Fresh reforms challenge

The government must overcome the problems of its first term and make changes

By Dimitris Kontogiannis - Kathimerini English Edition

According to the exit polls and the early results of yesterday's vote, the ruling conservative New Democracy party will win the general elections and will most likely form a government with a relatively slim majority in Parliament.

To this extent, the new government will be facing a bigger challenge in pushing ahead

with its well advertised pro economic reform agenda.

The wildfires, which raged in a large part of the country over the summer, especially from late August to early September, as well as the scandal with Greek government structural bonds bought by pension funds at extraordinary high prices, look as if they did not do the damage to the government that a number of pundits predicted before the vote.

Even before winning the 2004 general elections, the conservatives were saying the country needed a series of structural economic reforms to spur economic growth to the tune of 5 percent or higher. The electorate gave them a clear mandate and a comfortable majority in Parliament to deliver them.

However, even as the conservatives themselves admit, the actual outcome did not, generally speaking, meet expectations.

The fact that perhaps the most pro-reform cabinet member in theory and reality was Finance Minister Giorgos Alogoskoufis, reveals how difficult it is for a government, even a conservative one, to make good on its promises.

It is clear that in the conservative New Democracy party, like other political parties, there are deputies and other party individuals with influence who dislike any structural change that upsets the status quo.

The change may affect a profession, a large state-controlled enterprise or even a smaller company in a district where a seat in Parliament may be at stake in the general elections.

The voices of the anti-reform forces tend to be louder when they know their party needs them the most. It is easily understood that this is more so when their government has a small majority in Parliament.

Assuming the exit polls were right last night and New Democracy ends up with more than 150 seats in the new Parliament to form a single-party government, it is rational to assume these forces will reassert themselves as time goes by.

This means the government will have greater difficulty passing legislation that does away with established practices, such as those in the labor market, the so-called closed professions, opening them up to competition, the streamlining of the state sector and the overhaul of the country's ailing social security system.

So, it is paramount that the newly elected government - assuming Prime Minister Costas Karamanlis chooses to govern with a relatively slim majority in Parliament - takes advantage of its mandate to take all painful but necessary economic reform measures early in its second term, that is, in the first six to eight months.

In other words, the new conservative government does not have to repeat the same mistakes it made during its first term in office after more than 10 years out of power.

At the time, New Democracy could point to the deliberations for finding a commonly acceptable solution for both communities in Cyprus, the June elections for the European Parliament and, of course, the 2004 Summer Olympics.

Of course, the conservatives used the European Union audit of Greece's draft of public finances to lower expectations about pay rises and other handouts, pointing to disciplinary action from the EU should it fail to bring the budget deficit to below the 3 percent of GDP threshold.

It did not even hesitate in the spring of 2005 to raise the value-added tax (VAT) and other excise levies on alcohol and tobacco products to cope with a shortage in tax revenues, threatening to undershoot the budget deficit goal for that year.

Of course, progress was made in the privatization of Emporiki Bank, which was sold to France's Credit Agricole, the partial flotation of Postal Savings Bank and the reduction of the state's equity stake in other state-controlled banks and enterprises. Still none of these amounted to any real big structural change.

This time around, public finances appear to be in much better shape, but they may still need a boost to meet pre-election promises and increased spending in areas affected by the large fires.

Consequently, the government should not hesitate once again to raise the VAT to ensure fiscal balances do not worsen this year and next.

Also, this time around, unlike 2004, the government has all its people in key positions to implement its agenda and push ahead with economic reforms. So, there are no excuses.

All in all, the New Democracy government should learn from its 2004 mistakes and push ahead with reforms in economics and education as soon as possible, eight months into its second term at the latest.

This is also the best way for the prime minister to the test the waters and see whether his slim majority can do the work or call elections again in a few months' time.