate 2.5 billion in proceeds by the end of 2013. To meet this goal, the government plans to sell the state gambling monopoly OPAP and Greece's natural gas assets before the summer. Yet given the dismal track record, optimism is misplaced. Total revenues so far for all of Greece's previous privatizations have been a meagre 2 billion, making the 2020 revenue target of 25 billion look increasingly unattainable.
- Even the sale of those companies that have been dubbed the "crown jewels" of publicly owned enterprises and have attracted a lot of interest from foreign investors, is full of pitfalls. OPAP is considered a cash cow, and many are wondering why the government should sell one of the few companies it has that is actually making money. Furthermore, betting giants StanleyBet, SportingBet and William Hill are seeking to contest what they view as an OPAP monopoly at the Hellenic Council of State, the country's highest administrative court. It is still unclear whether the court will take on the case. Pending a decision, investors might be unwilling to participate in the sale or significantly lower their offers.
- Different but equally serious are the problems at state gas company DEPA and its subsidiary DESFA. Russian gas giant Gazprom and Sintez are among the bidders and they have awoken the resistance of the EU as well as the United States, which want to keep Moscow away from valuable energy resources in Europe.
- Nor is much progress being made in the matter of slimming down the public sector. Under the provisions of the bailout program, the public sector is to shrink by 25,000 employees by the end of the year, half of them by June. So far, only 2,000 employees have been put on reserve (meaning they will receive 75 percent of their income for a year and are to be dismissed if they aren't moved to another post within the public sector by the end of a 12-month period). Courts have frequently been overturning decisions made under this provision and the latest data shows that more than half of those employees put on reserve have already returned to their old posts. Greek media reports indicate that of the 500 municipal workers put on reserve, a full 300 have won their jobs back by court order or interim measures.
So how can this new Greek complacency be explained? Prime Minister Antonis Samaras believes that if the government manages to remain on top of things by June, then Greece will be out of the woods. Talking with members of parliament over lunch last week, Samaras said: "If we hold on tight and make it to the summer, in September we will liftoff." A record number of tourists are expected in Greece this year and Samaras is calculating that a good summer season will boost the economy. At the same time, politicians in Athens are impatiently counting the number of days until German federal elections in September. Expectations are running high that a newly formed German government might agree to a second debt haircut that would impose losses on euro-zone governments and make Greece's explosive debt viable.
Still, Samaras is very aware that a lot can happen in six months. He wants to preserve the good faith his government seems to be enjoying in Europe at the moment and deal with the maladministration in his government. Greek government representatives have already stated that the troika is expected to demand immediate dismissals if the bailout provisions for reducing the size of the public sector aren't met. Athens continues to insist that the reduction can be achieved via retirements and the firing of corrupt public officials.
Still, Samaras appears to be losing his patience as well. He has publicly expressed his frustration over delays in reforms, and a cabinet reshuffle appears to be imminent. Samaras is expected to sack ministers who have proven unable, unwilling, or both, to implement the terms of the bailout. The cabinet reshuffle is expected in early March.