EUROPE NEWS
MAY 29, 2010.
The Word on IMF's Task in Greece: Herculean .
By BOB DAVIS in Washington and SEBASTIAN MOFFETT, ALKMAN GRANITSAS and NICK SKREKAS in Athens
For the International Monetary Fund and its allies in Berlin, Brussels and Paris, the €110 billion ($136 billion) Greek rescue package is an unprecedented opportunity to remake one of Western Europe's most shuttered and regulated economies.
For Savvas Tsakiris, the coming changes mean lower profits, lower pay and more competition. Mr. Tsakiris, a 48-year-old pharmacist in Athens, fears deregulation will mean "handing over the profession to multinationals that are not pharmacists, but entrepreneurs."
The diverging visions are at the core of the IMF's challenges in Greece.
Here, the fund faces its most far-reaching effort at economic reconstruction since the Asian financial crisis of a decade ago, when it forced countries to dismantle monopolies and slash subsidies to get rescue loans. But Greece presents an even bigger challenge. Its Western European population has grown used to decades of job protections, state regulation and government support. The IMF is seeking much more change from Greece than the country has had the political will to impose on itself in recent years. "The scope of the conditions is brutal," says Domenico Lombardi, a former adviser to Italy's IMF representative.
The stakes may be higher than they were in Asia. If Greece can't muster the political will to deregulate and improve productivity, it could be forced to restructure its debts or get out of the euro. Either scenario could touch off fears over the ability of other euro-zone members, such as Spain or Portugal, to rein in their own spending to avoid a Greece-style meltdown.
The IMF can't work from the playbook it used to put other countries on the road to recovery. For one thing, it is working jointly with the EU, which is providing the bulk of the rescue loan. Because Greece is a member of the euro zone, it doesn't control its own interest-rate and currency policies. So the IMF can't tell Athens to tweak interest rates to spur investment or devalue its currency to make exports more attractive.
The only way for Greece to grow fast enough to pay its debts is to make its economy more nimble. That means cutting wages and prices to make its wares more competitive, dismantling decades of regulations and selling state-owned businesses.
For Savvas Tsakiris, the coming changes mean lower profits, lower pay and more competition. Mr. Tsakiris, a 48-year-old pharmacist in Athens, fears deregulation will mean "handing over the profession to multinationals that are not pharmacists, but entrepreneurs."
The diverging visions are at the core of the IMF's challenges in Greece.
Here, the fund faces its most far-reaching effort at economic reconstruction since the Asian financial crisis of a decade ago, when it forced countries to dismantle monopolies and slash subsidies to get rescue loans. But Greece presents an even bigger challenge. Its Western European population has grown used to decades of job protections, state regulation and government support. The IMF is seeking much more change from Greece than the country has had the political will to impose on itself in recent years. "The scope of the conditions is brutal," says Domenico Lombardi, a former adviser to Italy's IMF representative.
The stakes may be higher than they were in Asia. If Greece can't muster the political will to deregulate and improve productivity, it could be forced to restructure its debts or get out of the euro. Either scenario could touch off fears over the ability of other euro-zone members, such as Spain or Portugal, to rein in their own spending to avoid a Greece-style meltdown.
The IMF can't work from the playbook it used to put other countries on the road to recovery. For one thing, it is working jointly with the EU, which is providing the bulk of the rescue loan. Because Greece is a member of the euro zone, it doesn't control its own interest-rate and currency policies. So the IMF can't tell Athens to tweak interest rates to spur investment or devalue its currency to make exports more attractive.
The only way for Greece to grow fast enough to pay its debts is to make its economy more nimble. That means cutting wages and prices to make its wares more competitive, dismantling decades of regulations and selling state-owned businesses.
Many Greeks disdain the IMF program as a kind of "restraining order" to bar Greeks from spending, says Theodore Couloumbis, a University of Athens professor of international relations. "We Greeks are proud; we don't like to be restrained from outside."
Resistance remains high. On Monday, Greek maritime workers are expected to strike to protest Greece's proposal to lift cabotage laws, a move that would allow non-EU-flagged cruise ships to call Greek ports home with no obligation to hire Greek crew.
In a similar strike in April, workers kept some 870 mainly Spanish passengers from boarding a passenger ship in Piraeus for a week-long cruise, sending a signal to the government that unions may target Greek's tourist trade, which accounts for about 15% of the economy, signaling that unions may target Greece's tourist trade, which accounts for about 15% of the economy.
The IMF's deputy managing director, John Lipsky, says the Greek government and much of the electorate understand the need for the economy to change sharply. "Our understanding is that [the IMF-EU program] is broadly accepted, if not enthusiastically supported," he said.
The imprimatur of the euro made it easier for Greece to borrow and run a government deficit that reached 13.6% of gross domestic product, more than four times what EU rules allowed. Greeks became used to the perks of the European welfare state—including government jobs that became lifetime appointments and salaries that included two months' worth of additional wages for Christmas, Easter and summer.
All that must go under the conditions imposed by the IMF and other European countries as a price for lending Greece money to pay foreign creditors. The cost, the IMF estimates, will be an economic contraction this year of 4%, and unemployment next year of nearly 15%.
Austerity measures imposed by the IMF and EU have roiled Greeks, and Athens will face pressure from unions seeking exemptions from the cuts.
Dimitris Anagnostis, 59, a middle-school teacher in Gerakas, an Athens suburb, makes €1,600 (about $2,000) a month. Along with many other government workers, he knows his paycheck will shrink. He has already taken an €85-per-month cut and expects his bonus to be slashed to €1,000 a year from €2,400. He says his family has cut back on movies, theaters and taxis, and ditched summer-vacation plans.
"It's okay for us parents to make some sacrifices, but our real worry is for our children," says the father of two. "Will they be able to find jobs?"
Cutting wages and benefits is easy to understand and quick to hurt. More striking and less anticipated by many Greeks are changes that would deregulate parts of the economy that are bound up in red tape and closed to competition. Those protections guaranteed a middle-class lifestyle for many Greek business owners and professionals, and their employees, who long haven't had to worry about competition with other Greeks or foreigners.
Pharmacies and other service industries, for example, are due to be remade. Currently the state determines the price of drugs and makes sure they are applied throughout the country, assuring pharmacists a gross margin of about 35% of sales, says Mr. Tsakiris, 48, who has owned his pharmacy for 20 years.
He and other pharmacists expect cuts of about 20% to 25% on drug prices, which will eat into profits. The savings will help cash-strapped state social security and pension funds, which pay for the bulk of prescriptions.
The government has also said it will spur competition by rescinding rules that limit the number of pharmacies in a given population area and bar a new pharmacy from opening within 100 meters of an existing one. In response, pharmacists across Greece went on strike for four days recently.
The trucking industry is also in the crosshairs. Greece agreed to scrap a system that has kept trucking licenses severely restricted, boosting the value of a license to as much as €90,000 for a 40-ton tractor-trailer. There are currently about 33,000 licenses circulating in Greece. The government hasn't issued new ones in several years.
Greece is now considering a system that issues licenses according to demand—and only to trucking companies, not to individuals, as a way to consolidate the sector and develop economies of scale. That will slash the value of existing licenses—"by about 50% in the first year" and then gradually for another five, estimates Theoharis Tsiokas, secretary general for Greece's transport ministry.
Truckers are livid. "Truckers are going to be hit twice, from the loss in the value of their licenses and from the recession." says Nikos Papastamatopoulos, vice president of Greece's trucking union, the Panhellenic Union of Overland Commercial Transporters. If Athens doesn't change its plan, he says, "we will take to the streets and we will not leave."
The benefits of such deregulation may take years to be felt. Encouraging more foreign cruise ships to stop in Greece, for example, could eventually buoy hotels, restaurants and port-town economies. But Yannos Grammatidis, president of the American-Hellenic Chamber of Commerce, worries about pushing labor unions too hard in the meantime. "You have to be careful to avoid violent protests," he says.
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