Greece under Sanctions? A Yugoslav Deja Vu . . .

 

Greece, like Yugoslavia under sanctions, is starting to be cut off from the world economy.  This time, it is not due to war, but rather economics, and, let’s face it, politics.  The debt binge of the first decade of the new millennium was going to require massive belt tightening to pay under any circumstances, just as it has in Ireland, Portugal, now Spain and likely soon others.

The inability of Greece to reform, and even, on May 6, to elect a coherent government has resulted in the market taking the situation into its own hands.  Greeks are taking advantage of the EU’s lack of currency controls to take their money out of the country, by the billions.  Investors are cutting and running.  Those who sell to Greece demand payment up front; commercial insurers, refuse any Greek business.   And just days after the election, Russian Natural Gas behemoth Gazprom warned that the spigot will be turned off if Greece does not pay up.

Effectively Greece is under economic sanctions, dictated not by politics but by the market.  A nation with a huge trade deficit in energy and even food is basically being cut out of world markets.  This harkens back to Yugoslavia in the 1990s, though the Serbs had the advantage—an important one—of being utterly self sufficient in food and had a far, far lower level of economic integration with the rest of the world.  Though they had serious indebtedness (which contributed not a little to Yugoslavia’s demise) their debt and trade deficit was far less than their Greek neighbors have today.  As such, though the politics are different and (thus far) there is no war and violence, the sanctions effect on Greece may be eerily similar.

Of course, Yugoslavia in the 1990s suffered some of the highest inflation in world history, which thus far Greece has not.  True, but whether this element of the Yugoslav equation comes into play is entirely a matter of what happens on the June 17 election.  If Tsipras comes out on top and puts his imbecilic and ill-defined plans into play, Greece will likely be bounced from the Euro and hyperinflation will no doubt begin, complicated by not having a legacy currency already in existence and by the scarcity of vital products (food, medicine, fuel) due to the virtual sanctions on Greece.

Nearly twenty years on, Serbia is still reeling from the twin blows of sanctions and hyperinflation.  The damage to national wealth and, perhaps more importantly, the national psyche, is palpable everywhere.  Greece today is at the threshold of similar pain, and real prudence is necessary to avoid the abyss into which we now stare.  One of the shoes has already dropped, the other is teetering at the edge.

Tsipras must not win.

Comrade Tsipras savior of Greece’s Publik Sektor

During a televised interview on 12th June, Alexis Tsipras, the 37 year old leader of the radical left SYRIZA party referred to Greece’s partners in Europe on as “our opponents.” This thug who has proved to be an illiterate uneducated opportunist, the type that spent all his school and university days leading sit-ins and occupations, infringing on other people’s rights, derives from a well-to-do family and never actually having worked anywhere in his life, went straight into “the party” and has spent his entire parliamentary tenure creating problems for the country, thwarting any reform efforts,  encouraging violent riots and throwing smart-arse juvenile comments into the political arena meant to enthrall the impressionable and less intelligent.

Like millions of other Greeks within the country and in the Diaspora, I am thoroughly ashamed that someone of this man’s caliber has been “elevated” as a representative, or “leader” of Greece and the Greek people. His policies are ridiculous, those that are actually articulated that is, depending on which version is released by which hermaphrodite SYRIZA constituent clan, surreal in fact. One of his parliamentary candidates in Corinth just resigned in protest, stating that Greece will not last more than a few hours under such reckless leadership. Tsipras has now even gone to the Financial Times with an op-ed to try to improve his image as a reasonable negotiating partner.  Hogwash.

Anyone who has any real knowledge of what is going on in Greece at present would be aware that the only reason this party (SYRIZA) has gone from 4% to up to 30% or more in less than 12 months is because a large part of the spoiled and corrupt public sector, criminal unionists, cronies of the former PASOK (which has been basically cleansed through this) as well as even many right wingers from Nea Dimokratia have thrown their support solidly behind SYRIZA because they believe Tsipras will save them from going where they deserve to go…the rubbish bin.

Sadly, it seems that history will probably remember Greece as a deeply Balkan country that never really evolved from its Ottoman past and was destroyed by its useless public “servants”, corrupt trade unionists and state-dependent cronies, thanks to the opportunistic political operative called Tsipras. There may well be the need to reclassify Greece in global brokerage house lingo from a “developed economy” (if its institutions ever truly graduated to the EU level from the “emerging market” category) to a “submerging market.”  Tsipras should get two gold stars for his good work there.

Reform Watch May 2012 Round Up…Did you REALLY expect changes?

Yes it’s an election period. And yes, you are tuned to Greece. Who in their right mind would expect a “caretaker administration/service government” to change anything?  Especially anything that involved benefits levels or public sector staffing?

Just testing…We certainly didn’t.  Nonetheless the country kept operating at deficit levels, meaning public sector salaries and pensions were supported by Troika bailout funds, as usual.  Did Greece really move any closer to financial independence over this period? Were those bailout funds well spent or just scattered randomly for public consumption and to sustain businesses/public services that seriously need to restructure?

Below is a brief listing of how certain ongoing structural reforms were “processed” in Greece over the last month. It is basically a “low-performance report.” We are certainly glad we don’t have to compile a detailed matrix of accomplishments for Troika officials prior to disbursing the next cash injection (shape not yet decided) which Greece will so desperately need next month. There is precious little to work with, even for the strongest supporters of Greece in this difficult time. And let’s not forget that the former Papademos government basically sprinted to pass key pieces of reform legislation by mid-April (mostly unimplemented) so the first round of elections could be held in May.

None of this absolves Greece in any way of its requirement to produce a large list of budget cuts for 2013-2014 for Troika approval and vote on dozens of other reform measures by the end of June.  No wonder Greeks prefer politics!

Privatization:  While work on preparing assets already held at the Hellenic Republic Assets Development Fund (TAIDEP in Greek) goes on, policy decisions and transfers of new state assets to the Fund are frozen by edict until the June 17 elections. Socialist parties are doing all they can to stop work at the TAIDEP and some even talk of reversing it.  The status of a number of government assets transferred to the TAIDEP in early May before elections is reportedly under review.

Health Sector:  The new system of electronic prescription management, designed to reduce costs by limiting drug purchases, was partially offline in May for technical reasons.

Tax Issues/Revenue Collections:   Revenue collections have fared poorly this year due to the recession and the extended election period.  Some news reports note a 20-30% decline compared to last year and certain news outlets and high-level government sources  characterized the situation as “desperate” during various political meetings and coalition-formation discussions throughout May. Reforms in the barely functioning tax collection mechanism, especially those designed to fight tax evasion, are not underway now, but major changes required by the Troika should begin in July.

Labor Market:  As of May 14, all “old” collective labor contracts automatically expired. Those contracts could be replaced by so-called individual agreements and could include some wage reductions. This important labor market reform stipulates that a collective contract had to have been signed/reauthorized in the previous three months to be considered valid after May 14.

Public Sector Personnel System:  Just days before the May 6 elections, word was released that the ambitious personnel reviews and job audits planned for the public sector would be delayed due to the elections. Nothing since then, but of course, public sector (BFGPS) paychecks keep coming.

European Community Monitoring Office:  Shortly before the May 6 elections, a site for the Mission’s Headquarters in Gazi was announced.  Public Sector employees already in that building protested immediately.  Since then, not a word.

Bank recapitalization: This is not a structural reform, but since it is linked to the overall PSI package which supports reform, it merits mentioning.  The bulk of the EFSF funds sent to Greece for this purpose in April were disbursed to four participating banks via the Hellenic Financial Stabilization Fund (HFSF) in mid-to-late May, with substantial action (Euros 18 billion) disbursed in the last few days of the month.

 

Scale of reform task facing Greece is monumental

See article below for a good summary (The Irish Times) of what Greece committed to do, under former-PM Papademos, by June 2012 as it received the first “new” bailout tranche under the so-called “Second Memorandum.”  This is not fiction, and that money, disbursed in March, has been spent. The date for the Troika’s next return/review is not yet clear.

http://www.irishtimes.com/newspaper/world/2012/0518/1224316280691.html

Reform Watch Greece survey results…..a long, tough path ahead.

The results are in, Reform Watch Greece’s first survey is complete.  We thank all readers for participating.

The survey was opened here at the end of March, and completion deadline extended until April 15.

Readers should pay attention to the fascinating comments visible by clicking the “detailed report” button for each question.

http://polldaddy.com/surveys/1848809/report

Since there were a wide range of questions asked, a general conclusion is hard to reach. We note the survey indicated respondents gave the Greek governments since 2009 relatively low marks for reform accomplishments while disagreeing with many Troika objectives and strategies. This is not out-of-line with the general pre-election sense of public malaise.

Reform Watch Greece survey #1 – The way forward for Greece

Reform Watch Greece introduces the first of a number of surveys we plan to conduct on structural reform in Greece. Please take a few minutes to answer the questions on the fancy new “Polldaddy” application we are trying this time.  This vehicle should make it possible to analyze results at the end of the survey and even repeat some questions over time so we can build up a usable database.

If you would like to suggest other survey vehicles that we may not be familiar with, please do so in the comments section. And yes readers, there might be a slight bias detected in the questions, since we are run by a group of civic-minded citizens pressing for action.

Survey follows….

Take Our Survey!

CORRUPTION BLUES UNDERSCORE THE NEED FOR DEEP SYSTEMIC REFORM IN HELLAS

Whilst this blog is not called “Corruption Watch Greece”, unfortunately a large percentage of the news these days requires us to focus on the subject.   Systemic corruption in Greece is widely regarded as one of the triggers of the Greek debt crisis also threatening the very fabric of the Greek nation today. According to Transparency International, “efforts to reform and rebuild Greece’s economy in the future will be undermined because the country’s government, businesses and civil servants not only fail to stop corruption but actively participate in it”. More specifically, this warning was issued on 29 February 2012 through Transparency International Greece’s first ever assessment of the ability of important national institutions to fight corruption and underscores the fact that Greece’s ranking on Transparency International’s closely watched Corruption Perception Index (CPI) worsened in 2011, with the country taking joint 80th position out of 183 countries on the list. Its ranking puts it on a par with El Salvador, Morocco, Peru and Thailand, a ranking worse than any other country in the European Union of 27 nations, below that of Turkey in fact.

What is truly amazing, therefore, is that even after the latest revelations about bogus pensions, the orgy of fraud by corrupt IKA employees, the illegal social security benefits, and bribery demands by senior public servants at the Ministry of Development, some people continue to be offended by Pangalos’ statement that “Olloi mazi ta fagame” (“We ate everything together”), to run after Dalaras (a famous popular singer and a national icon who has always been a staunch defender of Greece’s interests) throwing chairs or “moutzes [offensive gestures]” at him and partake in throwing yoghurt at politicians. The logic that it is impossible for the 300 members of parliament, along with 100 or a few more corrupt henchmen to build up a national public debt of 360 Billion Euro seems to  be dawning, finally, in the most dramatic way possible.

In fact, according to the recent audit carried out by the Ministry of Labour, a total of 63,500 main and supplementary pensions were found to be fraudulent and their cancellation has resulted in a net benefit to the long-suffering state-owned pension funds of 450 Million Euro per annum, even though no real mention has been made about recuperating illegal payments already made or firing the individuals that approved those pensions. It is notable that in the OGA (Agricultural Pension Fund) audit alone, 8,500 outright fraudulent pensions were found as well as 21,000 persons who were receiving allowances and benefits without being entitled to them. According to the Minister of Labour, the audit found that many people were illegally receiving pensions for over two decades, whilst interestingly, after their cancellation only 7-8 people turned up to claim them.  How fast the news travels, it seems.

The fact that many people were invited to and took part in the “party” that Pangalos refers to is confirmed by the data made public by the Ministry of Health whilst the full report that reveals other specific cases of wholesale fraud is expected to be released in the next few days. The scam involving welfare benefits, set up on a national basis, is estimated to have cost the state more than 4 Billion Euro over the last decade! The audit conducted by the Ministry of Health revealed that on the island of Zakynthos, of the 700 people who were receiving the “blindness benefit“  (2% of the island’s population compared to 0.6% on a global basis (including third world countries) according to the World Health Organisation), only 100 turned up to claim the benefit as part of the audit of which 60 were found not to be blind! In the municipality of Eleusina, Attika, 107 files concerning apparently fraudulent cases of welfare benefits have been sent to the public prosecutor’s office. On the island of Kalymnos, during the two months July-August 2011, 595 cases of people with severe disabilities were registered. On this basis, with a population of 8% of that of the entire Dodecanese, Kalymnos officially now boasts 31% of the cases of severe disability of the entire prefecture! Moreover in the Dodecanese, a total of 68 people receive the “Heating Fuel Benefit” of which 59 live on Kalymnos, that is 87% of the total! One could also be forgiven for believing that the rest of the population of Kalymnos  is comprised of blind people and of people with mental disabilities with 18% of all the blind people in the Dodecanese (59 out of a total of 335) and 17% of those with severe mental disabilities (53 out of a total of 311). In other words, statistically, just about every Kalymnian suffers from something and receives a social security benefit for it. This of course, reveals there is simply no oversight by these organizations’ Athens headquarters or the Ministry of Health, as one would expect when cases of certain aliments statistically exceed national or international averages. …

Recently, 7 employees of the Kallithea branch of IKA (the largest social security organisation in Greece) were arrested and charged over a massive scam involving millions of euro that were stolen from that organisation’s coffers via a primitive but effective scheme made possible through the active participation and collaboration of the public. Whilst the exact amount stolen is still unknown, as investigations are currently in progress, it is estimated that the financial loss to the state-owned fund will exceed 300 Million Euro. This scam involved fraudulent claims being approved to members of the public as beneficiaries by corrupt officials who orchestrated it over a number of years.  Both benefited. Indicatively, one of the main players, a middle-aged IKA employee, was found with nearly one Million Euro in notes in her mansion, complete with a swimming pool and private chapel for forgiveness of sins. It is beyond any doubt that the participants in this scam were not only public sector mandarins and medical personnel, but many ordinary folk who received welfare payments for bogus pregnancies, births of twins, virtual medical operations and hospitalization for non-existent illnesses.

Hot on the heels of the IKA scam comes the arrest of two senior Ministry of Development employees caught red handed accepting a bribe of 120,000 Euro which they had demanded from two businessmen to release the approval of government  grants for a hotel complex development (already agreed in principle), the paperwork of which was submitted in 2005. The ministry officials had been holding back the disbursement of 13 Million Euro’s worth of state grants for the construction of a new hotel complex in the Peloponnese. Ministry employees had apparently been making demands for a kickback since one year after the application for the grant was submitted. Initially there were demands for 700,000 Euro. The businessmen, who already own a hotel complex outside Nafplion, refused to pay the bribe and the approval to provide the grant remained locked up in a drawer at the Development Ministry. It is a well-known secret in Greece that ministry officials nearly always ask for a bribe equal to between 2 and 4 percent of the value of the grant.  The fact that this is a known “going rate” shows just how prevalent and audaciously open the practice has become.

According to Kathimerini Newspaper (article dated 14 March 2012) this case has highlighted the difficulties that the Greek justice system has in dealing with cases of alleged corruption. About 90 percent of investigations carried out by public prosecutors relate to claims of graft in the civil service and a law passed last October designed to speed up the process has yet to be implemented. Since the law was passed last year, no ruling has been issued for a case of alleged public sector corruption.

It is notable that as soon as she was appointed Development Minister, and when this scandal hit the media, Anna Diamantopoulou reacted quickly by ordering the immediate dismissal of the approximately 100 personnel comprising the Department of Investment of the Development Ministry that these two culprits derived from and their replacement.  The Inspector of Public Administration, Dimitrios Rakintzis, has been assigned to investigate the financial affairs of all these personnel from 2005 until today and their bank accounts ordered opened.

It is encouraging that the Minister has exercised such apparent determination in rooting out the rot in her new ministry, but one cannot help but wonder to what extent have the seeds of the rot spread?  Are these the final spasms of a dying decadent society on its way out, or is this merely the tip of the iceberg?

The Eurogroup hath spoken – Key decisions to propel Greece forward

So the deal is done.  Early this morning the Eurogroup concluded its deliberations on the Greek bailout. It is no longer a question of whether policy proposal “X” (haircut size, monitoring, payment systems, and prior conditions) is decided.  The issue is now implementation. We attach the final Eurogroup communique from February 21 at the end of this post.   Since more or less the entire financial press in Europe and many of its global affiliates will be reviewing the agreement, we thought Reform Watch Greece should briefly highlight a few key points and provide a short assessment on whether these measures will help structural reform proceed in Greece.

Preamble:  We cite this text section, with extremely blunt language, as evidence that the Eurogroup was intent on sending a clear message to the Greek population that this program is not simply something they can opt to ignore (our italics for emphasis):    “This new programme provides a comprehensive blueprint for putting the public finances and the economy of Greece back on a sustainable footing and hence for safeguarding financial stability in Greece and in the euro area as a whole. The Eurogroup is fully aware of the significant efforts already made by the Greek citizens but also underlines that further major efforts by the Greek society are needed to return the economy to a sustainable growth path.”

Monitoring:  Seemingly bowing to German concerns, the Eurogroup requested the European Commission to enhance and to expand the role of the existing EC Task Force for Greece, including a new permanent on-the-ground role.  Additional EU member states’ expertise is also requested. This proposal is of course certain to generate new political resistance in Greece, across a wide spectrum.  Note: The IMF already has a more or less permanent presence here, via its low profile Resident Representative in Athens.  The communique further states that “Euro area Member States stand ready to provide experts to be integrated into the Task Force. The Eurogroup also welcomes the stronger on site-monitoring capacity by the Commission to work in close and continuous cooperation with the Greek government in order to assist the Troika in assessing the conformity of measures that will be taken by the Greek government, thereby ensuring the timely and full implementation of the programme.”

Debt Repayment Prioritization:  We have already witnessed a series of Greek politicians reacting almost rabidly to the concept that debt service would be given a higher priority than other domestic expenditures, since for many it raises sovereignty concerns. Some have even threatened to press for a debt-servicing moratorium.  In the negotiations over the bailout package, Greece also undertook to insert a modification to its constitution, when possible, allowing this obligation to be fulfilled, but for the foreseeable future a Troika-supervised accounting mechanism managed by the Ministry of Finance and its appointees will actually be utilized.   “The Eurogroup also welcomes Greece’s intention to put in place a mechanism that allows better tracing and monitoring of the official borrowing and internally-generated funds destined to service Greece’s debt by, under monitoring of the troika, paying an amount corresponding to the coming quarter’s debt service directly to a segregated account of Greece’s paying agent.  Finally, the Eurogroup in this context welcomes the intention of the Greek authorities to introduce over the next two months in the Greek legal framework a provision ensuring that priority is granted to debt servicing payments. This provision will be introduced in the Greek constitution as soon as possible.”

PSI: A large part of the communique deals with PSI modalities, of less concern to us than the implementation of structural reform. We will avoid comment on these points.

A Closing Warning:  The final section of the Eurogroup communique is far more than a comforting closing statement of support. After the timing/details of the decision process are spelled out, the document closes with an emphatic reminder about the need for Greece to fully comply with program conditionality, the so-called “prior actions.”  If Greece had a better track record on structural reforms, we doubt that we would have seen such a clear formulation/warning:   “It is understood that the disbursements for the PSI operation and the final decision to approve the guarantees for the second programme are subject to a successful PSI operation and confirmation, by the Eurogroup on the basis of an assessment by the Troika, of the legal implementation by Greece of the agreed prior actions. The official sector will decide on the precise amount of financial assistance to be provided in the context of the second Greek programme in early March, once the results of PSI are known and the prior actions have been implemented.  We reiterate our commitment to provide adequate support to Greece during the life of the programme and beyond until it has regained market access, provided that Greece fully complies with the requirements and objectives of the adjustment programme.”  In no uncertain terms, the message is, “we are watching you.”

Start full communique text:  “The Eurogroup welcomes the agreement reached with the Greek government on a policy package that constitutes the basis for the successor programme. We also welcome the approval of the policy package by the Greek parliament, the identification of additional structural expenditure reductions of  325 million to close the fiscal gap in 2012 and the provision of assurances by the leaders of the two coalition parties regarding the implementation of the programme beyond the forthcoming general elections.

This new programme provides a comprehensive blueprint for putting the public finances and the economy of Greece back on a sustainable footing and hence for safeguarding financial stability in Greece and in the euro area as a whole.

The Eurogroup is fully aware of the significant efforts already made by the Greek citizens but also underlines that further major efforts by the Greek society are needed to return the economy to a sustainable growth path.

Ensuring debt sustainability and restoring competiveness are the main goals of the new programme. Its success hinges critically on its thorough implementation by Greece.

This implies that Greece must achieve the ambitious but realistic fiscal consolidation targets so as to return to a primary surplus as from 2013, carry out fully the privatisation plans and implement the bold structural reform agenda, in both the labour market and product and service markets, in order to promote competitiveness, employment and sustainable growth.

To this end, we deem essential a further strengthening of Greece’s institutional capacity. We therefore invite the Commission to significantly strengthen its Task Force for Greece, in particular through an enhanced and permanent presence on the ground in Greece, in order to bolster its capacity to provide and coordinate technical assistance.

Euro area Member States stand ready to provide experts to be integrated into the Task Force. The Eurogroup also welcomes the stronger on site-monitoring capacity by the Commission to work in close and continuous cooperation with the Greek government in order to assist the Troika in assessing the conformity of measures that will be taken by the Greek government, thereby ensuring the timely and full implementation of the programme.

The Eurogroup also welcomes Greece’s intention to put in place a mechanism that allows better tracing and monitoring of the official borrowing and internally-generated funds destined to service Greece’s debt by, under monitoring of the troika, paying an amount corresponding to the coming quarter’s debt service directly to a segregated account of Greece’s paying agent.

Finally, the Eurogroup in this context welcomes the intention of the Greek authorities to introduce over the next two months in the Greek legal framework a provision ensuring that priority is granted to debt servicing payments. This provision will be introduced in the Greek constitution as soon as possible.

The Eurogroup acknowledges the common understanding that has been reached between the Greek authorities and the private sector on the general terms of the PSI exchange offer, covering all private sector bondholders. This common understanding provides for a nominal haircut amounting to 53.5%. The Eurogroup considers that this agreement constitutes an appropriate basis for launching the invitation for the exchange to holders of Greek government bonds (PSI).

A successful PSI operation is a necessary condition for a successor programme. The Eurogroup looks forward to a high participation of private creditors in the debt exchange, which should deliver a significant positive contribution to Greece’s debt sustainability.

The Eurogroup considers that the necessary elements are now in place for Member States to carry out the relevant national procedures to allow for the provision by EFSF of (i) a buy back scheme for Greek marketable debt instruments for Eurosystem monetary policy operations, (ii) the euro area’s contribution to the PSI exercise, (iii) the repayment of accrued interest on Greek government bonds, and (iv) the residual (post PSI) financing for the second Greek adjustment programme, including the necessary financing for recapitalisation of Greek banks in case of financial stability concerns.

The Eurogroup takes note that the Eurosystem (ECB and NCBs) holdings of Greek government bonds have been held for public policy purposes. The Eurogroup takes note that the income generated by the Eurosystem holdings of Greek Government bonds will contribute to the profit of the ECB and of the NCBs. The ECB’s profit will be disbursed to the NCBs, in line with the ECB’s statutory profit distribution rules. The NCBs’ profits will be disbursed to euro area Member States in line with the NCBs’ statutory profit distribution rules.

– The Eurogroup has agreed that certain government revenues that emanate from the SMP profits disbursed by NCBs may be allocated by Member States to further improving the sustainability of Greece’s public debt.

All Member States have agreed to an additional retroactive lowering of the interest rates of the Greek Loan Facility so that the margin amounts to 150 basis points. There will be no additional compensation for higher funding costs. This will bring down the debt-to-GDP ratio in 2020 by 2.8pp and lower financing needs by around 1.4 bn euro over the programme period. National procedures for the ratification of this amendment to the Greek Loan Facility Agreement need to be urgently initiated so that it can enter into force as soon as possible.

– Furthermore, governments of Member States where central banks currently hold Greek government bonds in their investment portfolio commit to pass on to Greece an amount equal to any future income accruing to their national central bank stemming from this portfolio until 2020. These income flows would be expected to help reducing the Greek debt ratio by 1.8pp by 2020 and are estimated to lower the financing needs over the programme period by approximately 1.8 bn euro.

The respective contributions from the private and the official sector should ensure that Greece’s public debt ratio is brought on a downward path reaching 120.5% of GDP by 2020.

On this basis, and provided policy conditionality under the programme is met on an ongoing basis, the Eurogroup confirms that euro area Member States stand ready to provide, through the EFSF and with the expectation that the IMF will make a significant contribution, additional official programme of up to 130 bn euro until 2014.

It is understood that the disbursements for the PSI operation and the final decision to approve the guarantees for the second programme are subject to a successful PSI operation and confirmation, by the Eurogroup on the basis of an assessment by the Troika, of the legal implementation by Greece of the agreed prior actions. The official sector will decide on the precise amount of financial assistance to be provided in the context of the second Greek programme in early March, once the results of PSI are known and the prior actions have been implemented.

We reiterate our commitment to provide adequate support to Greece during the life of the programme and beyond until it has regained market access, provided that Greece fully complies with the requirements and objectives of the adjustment programme.”  End text. 

How Not to Reinvent the Wheel

The article below, on the deep structural reforms successfully instituted by successive Australian governments over the last 25 years, and translated into English from the original Greek was published today, Sunday, 19 February 2012 in the Kathimerini newspaper. We believe Australia’s experience is a useful case study of how reforms can be implemented successfully both in the economy and across a country’s public sector. The lessons are many, but the key concept is simple. The reform process must be continuous and sufficiently broad in scope to allow a positive synergy, meaning that key structural reforms in the functioning of the economy and labor market have to work together with improvements in public administration. Australia was of course not a member of a currency union, meaning it had a broader range of macroeconomic and financial policy options than Greece does today. But it struggled with a large, expensive and inefficient state bureaucracy for many decades before finally reinventing it to serve the public’s interest and to support investment and development.

Lessons learnt in Australia for Greece

By Jenny Bloomfield*

Many ask what the steadily rising achievements of the Australian economy and the unprecedented prosperity that the country is experiencing today is due to. The answer is that because of the implementation of painful and radical reforms, we were able to reconstitute our economy and to be now in a position to take advantage of our natural resources in the best way possible and thus to benefit from the economic boom in our region.

In the 80’s and 90’s, Australia underwent an exceptionally painful period of economic restructuring in order to adjust to a new world economic reality, dramatically reducing protectionism and opening up key sectors of the economy to competition. The high cost of protectionism and the support provided to non-productive and non-competitive industries weighed heavily on the consumer who paid dearly for goods and services, as well as on our most productive and export-oriented industries. After 25 years of implementing structural reforms which led the way to two decades of continuous economic growth, Australia has changed significantly.

We strengthened competitiveness by investing in innovation and by increasing productivity. We reduced bureaucracy and the cost of business activity simplifying state procedures whilst in parallel strengthening incentives for people to work. We institutionalised a flexible framework of industrial relations and closely linked salary variations with productivity increases, which was instrumental in increasing employment levels and decreasing inflation.

We opened up the local marketplace, including the state monopolies and state-controlled businesses, to competitive forces, a factor that was a catalyst in increasing productivity. We helped surplus personnel in the workforce to integrate into more productive sectors of the economy through re-training and the acquisition of new skills.

These changes had the immediate effect of increasing the GDP, as well as the establishment of a more flexible, active, dynamic and efficient economic system. The increase in state revenue made it possible for the Australian government to continue improving its social security program. A re-structured, rationalised and effective public sector and open, transparent, accountable institutions made it possible for structural reforms to take place resulting in an improvement of public governance in Australia.

With focused reform measures for the improvement of the administrative framework of state institutions, we strengthened accountability, transparency, the state’s ability to respond to the needs of the citizens and the seamless operation of public services, harmonising the outcomes and productivity of the public sector with the private sector. We gave greater autonomy to public organisations, whilst legislating in parallel a framework for strict criteria of performance evaluation and accountability based on the achievement of predetermined targets and outcomes.

The diligent monitoring of the economic activity and the performance of public organisations contributed substantially to their improved status and better outcomes. Successive governments continued to implement a series of reforms which aimed to maintain and to improve the performance of the Australian economy in the fields of competition policy and productivity, industrial relations and flexibility in the marketplace, public administration, education and investment in innovation and the so-called “knowledge or information economy”.

The Australian people understand the difficult adjustment which the Greek people are currently undergoing to bring the country back to a healthy and robust economic status which will ensure the long-term prosperity of all citizens. The most significant lesson resulting from our experience is that the difficult adjustment program can be implemented successfully as long as there is collective support for the necessary changes and determination to achieve the results.

* Mrs. Jenny Bloomfield is Australia’s Ambassador to Athens.

Original article here, in Greek:

http://news.kathimerini.gr/4dcgi/_w_articles_economy_2_19/02/2012_473064

Reform Reversal Greek Style (or Revenge Of The Public Sector)

Back in January 2012, some of us argued that bowing to the public sector unions and failure by the then Papademos government to implement the decision made by former Minister of State, Ilias Mosialos, in August 2011, that is to close down ERT television stations ET1, digital “Cine Sport”, the TV gossip magazine “Radiotileorasi” and 10 of the 19 regional radio stations would deal a serious blow to its credibility and compound problems for the future. It seems that this article was prophetic to the point that someone, a very unlikely “reformer,” had to come and cut the Gordian Knot…It remains to be seen whether this is now too little too late or the beginning of a process to to take unpopular but necessary cost-cutting measures that actually throw public sector employees out of their heavily subsidized jobs. .We are re-running the January 2012 piece below so that readers pulled into the ERT closure story can get a balanced historical perspective and not just the hyperbole of the dozens of emotional articles written in the last 48 hours, many by involved parties or their allies.  In our view, this is not a battle about “media freedom” in any sense, rather it is about the toughest battle Greece has yet to face, reform of its bloated and deeply-entrenched public sector.

Begin January 2012 article:

Five months after the announcement by the then-State Minister and Government Spokesman (oversees the government’s press/communications policy) Ilias Mosialos that the state-run television station ET1, the digital television station “Cine/Sport” and “Radiotileorasi” Magazine would close down (or be partially subsumed in other activities) as part of the government’s public sector consolidation drive, the Board of Directors of ERT, buckled to the pressure of the public sector unions and announced on 30th January 2012 that in accordance with the “special study” just undertaken the decision to close down these organisations has now been in large part reversed.

Without divulging any information concerning who performed this “special study”, and in contravention of the ministerial decision 5 months ago, ERT S.A. has announced that:

• ET1 will remain in operation as a station placing emphasis on culture, the arts, entertainment, cinema, childrens’ programs, documentaries and programs of special interest as well as programs currently aired by digital Prisma+ channel for people with disabilities
• Digital station “Cine/Sport” remains in operation, but as a satellite station. (Note these stations were once separate but had been merged earlier in 2011)
• “Radiotileorasi” Magazine will not only remain in circulation but will be upgraded and its contents enhanced.

In addition, the Board of Directors of the state-run ERT has announced that it approved the plan to change and “improve the performance” of its 19 regional radio stations instead of closing ten of them as had been announced in the summer.

These scandalous decisions by the ERT Board, made under the pressure of the public sector unions, and the obvious acquiescence of the government, ensure that no cost reductions will be effected in that organisation and the Greek tax payer will continue to be burdened for services that could have been absorbed quite readily by the other two existing state-run television stations (NET and ET3) and for products, such as the   “Radiotileorasi” Magazine which is not within the realm of something that any reasonable person would expect the state to provide, least of all at times of economic crisis.

ERT receives 300 million EUR per annum from the compulsory levy (antapodotiko telos) paid by all households and businesses through the electricity (DEH) bill, an amount that is equal to the total amount spent for advertising on the private radio and television stations. One would expect, therefore, that ERT would enjoy a significant share of the listening and viewing public. But on the contrary, the viewing and listening ratings of ERT are very low compared to the total marketplace, whilst public radio and television stations in other European countries enjoy at least 50% of their total potential listening and viewing public.

ERT needs to radically change its modus operandi implementing the decision made by the government in August 2011 and immediately close down ET1 whilst incorporating any programs worth while saving into the other two state-run television stations (NET and ET3).  It is not the government’s role to produce radio and television gossip magazines at taxpayer expense, such as “Radiotileorasi”, that no one reads and the digital station “Cine/Sport” must be closed down completely without any further procrastination.

Even though elections are coming up, failure to implement these simple cost reduction measures and bowing to public sector union pressure puts the Papademos government’s credibility in serious doubt.  If the Troika provides any service to the Greek people, it is to strengthen the ability of the government in place to take unpopular cost-cutting measures that actually throw public sector employees out of their heavily subsidized jobs.

One wonders if the ERT Directors seriously believe their decision can stand, in view of the  need to cut government spending drastically and refocus it on essential public services like health and education, not make-work employment programs for some of Greece’s self-labeled “journalists” who happen to have the connections to get them public sector jobs.  Is this simply a pre-election ploy to kick the game into overdrive and work out a deal with the next elected government?  What will it take to close ET1, an edict from Brussels or the appointment of a Commissioner for Greece?

Hippocrates doesn’t live here anymore

Among the crises inflicting Greece today we must include the crisis in the health system.  To borrow from a medical analogy, the crisis in the health system is a cancer on the Greek body politic.  Like many cancers, symptoms existed long before the recent diagnosis.  Even in times of apparent economic health, the Greek health system was far from healthy.

For years now, the Greek public health system has been plagued by debts and corruption, effected, if not with official connivance, with toleration.  One of the key places a typical Greek will pay a bribe (among, of course, others) is to a physician at a public hospital.  Bribes are so commonplace as to be accepted as part of the cost of treatment.  The patient, or his family, who is not prepared to pay a bribe may be directly endangering their health.   As the system further deteriorates, even bribes are less effective than they used to be.

Greek public hospitals for nearly a decade have been known as the deadbeats of Europe within the pharmaceutical community.  Companies would often wait for years to receive payment, and often as not the state would reduce the amount paid to the companies.  Greece’s already ballooning debt increases further when considering the several billion EUR of liabilities in this sector.  Not surprisingly, pharmaceutical companies padded their invoices to make up for the late payment terms, and often enough kickbacks and bribes demanded by public servants, government officials and doctors would further increase the costs, stretching the finances of the state health system, again, even in apparently healthier economic times.

It was not uncommon, even in the good old days, for hospitals to have shortages of vital medicines and more mundane items such as bandages and toilet paper.  Often enough, patients bring their own!  The debt-plagued procurement system was a key reason but another reason stands out: outright theft by doctors and hospital staff.  It is not uncommon for those employed in public hospitals to help themselves to white goods or common medicines at the hospital.  Oversight?  Not here, most hospitals lacked even the rudiments of bookkeeping; without a paper trail, how do you prove something is missing or stolen?  The EU Commissions first Quarterly Report from the Task Force for Greece diplomatically cites a “concern . . . as [to] the efficiency of and access to the healthcare system.”  They further talk about the need to rein in expenditures and “implement best practices,” etc.  They could go much further and talk about the blatant graft by procurers, hospital staff, and even by holders of the Hippocratic Oath.

So, the story is the same here.  Bribes, graft, and a willful lack of professionalism or oversight conspire to make Greece’s health system increasingly dangerous to your health.  It simply did not have to be that way.  Greece, in spite of the debt and eroding competitiveness, did make considerable strides in its standard of living.  Greece has one of the highest percentages of doctors to population in Europe, and therefore the world.  In spite of the onslaught of junk food and stress-inducing lifestyles, the Greek diet and climate is very conducive to good health.  Greece’s health crisis is, rather, a subset of its general crisis, which is not primarily financial but rather civic and civil.

As for Hippocrates, he clearly doesn’t live here anymore.