By Hugo Dixon, New York Times
Is Greece losing its reform drive? Prime Minister Antonis Samaras has stuck to a harsh fitness program for two years. But just as it is bearing fruit, he has sidelined some reformers in a reshuffle. There is only one viable path to redemption for Athens: Remain on the straight and narrow.
The Greek economy is not out of the woods yet. But the measures taken to balance public finances and restore the country’s competitiveness are having an effect.
Athens partly regained access to the bond markets in April. Banks have been able to issue equity on the markets. The unemployment rate has fallen for four months in a row, although it is still a terrible 27 percent. The economy has also either just stopped shrinking or will do so soon.
Greece’s top industry, tourism, is set to reach new highs this summer after setting records last year. Foreign investors are looking to take advantage of cheap labor, cheap real estate and a better investment climate. Only last week, the Chinese premier was in Greece, signing $4 billion of commercial deals and declaring that the country could become China’s gateway to Europe.
One might have thought Mr. Samaras would stick with the team that helped deliver this success. But the prime minister was scared after his center-right New Democracy party was beaten into second position in the European Parliament elections last month by Syriza, the radical left group, and so promoted some populist politicians.
Yannis Stournaras, the former finance minister, was moved to the less critical but still important role of central bank governor. The economic development and health ministers were also demoted.
The new finance minister, Gikas Hardouvelis, a respected economist, has attempted to reassure the euro zone governments, which are Greece’s main creditors, that the country remains committed to its reform program.
The head of the quasi-independent tax agency was forced to quit. This was because he had made a mistake in issuing a circular saying that holders of Greek bonds would face retrospective taxation, according to two officials. His replacement will be chosen by a committee that includes France’s top tax official, so there is no risk of cronyism, they say.
But Greece’s euro zone partners and the International Monetary Fund are not convinced of this explanation. Given that one of Greece’s deepest problems has been tax evasion, they want to make sure that politicians do not start meddling with the tax agency again.
All of this is unfortunate, because Athens still needs its creditors’ support to secure better terms on its debt load. The outlines of a deal have already been sketched: freezing the interest rate at below 1 percent; increasing the grace period before any of the debt needs to be repaid; and extending the period over which the borrowings are ultimately paid off by another decade or so.
The snag is that Greece’s creditors will not formally agree to this debt relief deal until they are satisfied that Athens is sticking to the agreed reform program, and the reshuffling has just raised questions about that. As a result, the I.M.F.’s review of Greece’s progress, which starts in the autumn, could drag on into next year.
The government is concerned that it will not just have to convince its creditors that it is still on track with reforms but that it will have to wait until it is clear how much, if any, extra money it has to pump into its banks. Although there will be some visibility on this after the European Central Bank completes its stress tests on large banks in the euro zone in the autumn, the government worries that it will be forced to wait months after that to clarify whether the market will provide the funds.
A few months’ delay matters because a new Greek president has to be chosen by Parliament in the new year and unless 60 percent of the members of Parliament back the president, there has to be an early general election. It is touch and go whether Mr. Samaras can scrape together the necessary majority.
As a result, the prime minister is worried that he will have to fight an election without a debt deal under his belt. That may be another reason he is flirting with populism.
But this would not be a route to success. If the Greek people want populism, they will vote for the genuine article, Syriza, not a pale imitation.
Mr. Samaras’s best bet is to convince Greece’s creditors that he is not wobbling on reform and that they should complete the debt deal by year-end. His single-minded aim should be to have a really good story about how reform pays off if he has to face the Greek people in the spring.
