Jun 16 2014

The Paradox of Reform

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By Nikolaos Zahariadis

Crises are both risks and opportunities. They create uncertainty and ambiguity not only because they tend to bring about change but also because they simultaneously point to different directions of policy. Politicians are torn between two opposing forces. They face the challenge of urgently needing to respond to the exigencies of the moment while being tempted by the opportunity to implement long awaited reforms. Response is defined as the short-term effort – e.g., tax increases and spending reductions – to return things back to “normal.” Reform makes deep, structural changes in policies – e.g., tax collection and public employment – to bring about a new “normal.” There are incentives to move in both directions at once which are periodically updated by elections. However, quite often politicians end up using crisis rhetoric to undermine reforms and return back to the same policies that caused the crisis in the first place. Following the Euro-elections, the Greek government of Antonis Samaras appears to be heading in precisely this direction.

The Prime Minister emphatically proclaimed he received the electoral message: things must change and remain the same. By this he meant policies would remain largely the same whereas the people crafting and implementing the policies, i.e., the cabinet, would change substantially. But this is the surest recipe for failure.

There is no denying that progress has been made in meeting at last some of the targets specified in the bailout package. Revenues are up significantly, there is even a substantial primary budget surplus, something that Greek governments have not accomplished since the 1950s. Economic growth appears tenable in the near future, bringing to an end the country’s longest recession since the dark days of World War II. But the current trajectory is not sustainable. The reason is not reform fatigue, as most analysts claim, but the haphazard implementation of reforms.

The biggest enemy of economic growth is uncertainty. This is because investors need to know the rules of economic competition to estimate with some degree of confidence the likely returns to their investment. Structural reforms, such as improved collection measures, as opposed to short-term policies, such as tax increases, create even more uncertainty because they have long-term consequences. It is imperative that the government keep the same people who produce results at the helm. Instead the Prime Minister decided to change leadership in key ministries, most notably the ministries of Finance, Development, Health, and Education although he kept Mr. Mitsotakis in the ministry of Administrative Reform. If particular individuals meet targets and faithfully implement very difficult measures, such as those espoused by Mr. Stournaras in the Ministry of Finance, what is the point of changing leadership? It is extremely difficult under current conditions for Greek policy makers to build rapport with Greek voters and the country’s external creditors because of the terrible record most Greek politicians have in actually doing what they are supposed to be doing. As the old saying goes, “if it ain’t broke, why fix it?”

The Prime Minister proclaimed that the government needs to stay the course but correct “some injustices in implementation.” His statement has been interpreted as an attempt to recalibrate the balance between the adverse effects of reforms with the government’s political interests. Stournaras and the outgoing general secretary for revenues Haris Theoharis, who held an independent five-year civil service position, were blamed by many within New Democracy, the conservative party which is the senior coalition partner, for its lackluster performance at the European Parliament elections on May 25.

But the Prime Minister, and the deputy Prime Minister, went further. They brought in new faces augmenting the number of ministerial positions to 46, from 42 in 2013 and 39 in 2012, as if Greece’s problem is the small number of its leaders. Many of the newly appointed ministers are well known for their combative, partisan style. So why appoint them? It may be to reconnect, as Reuters reported, with their parties’ parliamentary groups and traditional members.

If the point is to stay the course, why change? If the point is to correct injustices, why the ministers who have produced results, and why wait until after the election? If finally the point is to reconnect with the partisan bases, isn’t this another way of going back to the old clientelist policies of the past?

The Prime Minister is keenly aware of the need to energize his partisan base but he must also remember the necessity to produce results. Energizing his partisan base may keep him in power for a short time but only reforms will produce the results needed to keep him in power for the long-term. This is especially true in light of the presidential election in February 2015. The government needs allies who will not come from partisan frenzy but from mollifying the opposition. The only way to gain the (even tacit) support of the opposition is to convince voters their sacrifices will bring better days, there is light in the end of the tunnel. Only consistently and honestly implemented reforms, and not the clientelist policies of the past, will convince voters to pressure policy makers to come to some form of consensus. Regardless of short-term electoral gains, undermining reforms will bring yet more failure.

 

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Posted by: Posted on by HO Editor

May 27 2014

Few Surprises from Cyprus in the European Parliament Elections

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By James Ker-Lindsay

Sunday’s European Parliament elections in Cyprus, the third set of elections since the island joined the EU in 2004, yielded few surprises. As expected, the governing right-wing DISY, which is aligned with the European People’s Party (EPP) topped the results and returned two MEPs. In second place was the Cyprus communist party, AKEL, which is aligned to the European United Left (GUE-NDL), also elected two MEPs. The last two of the island’s six seats were allocated to the centre-right DIKO and centre-left EDEK; both of which are, somewhat confusingly, aligned to the Socialists and Democrats (S&D). Therefore, despite the fact that four of the six MEPs are new faces, the overall party allocation of seats remains the same as the last parliament.  Continue reading

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Posted by: Posted on by HO Editor

May 23 2014

European Parliament elections: the national campaigns in South East Europe

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EU SEEEuropean Parliament elections are being held on 22-25 May 2014, with voting already under way in some countries across Europe. Our staff (teaming up with EUROPP Blog and South East Europe @ LSE) gives a final look at the national campaigns for each of the South Eastern European countries, highlighting the national polling and the key domestic issues.

 

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Posted by: Posted on by HO Editor

May 12 2014

EU Election: Austerity will make for Lively Contest in Greece

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By Dr Spyros Economides

This article was originally published on The Conversation. Read the original article.

The Greek public will go to the polls on May 25 as a massively divided electorate. The obvious factor which shapes public opinion is the continuation of an economic crisis which has resulted in a six-year recession and ongoing austerity programme which has led to a massive contraction in the Greek economy and dramatic falls in levels of income and standards of living. Continue reading

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Posted by: Posted on by HO Editor

Apr 29 2014

Two tales of wage adjustment

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by Rebekka Christopoulou and Vassilis Monastiriotis *

It is well known that in the last five years Greek wages have collapsed both in the public and in the private sector. What is perhaps less known, owing in part to the attention of much of the policy debate on the cuts in the public sector, is that the wage adjustment in the two sectors has been equally deep. In fact, the private sector experienced if anything more radical changes in its pay-structure, with elements of increasing commodification, while the public sector continues to offer advantageous wages to privileged groups, despite the policy focus on the “rationalization” of pay in the sector.

During the crisis, the Greek government initiated three major waves of public wage reform. In 2010, all wages were cut horizontally (by 10%) and holiday bonuses were also reduced. In 2011, pay-scales for the so-called “narrow” public sector were unified – a process which involved a marginal increase in basic pay combined with the abolition of most non-basic benefits. At that time, the unified scales did not apply for civil servants paid under special pay-scales, or for public law contracts in utilities and entities. The unified pay-scales were extended to these categories of workers in 2012.

In the private sector, labour reforms came later – after 2011 – when the government prioritized the reduction in the current account deficit and the increase in wage competitiveness. Among others, the government degraded collective bargaining agreements, drastically cut the minimum wage (by 22%), and selectively opened some of the so-called ‘closed-professions’ (deregulation of occupational licensing).

Despite the extensive debates that these developments have spurred, there is a lack of detailed analysis regarding the speed, depth, and qualitative characteristics of the wage adjustment in the two sectors. We conducted such an analysis using data from the Greek Labour Force Survey (see Research Paper No. 9 published by the Crisis Observatory).

Our analysis shows that the average monthly wage (for regular pay, i.e., excluding bonuses) in the private sector fell equally and sooner than in the public sector. The overall reduction in the public sector over 2009-2013 was 22.5% and took place mostly after the enforcement of the unified pay-scales (post-2011). The corresponding wages in the private sector fell slightly more (by 23.2%) and with a stable speed for the duration of the crisis. That is, they started falling before the decrease in minimum wages and the deregulation of collective bargaining. The decline in hourly pay in the private sector was slightly smaller, but it was combined with a large decline in average weekly hours of work.

As a result, not only was the public wage premium sustained during the crisis, but also increased by a small margin. In 2009, public sector employees earned on average 8.8% higher pay than private sector employees with the same characteristics (education, experience, family status, region of residence, occupation and sector of employment, type of contract etc.). In 2011 this percentage increased to 14.6% and in 2013 it fell to 9.3%.

As our econometric analysis shows, the wage adjustment had different qualities in the two sectors. In the private sector, the fall in demand exerted a downward pressure on wages that was two to three times larger than the actual wage adjustment observed in the data. This is because the downward pressures were counterbalanced by drastic changes in the valuation of worker and job characteristics (education, sex, experience etc) in this sector, which caused skills like education to be rewarded much better today than before the crisis.  For example, one extra year of education affords today a 2.3% higher wage in the private sector, while in 2009 the corresponding reward was 1.5%. Likewise, the returns to an extra year of labour market experience increased from 1.5% to 2.4%.

This development brings forward a very positive message: the higher rewards to skills associated with higher productivity have the potential to stimulate a significant sectoral reallocation of labour as the country starts exiting the crisis and employment trends recover. If the ‘rationalisation’ and ‘commodification’ of pay in the private sector is to be maintained past the crisis, , this will mean that private-sector employment will become less and less a “solution of last resort”, thus attracting more – and rewarding better – skilled workers, helping in this way wane the long practice of “queuing” for a public sector job.

In contrast to the changes in the private sector, the public sector wage cuts were accompanied by very marginal adjustments in the valuation of worker and job characteristics.  The returns to characteristics such as education, experience, and occupation remained roughly unchanged throughout the crisis – and, as a result, the public sector continued to be, as it was before the crisis, more generous towards the unskilled and more frugal towards the skilled. In this sense, despite the policy changes and their intentions, public wage cuts were largely horizontal. This is perhaps a factor that explains the recent pressure from the troika for further wage reforms.

Of course, the LFS data do not reflect all dimensions of the wage changes during the crisis. They do not capture, for example, the cuts in non-regular public wages or the informal wage cuts in the private sector. However, they allow two safe conclusions: first, that – considering the decline in private-sector wages and employment combined – the crisis impacted more the private sector workers relative to public sector workers; and, second, that despite the extensive – and painful – reforms, the rationalization of the public-sector pay system has not really materialized.

* A version of  this article (in Greek) appeared in newspaper Καθημερινή on 27/04/2014 (link)

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Posted by: Posted on by Vassilis Monastiriotis

Oct 8 2013

Beyond the confusion, a decisive shift

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by Professor Kevin Featherstone

A week ago, Greece had some of its best headlines in the international media since before the crisis began.  The quick and decisive actions against Chrysi Avghi showed the strength of the democratic spirit.  This was a fight-back against a Neo-Nazi force at a time when the extreme right was making inroads into the stagnant politics of other European societies.  I felt proud of Greece when explaining these actions to my friends in London.

The previous week I’d witnessed a Chrysi Avghi street protest in Athens.  I came away with a deeply disturbing image of the intimidating swagger of a young man, his faced covered, walking ahead of the demonstration, inviting onlookers to challenge his command over the street, as the police stood back.  The closest parallel I’d witnessed previously was of English football hooligans or of the Protestant ‘Orange Order’ marches.  Far from being the worst episode of Chrysi Avghi protest, the young man was nevertheless mocking authority and ready to unleash the passion for violence evident in his party. The British friend alongside me had never been to Greece before and I despaired at what she was thinking as we watched.

Then, on Wednesday, it seemed that the most laudable of intentions risked being thwarted by state confusion, if not incompetence. The Court decided that three Chrysi Avghi members could be released.  Yet, the next day, Michaloliakos, Lagos and Patelis were remanded in custody.  Was there such a difference in the strength of the evidence or, rather, was it an acknowledgement by the Court of the public outcry after the first were released?  If the latter, this would be very worrying.  The preparation of the cases themselves seemed a little flaky.  The indictments had been trailed across the newspapers, breaking legal safeguards.  Then the contact details of a ‘protected’ witness had been given to the accused, putting them at great risk.  For the democratic spirit to triumph requires proper preparation and avoiding an ERT-like debacle.  The rest of the world will celebrate not only because the right people are standing trial, but also only if the right process and principles are followed.

The most worrying aspect of this episode, though, has been the admission that the authorities have had files and files of evidence against Chrysi Avghi and had sat on them, doing nothing.  We had a flashback to the Lambrakis Affair and the collusion of the police with the dark forces of pre-junta Greece.  The admission undermined the legitimacy of the state’s own institutions and fanned foreign exasperation of what kind of system exists in Greece.  Thankfully, the purge of senior police figures helped to signal a new resolve.

Indeed, beyond the immediate confusion, the events of the last week need to be put in larger perspective.  The decision to act against Chrysi Avghi may come to represent a decisive turn in Greece’s political class.  The will to confront fascist criminality was heard and not only in Greece.  A bridge has been crossed and it won’t be easy to retreat.

The electoral base of Chrysi Avghi is a fragile one – both in its sense of economic and social vulnerability, but also in it searching for almost any protest lead.  The Greek electorate is not turning fascist; instead, more may be coming rejectionist.  The Chrysi Avghi members arrested may have hidden Nazi memorabilia and swastikas in their homes for late night thrills, but ordinary ‘Kostas’ or ‘Maria’ does not.  Repeated action against the party can only expose how ‘un-Greek’ these people are.  TV reminders of the Athens famine and the Holocaust would also be timely.

This last week, mainstream Greek politics found a common purpose and showed a new willingness to face down opponents.  Greece’s friends have yearned for such a moment.  We can only hope that the shock of this discovery will embolden it to continue forward.

Kevin Featherstone is Professor of Contemporary Greek Studies at the London School of Economics, where he heads its Hellenic Observatory.

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Posted by: Posted on by Ismini Demades

Sep 27 2013

Until Angela Merkel forms a governing coalition, Greece will continue to be in limbo

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by Dr Theofanis Exadaktylos 
 

 “Triumph for the queen of austerity – Pressure to the South for reforms”*

Angela Merkel’s triumph in the German elections on Sunday and her re-election as Chancellor has made headlines across the world. But what does her third term in office mean for Greece, which has been struggling with implementing new measures, taking reforms forward and demonstrating primary surpluses in the budget? Continue reading

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Posted by: Posted on by Ioanna Antonopoulou

Sep 27 2013

Greece and Albania would both benefit substantially from closer relations

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by Dr Alexandros Nafpliotis

 

Exactly 42 years ago, the Croatian daily Vjesnik used the term ‘impressive’ to report to its readers the re-establishment of Greek-Albanian relations, adding that 1971 marked the year of a Greek ‘diplomatic offensive’ in the Balkans. The catalyst for this dramatic decision was financial, with both the Greek Colonels’ dictatorship and Albania’s Stalinist leader Enver Hoxha being interested in cultivating closer relations with each other in their effort to tackle their financial woes. At the time, Greek newspapers focused on the ‘open door’ policy followed by Hoxha, underlining the Albanian youth’s desire for contact with foreigners. Continue reading

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Posted by: Posted on by Ioanna Antonopoulou

Jul 11 2013

The great Greek exceptionalism (on recessionary austerity and government effectiveness)

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by Dr Vassilis Monastiriotis
 

The latest round of negotiations between the Greek government and the ‘troika’ must have convinced even the most romantic of those following the Greek crisis that the Greek state is not serious(ly committed to the policies and reforms emanating from the bailout agreements). The ‘conclusion’ of the negotiations left again Greece with a ‘halfhouse fix’ that includes a partial release of the next tranche of the bailout funds and an agreement for the continuation of the ‘negotiations’ in the autumn. The uncertainty in the country remains, the problems of inefficiency in the public administration remain, the economy continues to be squeezed and squashed, and society is still in turmoil. Continue reading

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Posted by: Posted on by Vassilis Monastiriotis

Jun 17 2013

ERT tells us all we need to know….

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by Professor Kevin Featherstone
 

This week’s dramatic decision to close down ERT answers a question Greece’s political leaders – in and out of government – have lacked the will to confront for a generation. At one level, the move is gesture politics: a sudden, unilateral act intended to impress the Troika, after the sale of DEPA was messed up.    The audacity of the move provoked the predictable protests – attacking the media gets headlines around the world. But the protests have a valid point about such a ‘shock and awe’ announcement:  it comes without proper consultation, no parliamentary approval and with no fully-worked out plan. Continue reading

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Posted by: Posted on by Ioanna Antonopoulou