The street clashes that erupted in Athens last week between police and demonstrators were the latest reminder of the formidable challenges facing Greece in implementing the terms of its €110bn rescue by the eurozone and the International Monetary Fund. Although the popular mood appears closer to anxiety and fear about the future than anger, it may darken as more Greeks lose their jobs in planned closures of inefficient state entities. Unemployment has already hit a seven-year high of almost 14 per cent; among young Greeks, it is 35 per cent. There is no doubt much tinder to stoke the smouldering flames of resentment among members of the ruling Pasok party at the extent of the austerity measures demanded under the European Union-IMF programme.
It is too soon, however, for financial markets to conclude that the government’s efforts are failing. The EU is right to plan an orderly sovereign restructuring process, but at this stage there should be no consideration of forcing holders of Greek sovereign debt to accept losses. The imperative to maintain the financial stability of the 17-nation eurozone is a strong reason to hold the line. So is Greece’s progress in rooting out the fiscal indiscipline, economic mismanagement, and grave weaknesses of public administration that contributed to the crisis in the first place.
The government’s chief success is the reduction of the budget deficit by six percentage points last year to 9.4 per cent of national output. Certainly, more must be done to improve tax collection. But the results so far are encouraging. For the long term, what matters is to develop a culture of competition that can generate economic growth and break the hold on the economy of privileged interest groups, such as truck drivers, pharmacists and public sector workers. In last week’s protests, such anti-reform groups were noticeably prominent.
Changing Greece’s mentalities and attitudes to the state is a task that will last an entire generation, beyond the political lifetime of George Papandreou, the prime minister. His job now is to persuade the silent majority of Greeks who do not benefit from insider privileges that they will ultimately gain from the reforms. He must also contain the discontent of ministers worried that their political careers are under threat because the reforms limit their ability to exercise patronage. To clear the air, he may feel compelled to call an election before the government completes its four-year term in 2013. On his present record, he would deserve to win.
