Greece: Under a Byzantine shroud

The great and the good in Davos yesterday all denied that Greece was about to default on its public debt, sell a chunk of it to China or leave the eurozone. The newly elected prime minister, George Papandreou, said his country was being targeted by speculators and was capable of raising money on the markets. Germany and France denied a report in Le Monde that they were considering giving Greece extra help, as the cost of insuring government debt leapt this week. Even billionaire George Soros, who has bet against countries in the past and won, was confident that Greece would make it.

This was more than just a rumour mill. Greece has to sell €53bn of debt this year to reduce its budget deficit, which is the largest in the EU, and the bond markets are not unnaturally sceptical about the government’s ability to do this. For the best part of three decades, prime ministers have come and gone, daunted, and in the end defeated, by Greece’s inability to bite the bullet of public sector reform. Now that era is coming to an end: the euro itself is coming under pressure and quitting it would be a disaster for Greece. The most frequently cited candidate for reform is the pension system, which, if left to its own devices, would gobble up 20.6% of the country’s GDP by 2040. But there are others. Mr Papandreou has promised to replace only one civil servant for every five who retire, which sounds draconian until you learn that no one knows how many civil servants the government employs. The same Byzantine shroud falls over budget management. It is difficult to know how much is being spent on education, as opposed to how much is being spent on the ministry of education, which is a different thing.

So there are two problems in trying to tame this beast: the machinery of government is not fit for purpose, and there are powerful constituencies involved in thwarting any significant reform. To his credit, the socialist Mr Papandreou created an independent body to monitor public spending. He is seeking what he calls a social dialogue on his reform programme as each sector, starting with the farmers, lines up to go on strike. The country has no record of pacts between unions, employers and government, and Mr Papandreou would be breaking new ground if he got one to stick. If he is to prevail, he will have to convince a sceptical electorate that his party and ministers are not at the trough themselves. Trust is in short supply between government and citizen.

Mr Papandreou is only at the start of this process, and the jury is out as to whether he will succeed. As a former foreign minister, he had abundant supplies of empathy to change his country’s relationship with Turkey. As prime minister he will need to find some steel in the velvet glove. In the meantime, the EU should do everything it can to support him.