Wednesday, July 6, 2011


The New York Times

Greek Finance Minister Moves From Crisis to Crisis

by Landon Thomas Jr. and Rachel Donadio

Bloomberg_mediumAs he approached the end of another 16-hour workday, Evangelos Venizelos had one question on his mind: Will Europe come up with the money that Greece so desperately needs? As the new Greek finance minister, Mr. Venizelos is the man in charge of steering a nearly bankrupt economy back on track — and, perhaps, preventing another global financial crisis.

No sooner had he presided over the close passage of a new austerity bill last week, than he was contending with the growing controversy over how much money private banks would contribute by taking on more Greek debt.

And as he prepared to travel to Berlin on Wednesday to make the case to Germany’s finance minister, Wolfgang Schäuble, that Greece could fulfill its end of the bargain, Europe’s assistance was just one of the challenges that lay before him.

This is a problem for not just Greece and Europe but for the global economy,” Mr. Venizelos said as he sank into a chair in his office late Tuesday evening.

His face was slightly pale and his eyes tired — the consequence of a relentless work pace that takes him from arm-twisting stubborn party members to support the government’s program to leading tense negotiations with Greece’s creditors in Europe.

Outside his office, protesters camp out in Syntagma Square, many criticizing the tough policies that will result in 120,000 public sector workers losing their jobs in the next three years.

Mr. Venizelos acknowledges the deep strains that austerity has brought to Greece, but he argues that in spite of the rising anger there is little appetite for new elections and a change of government.

Yes, we have protesters on the streets, but according to the polls, the big majority of popular opinion reject the idea of early elections,” he said.

In the eyes of many, though, the Greek government’s task is a fruitless one. Greece must raise 172 billion euros by 2014 — of which 85.6 billion euros will go to paying off bondholders.

In Berlin on Wednesday, Mr. Venizelos will make the case to his European partners that via an aggressive privatization program and other reforms — like opening up closed professions as varied as truck drivers, lawyers, beekeepers and lifeguards — Greece can return to growth in 2012.

Mr. Venizelos also has the tall order of carrying out the measures. “I have no problem about the implementation,” he said. “The problem is the financial stabilization and also the behavior of the different international factors, because we have some asymmetric threats,” he added, referring to the ratings agencies that are watching his government’s every move and every figure in its balance sheets.

Unlike his predecessor, George Papaconstantinou, who was made environment and energy minister in a cabinet shake-up last month, Mr. Venizelos has the role of deputy prime minister, which allows him to convene cabinet meetings at his request.

But the program, which relies heavily on increasing value-added taxes and the levies that Greeks will have to pay on their houses and private boats, in addition to cuts in pensions and public sector wages, remains deeply unpopular in Greece — and the political tension is growing.

Last week, the center-right New Democracy opposition party, which was in power when Greece went off the debt cliff, voted down the austerity measures, saying they offer too many tax increases and not enough stimulus, although the party says it supports the privatization plan and spending cuts.

Instead, the opposition is proposing tax cuts in order to increase growth and incentives to cut down on tax evasion — hoping that Greece’s foreign lenders will come around to the idea that raising taxes in a recession will curb growth.

It’s not two competing programs. One will fail in the next few months,” Chrysanthos Lazarides, an economic adviser to the opposition leader Antonis Samaras, said in an interview at the New Democracy party headquarters on Tuesday.

No economist in the solar system, earth or universe” would agree with raising taxes in a recession, Mr. Lazarides added, comparing it to “squeezing money out of a dry system.”

But the supply-side economics have run up against the complex politics of Greece’s negotiations with the so-called troika, the International Monetary Fund, European Union and European Central Bank.

When Mr. Samaras took his plan to Brussels last month, European leaders roundly condemned him as recklessly playing politics with Greece’s future for his own party’s political gain.

So before Mr. Venizelos’s important meeting with Germany, he took care to strike a diplomatic tone.

I appreciate very much the positive position of the German government and personally of Minister Schäuble on this issue,” he said. “We need a new memorandum, not only a memorandum for financial support and construction but also for growth and development.”

On the controversial subject of how much the private banks should contribute to the new package, Mr. Venizelos emphasized how important it was not to give the market the impression that banks were being forced into a deal.

Ratings agencies have threatened to label this as a selective default, which might then force the European Central Bank to reject Greek bonds as collateral for the liquidity they have been providing to Greece’s weakened banks.

The precondition is the avoidance of selective default, this is something very important for us. Because we need something real and substantial, something safe, and something not very expensive,” he said with a chuckle.

A reasonable price,” he added.

For its part, the government says it does not have the luxury of cutting taxes. “If you reduce taxes this year, we will have a huge deficit,” said George Zanias, a top economic adviser to the Finance Ministry, as he left a late-night meeting with Mr. Venizelos.

If you wait for taxes to work through the system, you’ll have huge deficits and the markets will be closed,” he added. “Who will pay for that?”

* Relative link: Greek Finance Minister Moves From Crisis to Crisis, July 5, 2011

Also in NY Times: Tapped by a Rival, Greece’s New Finance Minister Faces Daunting Task, June 22, 2011

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