ANALYSIS: Austerity reforms in Greece: Promises, promises

By Christine Pirovolakis Feb 15, 2012, 15:36 GMT

Athens - Greeks are paying a high price for two years of their politicians' broken promises of fiscal reforms, and the path ahead appears just as bleak.

Eurozone countries have grown increasingly tired of Athens' long history of missed budget targets and failure to implement promised spending cuts, economic and structural reforms and the privatization of state assets.

After taking the country to the brink of a disorderly default, politicians voted in even more austerity and issued assurances to international creditors this week that they would not retreat from budget cuts, even with elections expected in April.

But fully implementing the new measures is now likely to prove a Herculean task, given the escalating social unrest, corruption and political divisions plaguing the country.

'The task ahead is difficult - mainly because of the ambitious timetable set by the European Union and the International Monetary Fund (IMF) on deep structural reforms,' said Dimitris Katsikas, a researcher with the Hellenic Foundation for European and Foreign Policy (ELIAMEP).

'Measures such as the opening up of markets and professions to more competitiveness will be easy, but others such as tax collection will take time,' he said.

'Even if everything is done by the book we will only start to see results in one or two years - the Europeans are impatient with Greece at the moment and I do not think that they will be able to wait this long.'

At the same time, Athens has said its task is complicated by the shifting targets being imposed by its international creditors, weary of seeing promise after promise turn to dust.

'We are facing a situation that is particular because we are constantly being given new terms and conditions,' said Finance Minister Evangelos Venizelos on Wednesday.

After decades of using the public sector to reward political cronies, the government must tackle the real issues stifling the economy - cutting the red tape that hampers business, revamping the tax collection system and the bloated public sector.

Politicians have repeatedly voted in measures and privatizations that have never materialised.

'Every time Greece has to receive a new tranche of money we are going to have the same problem. If they (the Greek government) keep missing targets then at some point they will not get the money - and this is just delaying the inevitable,' said Katsikas, hinting at the prospect of default.

The three-month old coalition government of technocratic Prime Minister Lucas Papademos - now backed by just the socialist PASOK and conservative New Democracy parties after the far right walked out over the latest austerity bill - does not have much time to implement reform before the next elections.

Experts believe New Democracy is set to win the election, but without an outright majority, while PASOK is likely to fare badly, creating more political tension as parties argue over forming a new coalition, thus making tough reforms even harder to implement.

'By tradition, Greek parties are allergic to the word 'cooperation',' said Sotiris Soumelidis, editor-in-chief of the satirical newspaper Friday 13.

While New Democracy leader Antonis Samaras assured the EU and IMF that his party was committed to the targets stipulated for a second international bailout - worth 130 billion euros (170 billion dollars) - he has openly criticised the deal, saying it would plunge the southern Mediterranean country deeper into recession.

'Greece needs to generate primary surpluses in the next few years to cover its needs and main sustainable debt as well as to implement major reforms aimed at restoring the country's productive model and enhance competitiveness,' said Constantine Michalos, the president of the Athens Chamber of Commerce.

Greece, currently in its fifth year of recession, has been relying on rescue loans from the EU, the European Central Bank and the IMF since 2010.

Gross domestic product contracted by 7 per cent year-on-year in the fourth quarter of 2011, according to statistics agency Elstat.

The contraction followed a 5-per-cent decline in the previous quarter.

Politicians are also facing escalating public anger to the harsh austerity cuts, not just from angry youths who burned and looted their way though Athens on Sunday but increasingly from middle-class business people and civil servants who turn out to protest.

With youth unemployment of nearly 50 per cent and more and more families having to rely on just one reduced salary, social discontent is expected to escalate.

Unemployment has reached a record high of nearly 21 per cent and the number of homeless people and beggars on the streets of the capital has visibly increased.

'We need to express as soon as possible the will of the citizens to adhere to these measures - they should decide the path the country will take in the upcoming years,' said Michalos, implying that popular approval was crucial to implementing reform.