Greece’s new pledges will take epic battle to implement

By Dina Kyriakidou

Greece’s latest fiscal and reform pledges may be enough to convince international lenders weary after years of broken promises to keep Athens hooked to a 130 billion euro lifeline, but the battle to implement it will be epic.

Few question the new coalition government’s resolve but many doubt whether the cantankerous public sector can or will implement the measures or the Greek public, reeling from years of austerity, can take much more without putting up a fight.

“The political will is strong, but so are the obstacles – red tape, a demoralized and increasingly underpaid public administration are principal among them,» said George Pagoulatos, professor of economics at Athens University.

Greek officials say 11.5 billion euros of fiscal measures roughly agreed this week – although more painful for the public – will be easier to implement than the structural changes.

Reforms such as liberalizing professions and markets including lawyers and pharmacies, have stumbled on strong union protests. Others, such as cutting red tape for setting up a business, have been stuck in a bloated and ineffective public administration incapable of change.

Since it was first bailed out two years ago, Greece has repeatedly fallen behind on reform pledges to its partners, who have threatened to cut off funding at the risk of unravelling the euro.

Athens, which received a second bailout this year, blames a deeper than expected recession for its failures and wants two more years to hit targets in its new bailout deal. Lenders say slow reforms have not given the program a chance to work and want to see action before considering any changes.

Greek officials have temporarily set aside requests for renegotiation while they hammer out fiscal measures for 2013 and 2014 with the troika of International Monetary Fund, EU and European Central Bank lenders – mostly salary, pension and welfare cuts.

Prime Minister Antonis Samaras’s conservative-led government also announced the revival of a series of structural reforms to give the economy – stuck in its fifth year of recession – a much-needed boost if Greece is to ever escape a debt crisis shaking the single European currency.

The European Commission welcomed the announcements but urged the country to act on its promises.

Greece is scrambling to pay a 3.2 billion euro bond due in August and officials say the state will run out of cash within weeks – making the troika’s review crucial for its survival.

After finalizing the proposed fiscal cuts with the troika inspectors, expected sometime this month, the government will take them through parliament in September or October.

The junior coalition partners, the small Democratic Left and the socialist PASOK parties, are expected to raise some objections and may even lose deputies during the debate but the cuts will ultimately be approved, analysts said.

The leader of the once powerful PASOK, Evangelos Venizelos, has resisted the most, convinced the program won’t work unless its deadlines are extended, but gave his reluctant approval in the face of a possible Greek bankruptcy.

The biggest obstacle may come from the streets, with the radical leftist Syriza opposition party fanning anger among the disaffected, who often stage heated protests.

“These measures lead to a dead end. People have no more tolerance and the economy can’t take this any more,» said Syriza spokesman Panos Skourletis.

“We will take all initiatives in and out of parliament to stop them. Resistance and social clashes are inevitable.”

Analysts said a good communication policy, which is not the government’s strong point, will be key to getting people to accept a new wave of austerity.

“The question is if the government can convince the public that this is the last round of cuts, that no more cuts of this kind will follow,» said Wolfango Piccoli, director of the Eurasia political risk consultancy.

The risk of failure is mainly on the reform front. Greece has managed drastic budget cuts in two years but has had poor results in the fight against tax evasion, improving its business environment and privatizations.

“Bureaucratic impediments may not affect a wide range of spending cuts, but they could create difficulties when it comes to raising more revenue from tax evasion or getting state agencies to speed up implementation of development measures,» Pagoulatos said.

Government officials admit the going is tough, especially in a climate of political and currency exchange uncertainty, with even some EU officials publicly doubting Greece can stay in the euro, which deters foreign investors and strangles selloffs.

“Politically it will be hard, there is no question about it,» said a senior government official on condition of anonymity. «But the last election was a clash of two attitudes and the pro-euro camp won. This time there is the political determination to do it.”