The Politicians Who Warned Greece—but Were Ignored

11/7/2015

Lawmakers’ proposals were savaged by media and labor unions

A note from Greece’s finance minister to his prime minister warned that the country needed tough economic overhauls if its economy was to live up to its European aspirations.

“We can take on the task to truly lead the country to a European direction, on condition that the Greeks—those who are living well, not those who are suffering—will make the necessary sacrifices,” the finance minister wrote.

That was in September 1996. The finance minister was Alekos Papadopoulos and the prime minister was Konstantinos Simitis, but the letter could have been written today.

In the past quarter century, Greece has had a handful of reformist politicians who foresaw the problems that are now threatening the nation with bankruptcy.

Their reform proposals were fought by their colleagues in parliament and savaged by the media and labor unions. They invariably found themselves sidelined.

Greece’s international creditors, the eurozone and the International Monetary Fund, have long been insisting that the country push forward, ignoring vested interests, with “structural” reforms.

They are demanding deep changes to the rules and habits of government, both within the state apparatus and in its interactions with citizens and the private sector, for example via taxation, professional licensing or pensions.

Since the eruption of Greece’s debt crisis in 2010, successive governments have prioritized fiscal austerity—trying to raise government revenue and cut expenditure—instead of tackling deeper reforms of the system head on.
Many foreign officials involved in Greece’s ill-starred bailout efforts over the past five years say they have learned what Greece’s past would-be reformist politicians always knew: In Greece, hurting vested interests is harder than taxing citizens to death.

Mr. Papadopoulos learned that early on.

He held three senior cabinet positions between 1993 and 2002, and passed key reforms as finance, home affairs and health minister.

As finance minister, he brought in a team from the U.S. Internal Revenue Service, which consulted Greece on how to set up its own tax-crime squad.

He introduced Taxis, the digitized tax platform Greeks still use today. His tenure marked some of the first important steps Greece took toward a modern tax system. They were also among the last. Tax avoidance, evasion and fraud are now fingered by Greece’s international creditors as chronic problems keeping Greece from recovery and growth.

By 2002, Mr. Papadopoulos, who was elected with the center-left Pasok party, could see Greece was veering off the track he had tried to put it on as finance minister. He had been part of the Pasok effort to lead Greece into the euro area, and felt at the time that the country was bingeing on the cheap credit that had come with the common European currency.

Just as the euphoria of spending euros was spreading through Greek society, Mr. Papadopoulos told Mr. Simitis the country’s finances were out of control. They fell out and Mr. Papadopoulos resigned from the cabinet.

“My fight with Simitis came because in 2002, instead of accelerating reforms within the euro, they stopped completely. The way things were being managed in the economy was leading us straight to bankruptcy,” he said, resting his head on his hand at a quiet cafe in central Athens.

Mr. Papadopoulos’s cotton-white hair is testament to his battles: “I was attacked in brutal ways even by my comrades inside Pasok whose constituents were upset because of the reforms I was passing. It came at an enormous personal cost.”

Tassos Giannitsis is no stranger to this kind of war: His tenure as labor minister was more short lived, and the battles against him even more visceral. Mr. Giannitsis in 2001, again in the Pasok government led by Mr. Simitis, put forward a comprehensive proposal to reform the pension system.

Trade unions, opposition parties and Pasok itself unleashed menace on Mr. Giannitsis.
“Giannitsis was annihilated after his pension-reform proposals. There are few precedents for this kind of universal attack on a politician,” said Loukas Tsoukalis, a prominent economics professor here.

Mr. Giannitsis’s proposals, which would have reduced the pension levels Greeks receive and made the system overall more sustainable given the country’s demographic and labor-force trends, were never taken to parliament.

“From the fridge to the bin!” said the front page of newspaper To Vima on April 28, 2001, as the frozen pension-reform plan was scrapped for good.

“When I told my colleagues in the cabinet about the reforms I was proposing—which mind you were not the toughest available—the attitude I got was that I was spoiling the party,” Mr. Giannitsis said in an interview.

“They were, like, ‘everything is going great right now, why are you bothering us with a problem that may implode in a decade?’”

Mr. Giannitsis had one supporter in that cabinet meeting: Mr. Papadopoulos, who not only agreed that the reforms were necessary, but famously added that they should be tougher, with deeper cuts to pensions and an overhaul of benefits, because what Mr. Giannitsis was proposing was “peanuts” compared with what was needed.

Stefanos Manos, a market-oriented politician on the conservative end of the political spectrum, came before Messrs Papadopoulos and Giannitsis and left a legacy of overhauls in privatizations, tax administration, opening of closed markets like mobile telephony, and reforms of the murky land registry—a key institution in any modern economy that however continues to be a problem in Greece.

Few senior politicians in Greece have been as unpopular as Mr. Manos, Mr. Tsoukalis said. In 1998, Mr. Manos was kicked out of the conservative New Democracy party for supporting a proposal by the opposition, Pasok.

“He was the one key person who so early on talked about the bloated state, the unsustainable pension system, and was blocked repeatedly because of resistance from his own party and from society,” says Mr. Tsoukalis of Mr. Manos.

“I couldn’t understand how so many people would want to have so much, to the detriment of the public good,” Mr. Manos wrote in the foreword of his book. “I made an army of enemies.”

The firebrand Mr. Manos has since been involved in liberal politics in Greece, with parties that seldom get more than 1.5% of the popular vote.

Today, more so than in their times in government, these three politicians and a few others are coming to be seen as among the minority of officials who spotted and attempted to change early on some of the core problems that have led to Greece’s almost intractable crisis today.

“They called me ‘the Cassandra’” said Mr. Giannitsis of the headlines during his unpopular push for reforming the pension system.

Cassandra, in the Greek myth, was a clairvoyant doomed to always be right, but never believed. She went crazy.

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