His first act came in November-December 2009, when upon taking office, he raised the estimate of public debt from about 6.7% before the October elections to 12.7%. This was done by adding certain costs relating to public healthcare expenditure. The mistake he made was not adding these debts, but:
a. The fact that he added some debts, but not all debts (there are at least another EUR 40-50 mln off the books), and
b. The fact that the primary motivation for this was not necessarily to resolve the debt issue, but to discredit the previous government, and
c. Miscalculating market reaction, as well as that of the European Union.
To put it bluntly, his essentially political tactic back-fired massively. The European Commission and the Eurogroup were more incensed that the National Statistics Service had been partially doctoring its statistics collection and reporting methods (though this was hardly new), and rapidly put Greece under intense financial supervision. Greek lending prices rose;
As a parenthesis, I will add that this is not necessarily a bad thing.
His second act of political theatre was to denounce the rise in interest rates as “financial speculation”. In doing so, he made it appear as if
This act too appears to have succeeded. Papandreou received favourable hearings from Nicholas Sarkozy, Angela Merkel, Barack Obama, and others. He has not, of course, solved his primary goal (to access low-cost credit), or even his secondary goal (to somehow restrict financial derivatives, which are largely irrelevant to the situation). But it’s made for good press.
Now, he’s launched his third act. This involves threatening European political leaders that unless they come up with a financial support mechanism by March 25-26, he will turn to the IMF. This is perhaps a triple irony:
a. Why should the European leaders agree to a financial mechanism, when at every press conference Papandreou states that “we are not looking for financial help or a bail out?”
b. Why is a financial mechanism needed, when all that remains of the major debt refinancing tranche in April – May is EUR 10 bln, and Greece’s most recent issues have been 3-4 times over-subscribed (albeit at a higher interest rate)? There will be no problem at all to raise EUR 10 bln between now and mid-May.
c. Does he really understand what going to the IMF entails? So far, the government has not taken a single structural reform measure. It has undertaken cosmetic measures of partial salary reductions or bonus reductions. It has tinkered with the tax system. It has not fired a single useless public sector employee (of whom there are tens of thousands); it has not closed a single redundant public sector organisation. It has not jailed anyone for tax evasion; has not confiscated any property; has not razed a single illegal villa built on forest land; has not closed a single illegal nightclub or restaurant.
I am personally in favour of an IMF exit. I see this as the only change that a serious external organisation will force serious change upon
An IMF exit would enable a Greek government to blame yet another nefarious external bank, while hopefully taking serious measures to clear up its own mess.
I can only hope that the IMF will be involved for at least 5-10 years in
I seriously doubt George Papandreou has fully understood what he is about, but in the case of the IMF, let’s hope he continues on his current track. I will raise the first toast to him if he succeeds in alienating our European partners to the extent that the IMF is the only option left.