From Stagnation to Forced Adjustment-Ver4_YL

FROM SAGNAION O FORCED ADJUSMEN

SAHIS KALYVAS, GEORGE PAGOULAOS AND HARIDIMOS SOUKAS (editors)

From Stagnation to Forced Adjustment Reforms in Greece, 1974–2010

HURS & COMPANY, LONDON

First published in the United Kingdom in 2012 by C. Hurst & Co. (Publishers) Ltd., 41 Great Russell Street, London, WC1B 3PL © Stathis Kalyvas, George Pagoulatos, Haridimos soukas and the Contributors, 2012 All rights reserved. Printed in India Te right of Stathis Kalyvas, George Pagoulatos, Haridimos soukas and the Contributors to be identified as the authors of this publication is asserted by them in accordance with the Copyright, Designs and Patents Act, 1988. A Cataloguing-in-Publication data record for this book is available from the British Library. ISBN: 978–1849041980 Tis book is printed using paper from registered sustainable and managed sources. wwwww.hurstpub.co.uk

CONENS

List of Contributors 1. Introduction

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Stathis Kalyvas, George Pagoulatos and Haridimos soukas

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2. Te Paradox Of Non-Reform in a Reform-Ripe Environment: Lessons From Post-Authoritarian Greece Dimitris Sotiropoulos 3. Assessing Reform Capacity in Greece: Applying Political Economy Perspectives Kevin Featherstone and

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Dimitris Papadimitriou

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4. Reform Tat! Greece’S Failing Reform echnology: Beyond “Vested Interests” and “Political Exchange”

Vassilis Monastiriotis and Andreas Antoniades

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5. Enacting Reforms: owards an Enactive Teory

Haridimos soukas

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6. Market Reforms in Greece 1990–2008: External Constraints and Domestic Limitations Nikos Christodoulakis

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7. Te Pensions Merry-Go-Round: Te End of a Cycle?

Platon inios

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8. Prerequisites to the Revival of Public Health Care in Greece

Manos Matsaganis

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9. Education Reforms in Greece: Aspects of Power and Politics

Apostolis Dimitropoulos

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10. Te Quandary of Administrative Reform: Institutional and Performance Modernization Calliope Spanou

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CONENS

11. Policy Ideas and Foreign Policy Reform in Post-Cold War Greece Panayotis sakonas

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12. Te 2010 Greek Economic Crisis and the Conditionality Programme Michael Mitsopoulos and Teodore Pelagidis

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13. Te Political Economy of Forced Reform and the 2010 Greek Economic Adjustment Programme Appendix A: Data and Sources

George Pagoulatos

Appendix B: A brief chronology of social security in Greece, 1930s–2010s

Notes References Index

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LIS OF CONRIBUORS

Antonis Antoniades is a lecturer at the Department of International Relations, University of Sussex. [email protected] Nicos Christodoulakis is Professor of Economics at the Department of International and European Economic Studies, Athens University of Economics and Business. He was previously the Greek minister of development (2000–2004), and minister of economy and finance (2002–2004). Apostolis Dimitropoulos has a PhD in education from the London School of Economics and Political Science.

Kevin Featherstone is Eleftherios Venizelos Professor of Contemporary Greek Studies and Director of the Hellenic Observatory in the European Institute of the London School of Economics and Political Science. [email protected] Stathis Kalyvas is Arnold Wolfers Professor of Political Science and director of the programme on Order, Conflict, and Violence at Yale University.

Manos Matsaganis is an Assistant Professor of Social Policy at the Department of International and European Economic Studies, Athens University of Economics and Business. [email protected] Michael Mitsopoulos has a PhD in economics from Boston University [email protected]

Vassilis Monastiriotis is a Senior Lecturer of Political Economy at the European Institute, London School of Economics. v.monastiriotis@lse. ac.uk George Pagoulatos is Professor of European Politics and Economy at the Department of International and European Economic Studies, Athens vii

LIS OF CONRIBUORS

University of Economics and Business, and Visiting Professor at the College of Europe in Bruges. [email protected] Dimitris Papadimitriou is a Reader in European Politics at the University of Manchester. [email protected] Teodore Pelagidis is Professor of Economic Analysis, University of Piraeus. [email protected] Dimitri A. Sotiropoulos is Associate Professor of Political Science, University of Athens. In 2009–2010 he was a Visiting Fellow at St. Antony’s College, Oxford. Calliope Spanou is Professor of Public Administration at the Department of Political Science and Public Administration, University of Athens, and Ombudsman of Greece.

Platon Tinios is Assistant Professor of Economics at Piraeus University. He has served as an advisor on pension policy to Prime Minister Costas Simitis. Panayotis J. Tsakonas is Associate Professor of International Relations at the Department of Mediterranean Studies, University of the Aegean. Haridimos Tsoukas is the Columbia Ship Management Professor of Strategic Management in the University of Cyprus, Cyprus and a Professor of Organization Studies at Warwick Business School, University of Warwick, UK. [email protected] and Hari.[email protected]

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1

INRODUCION

Stathis Kalyvas, George Pagoulatos and Haridimos soukas

When we decided, in 2008, to organize a conference on reforms in Greece

with the goal of producing a systematic scholarly assessment of Greece’s reform experience over the past thirty-five years, we could not have imagined what the future had in store for the country. Greece appeared to be a prosperous and successful state that had managed its integration into the European Union and its transition into the eurozone with surprising agility. We could not have foretold then that, only two years later, Greece would stare into the abyss, confronting the spectre of default, and that it would be rescued by an unprecedented, concerted bailout of the European Union, the European Central Bank, and the International Monetary Fund. Neither could we have anticipated that Greece would spend two consecutive years (as this book goes to print in autumn 2011) going from crisis to crisis, from one bailout to another and from one emergency programme to the next, in a desperate effort to avert a catastrophic default or even an exit from the euro. And yet, our rationale in organizing the 2009 Yale conference on the ‘Challenge of Reforms in Greece’ was based on an understanding that all was not well. Indeed, the conference helped us identify a serious lag in the We wish to thank George Syrimis for his crucial assistance in both the Yale conference and the book. Many thanks also to Ruby Gropas, Aris Hatzis, Nikos-Komninos Hlepas, Charalampos Koutalakis, Stella Ladi, Antigoni Lyberaki, akis Pappas, Christos Paraskevopoulos, Dimitris sarouhas, and Tanos Veremis.

1

FROM SAGNAION O FORCED ADJUSMEN

implementation of necessary reforms, one that could only have spelled serious trouble—and this despite an overall successful institutional record in Greece: we should keep in mind that the country emerged from dictatorship as late as 1974, consolidated its democratic institutions and experienced rapid economic growth—which, after 1990, was higher than the European average—gained full participation in the European integration project, and vastly improved its public infrastructure. So, what have we learned? Our main finding was that despite a number of successful reforms, the overall record was bleak: since 1974, few reforms were undertaken and even fewer were implemented successfully. Indeed, a 2010 study by the Bertelsmann Stiftung reached the conclusion that Greece had the lowest reform capacity among all thirty OECD nations. Tis failure was even more glaring when placed within an institutional context that was strongly favourable to the implementation of reforms, including a unitary state, majoritarian and stable one-party governments with strict party discipline, and few vetoplayers. Tis was the picture of reforms at least until 2010, when the urgent financial crisis and the forceful pressure by Greece’s EU partners and creditors necessitated bold and adjustment measures. next objective was to explain thefar-reaching failure of reforms up to 2010, and Our to account for the changes since then. We tackled reform failure in Greece in two ways. On the one hand, we sought to map out the picture of reforms over the past four decades in six major policy areas: the economy, education, pensions, health care, foreign policy, and in public administration. On the other hand, we sought to identify theoretical explanations that could account for the outcome of the reforms. On the economic front, we can observe that, even though Greece was transformed during the 1990–2008 period from a low-growth, high-inflation and isolated regional economy into a dynamic economy of the eurozone, liberalizing reforms were generally incomplete, and requirefaced important opposition. A key factor pushinglate, for reforms was the ments of Greek participation in the European Economic and Monetary Union (EMU). Yet, as Nicos Christodoulakis points out in Chapter 6, despite apparently overwhelming support for EMU membership and broad political endorsement of the necessity to eliminate parochial practices, reduce rent-seeking and to unleash the country’s growth potential, progress in the actual implementation of market reforms was not evident. Almost every single attempt to restructure the economy met with a hostile social 2

INRODUCION

response and frequently became the terrain of fierce political infighting. Christodoulakis reviews several economic theories that seek to account for this outcome, and proceeds to test them empirically with data from Greece. Pension reform was characterized by a combination of inertia and opposition until the 2010 crisis. In Chapter 7 Platon inios shows how the ‘syncopated’ reforms up to 2010 are best understood as piecemeal and interrupted attempts to implement and complete an srcinal blueprint for the pension system that was first formulated as early as the 1930s. Tis blueprint defined a trajectory around which centrifugal forces pulled away, and conservative mechanisms reined them in. Likewise, the public health sector was characterized by a major reform in the early 1980s that proved impossible to reform afterwards, producing a costly and unsatisfactory system. A key reason, according to Manos Matsaganis (see Chapter 8), is to be found in the incentives for opposition by those employed in public health, which has in turn produced and maintained a culture of complacency and individualism that has brought the standards of service down. Similar problems prevail in the field of public education, as illustrated by Apostolis Dimitropoulos in Chapter Foreign on the hand, is the rare area wherethe reform appears to9.have beenpolicy, successful. Inother the late 1990s Greece reformed core of its foreign policy agenda, namely in its foreign policy vis-à-vis urkey, the neighbouring state which has been considered as Greece’s major security threat over the last thirty years. Tis was a profound reform, one that shifted the very logic of Greek-urkish relations. In Chapter 11 Panayotis sakonas identifies the ‘ideational’ shift that preceded this reform and made it possible. Lastly, in Chapter 10, Calliope Spanou focuses on public administration, and argues that despite the large number of reforms that have been introduced during the past thirty-five years, Greek public administration has, overall, failed to modernize. In fact, the reforms that were implemented amounted to a combination of wishful rhetoric and a re-arrangement of

political-administrative procedures, rather than being thetraces type of fundamental reformstructures designed and to raise performance. Her chapter this history of failed reform to 1974 and assesses the process of so-called Europeanization, which sought to produce convergence with EU standards. Te causes of the failure are to be found in factors such as the privileging of a legalistic as opposed to a technocratic culture, the clientelestic character of the relationship between governments and civil servants, the politicization of the civil service, the abuse of political discretion in filling out top management posts, and the effects of party competition and political retaliation. 3

FROM SAGNAION O FORCED ADJUSMEN

Te theoretical chapters confirm and elaborate the explanations advanced in the case studies. o begin with, Dimitri Sotiropoulos identifies no less than nine paths of failure (see Chapter 2). First, some reforms were rejected by other state agencies after they had been voted for by the parliament. Second, reforms that had been adopted by parliament were abandoned because of government change, cabinet reshuffles or management turnover in a state-run agency. Tird, reforms were abandoned because they clashed with existing supranational (EU) legislation. Fourth, obstruction by civil servants also produced reform failure. Fifth, reforms that were voted by parliament and were well funded failed at the stage of implementation owing to lack of expertise. Sixth, the lack of financial appropriations or the depletion of funds after a new law was implemented caused the failure of certain reforms. Seventh, resistance ‘from below’, through street protest, often blocked reforms. Eighth, elites adversely affected by a reform were able to block it. And finally, indifference on the part of prospective reform users is also associated with reform failure. Sotiropoulos concludes that reform failure can be linked to the political legacies of Greece, dating to at least 1974, including polarized party culture; competition fighting; the remnants of a polarized political shortand andintra-party unpredictable electoral cycles; the absence of an enduring political will to bring about policy reform; lack of fully spelled-out reform strategies on the part of incumbent governments; a tension between an over-centralized peak of the government and the centrifugal tendencies of ministers and their ministries; clientelism and corruption; and reluctance to take reform seriously and place it at the top of the government’s priorities. In Chapter 3, Kevin Featherstone and Dimitris Papadimitriou tackle the same question by adopting a more theoretical stance. Tey point to three theoretical traditions that help make sense of the Greek situation. First, for the neo-corporatist tradition, the problem lies in a distorted type of interest

representation: the in ‘disjointed’ or is‘parentela’ character of structures conflict a way that almost impossible tointerest manage.mediation Antagonism and mistrust dominate both between labour unions and employers’ federations, and within them. In short, interest representation tends to reflect the legacy of the risk-averse, statist and anti-competitive traditions of the ‘developmental state’. Second, the ‘varieties of capitalism’ tradition would suggest that Greece can be understood as a ‘Mediterranean’ type of capitalism, which is characterized by the extensive, regulatory role of the state, a combination of limited welfare provisions with a high level of 4

INRODUCION

attachment to job security, and an inability to sustain social concertation between government, unions and business. Te ‘Welfare State’ theoretical tradition points to similar features. Tis analysis leads to a general proposition, according to which reform failure can be understood as the result of the absence of a strong domestic constituency supporting market-liberalizing reforms and a weak structure of interest mediation that favours the interests of the ‘wider’ public sector, and the privileged position of the few large private corporations. As a result, the key social partners defend a suboptimal status quo, fearing the risks of more open competition and the consequences of low state welfare provision. Tus, a stop-go, incremental departure from the status quo is the most likely outcome of domestic reform initiatives. For their part, Vassilis Monastiriotis and Andreas Antoniades note that reform failure happens in spite of a proliferation of reforms (see Chapter 4). Tey therefore choose to emphasize deficiencies in what may be described as the ‘technology of reform’. Tey consequently zero in on the early stages of reform, namely the stage of conception and design of reforms, with

particular on that the role of problem research and expert knowledge for policy formation;emphasis they argue a key lies in the deficient engagement between the policy-making and expert communities, which appears to be particularly pervasive in Greece. In turn, this problem appears to be rooted not so much in the supply of policy advice from expert communities as in the demand for such advice by the state itself; in fact, expert advice tends to be discredited, sidestepped or circumvented. Again, the causes of this problem can be found in the politicization of the process; many experts tend to be affiliated with political parties, a fact that constrains their capabilities. At the same time, government ministers sidestepped experts. Lastly, in Chapter 5 Haridimos soukas departs from this type of analysis (which he describes as ‘representational’) and probes deeper by adopting aanthropological more process-oriented one that that research incorporates cultural and elements. perspective, soukas suggests on reforms should offer actionable knowledge, which is possible, he argues, if an ‘enactive’ approach is adopted. An enactive approach pays attention to the relationally-cum-discursively constructed meanings that infuse actors’ actions over time, takes process seriously, and brings into focus the ‘grammar’ of actions that practitioners are already involved in. Moreover, soukas suggests that reform should be seen as a complex process of change involving three levels nested within each other: policy reform (third-order change), organiza5

FROM SAGNAION O FORCED ADJUSMEN

tional transformation (second-order change), and problem-solving (firstorder change). For soukas, a key challenge to reform is that of recursivity, which leads to self-referentiality. He demonstrates the vicious circles and the paradoxes that are created when third-order change is attempted in highly recursive social systems, and suggests ways in which vicious circles may be avoided. We conclude with two chapters that bring us to the 2010 crisis and incorporate it into the preceding analysis. In Chapter 12 Michael Mitsopoulos and Teodore Pelagidis provide an overview of the crisis and confirm our general assessment that its causes were deeply rooted in the way the country was run during the past thirty years. Tey demonstrate that Greek governments had chosen over these past decades to gradually turn the Greek economy into an uncompetitive conundrum of excessive, rigid and vague regulations that distributed rents to well-organized interest groups, which created a fertile breeding ground for corruption and abuse of office and public money. Te result was the creation and consolidation of various constituencies with strong incentives (and the capacity) to oppose corrective reforms, which,Ironically, in turn, pushed country theforcing deep crisis it found itself in 2010. it is thisthe depth of theinto crisis, the intervention of external actors, which has re-launched the reform agenda in a way that is both unusual and unprecedented. In the final chapter, George Pagoulatos explores the limits of conditionality by providing an analytical overview of the political economy of the 2010 economic adjustment programme that followed Greece’s recourse to the EU/IMF bailout mechanism. Tis externally imposed conditionality enabled the initiation and implementation of far-reaching fiscal and structural reforms. However, the ‘external constraint’ factor does not tell the full story. Pagoulatos suggests that the depth and magnitude of the crisis re-prioritized political preferences, reshuffled intra-governmental balances on behalf of

reform empowered the of ‘core executive’, facilitating the pursuit proponents, of adjustmentand policies. ypically advanced political economies, reforms took place amidst intense distributional conflict shaped by the institutional arrangements of the status quo. Even in the face of externally imposed conditionality, Pagoulatos contends, reform requires a legitimizing discourse, it remains a political project where potential losers need to be either convinced or neutralized, and it prominently involves the art of bargaining and compromise. At the macro-level, Pagoulatos argues, reform unfolded against the background of important structural developments that 6

INRODUCION

culminated in the recent period. Tese generated institutional friction, laying bare the blatant incapacity of outdated institutional structures to meet contemporary needs. If one looked at the big picture, Greece 1974–2009 testified to the success story of a peripheral country that had managed to graduate from authoritarianism and relative underdevelopment to a prosperous mature democracy in the heart of Europe, a development path underwritten of course by the European Union. Yet, the condensed history that dramatically unfolded in 2010 provided vivid evidence of the reform stagnation and the failures that had accumulated over the entire preceding period. Most of the chapters in this volume were written just before the 2010 public debt crisis, and the rest were completed after the bailout had been implemented and the conditionality programme initiated. All were subsequently revised to incorporate important developments until late summer 2011. All together provide a map of the pathologies of the Greek state, the reform mishaps, the persisting continuities and frequent discontinuities, but also the opportunities that have made change possible during Greece’s adventurous postauthoritarian trajectory.

7

2

HE PARADOX OF NON-REFORM IN A REFORM-RIPE ENVIRONMEN LESSONS FROM POS-AUHORIARIAN GREECE

Dimitri A. Sotiropoulos

Introduction In May 2010, following the Memorandum of Understanding between the Greek government and the troika (the IMF, the EU and the ECB), a rescue package was offered to Greece in order to resolve its public debt crisis, and later in the same year the government of PASOK (in power since October 2009) attempted to implement a series of reforms. Reforms were legislated not only in economic policy, but also in other sectors such as pensions, labour relations, higher education and public administration. A new impetus was given to reforms after Greece and the EU agreed on a second rescue package in July 2011. Many observers were hopeful that this external stimulus towards reform, combined with international pressure to completely alter the Greek ‘model’ of economic development, would finally bring about I wish to thank Haridimos soukas and Asteris Huliaras for a very close reading of this chapter and also Othon Anastasakis, Dimitris Blavoukos, Tanos Dokos, Stathis Kalyvas, Vangelis Liaras, George Pagoulatos, Tanasis Psygkas and Dimitris sarouhas for their comments at seminars in Florence, New Haven and Oxford, where I have presented earlier drafts of the chapter.

9

FROM SAGNAION O FORCED ADJUSMEN

structural and policy changes many times announced and legislated since Greece’s transition to democracy (1974), but never actually implemented. Reform has acquired a bad name in Greece, and the lack of reforms has become painfully apparent since the outbreak of the crisis in Greek public finances in 2009–2010. Te term ‘reform’ has acquired pejorative overtones, owing to unfulfilled promises by successive governments; grandiose reform plans which have never come to fruition; campaigns by vested interests to preserve their market niches or preferential regimes (e.g. closed shop regulations, tax breaks); thinly veiled, self-serving personal and political party projects couched in the language of reform; drives by the far right, the Greek Orthodox Church, and the communist left to associate reform with neo-liberalism and the perils of globalization; and bad publicity meted out to reformers by newspapers of the opposition, mass media controlled by local tycoons, and unscrupulous journalists. And yet, important reforms, promoting democracy and equality as well as rationalism in state organization have taken place since transition from authoritarian rule (1974). In this respect, I would like to argue that para-

doxically Greek political system today suitedtotoinadequate foster reform but in practicethefails to do so. Tis is owed notseems so much reform formulation (policy designing, planning and programming), as to insurmountable obstacles at the stage of the implementation of reform. Te wealth of abstract explanations of reform failure, which can be categorized into political economy, rational choice and historical institutionalist theories, need to be complemented by analysis of concrete instances in which reforms have been blocked. Te point is to understand the mechanisms and processes through which reforms unfold and eventually succeed or are blocked out. 1 Tis chapter focuses on the case of contemporary Greece and offers a typology of causes of reform failures, in the context of political party competition, state incapacity, and the polarization of Greek political In theculture. remainder of the chapter, I will explain why one would have expected Greece to be an example of a country where reform has been implemented successfully. I will mention cases of successful reform, but I will claim that, despite such successes, reform failure has been common in contemporary Greece. I will briefly present my conceptual framework, discuss how Greek reformers themselves explain reform failure and distinguish between five different instances of reform failure. I present nine causes of reform failure, focusing on failed implementation, and I link these causes 10

HE PARADOX OF NON-REFORM

to traditional patterns in the Greek political and administrative system and state-society relations. It is at this level of analysis that one should seek the most substantive causes of reform failure. I have drawn evidence from two sources: first, concrete examples of policy measures, on the basis of legislation, reports in the press, and statistical data; and, second, five in-depth interviews with former ministers of centre-right and centre-left governments who had attempted reforms. Tese face-to-face interviews took place in Athens in April 2009, they lasted for approximately one hour and evolved around three themes: abstract explanations of reform failure in Greece, concrete episodes of reform failure and the prospects of overcoming reform obstacles. Excerpts from these interviews serve to illustrate rather than to empirically substantiate some of the points presented in the chapter. I employ the terms ‘reform’, ‘policy shift’ and ‘substantive policy change’ interchangeably throughout, although I am aware of their differences. I focus on failed attempts to substantively change policies, drawing examples from the fields of social welfare, employment, central government organization, public administration and local government.

Te institutional environment of reforms At first sight, post-authoritarian Greece looks like a case where reforms would normally succeed. Having joined the European Communities (the predecessor to the European Union—EU) in 1981, Greece has been subjected to EU-driven reform pressures for thirty years. In the Greek parliamentary system, executive power is not balanced by either the legislature or the judiciary. Te legislature is almost always dominated by single-party government majorities, while the highest echelons of the judiciary are staffed by judges handpicked by the incumbent government, a practice that was changed by the new PASOK government only after the October 2009 elections parliamentary wasTis granted power to nominate (a thehigh-profile justices of the three highestbody courts. body,the which selects justices with reinforced majority rules, is composed of the president and the vice presidents of the Greek parliament). However, the Council of the State ( Symvoulio tis Epikrateias, the highest administrative court) has sometimes played a corrective role, striking down new laws (e.g. environmental or social policy legislation). Te President of the Republic has largely figurative powers. Te state is unitary; until 2010 the incumbent government appointed regional governors, and the prefec11

FROM SAGNAION O FORCED ADJUSMEN

tural and municipal authorities—which were also appointed until 1994—are weak compared to the central government. In brief, a reform-prone executive would have comparatively few institutional obstacles to overcome. With the exception of a very brief period (June 1990—April 1990), all governments since the transition to democracy have been majoritarian single-party governments. Tere have been either centre-right (New Democracy—ND) or centre-left (socialist party—PASOK) cabinets, often enjoying comfortable parliamentary majorities. Slim majorities, such as the ND cabinet under Mitsotakis in 1990–1993 or the ND cabinet under Karamanlis in 2007–2009, have been rare. Heads of governments, who have always simultaneously been governing party leaders, have rarely encountered strong opposition from within their parties. Political party discipline is enforced and party hierarchies are respected. Party leaders have a free hand in selecting their parties’ candidates for national elections and elections to the party’s top organs. Tey sanction party dissidents and change the party line often at will. Even though incumbent governments have periodically given in to demands by parliamentarians to amend legislationdissidents in favour of their parliamentary opposition or intra-party rarely thwartclientele, a government-proposed reform. Public administration has also been subservient to the government of the day, owing to the influence incumbent ministers and the pro-government trade unions exert on the selection of higher civil servants. Career bureaucrats may drag their feet when they dislike a policy choice, but they are rarely able to modify legislation. Incumbent governments battle with trade unions, but, compared to many other EU countries, the autonomy of the unions is circumscribed in Greece. Divisions among union members mirror the divisions of the country’s political party system and trade union cadres abide by the guidelines of the parties with which they are affiliated. Peak associations have historically been finan-

cially dependent on the have monitored by theregime, state through institutional means (e.g.state evenand after thebeen fall of the Colonels’ in the 1970s and the 1980s, the leadership of trade unions was more than once selected and appointed through court decisions influenced by the incumbent government). oday, unions are not as dependent on the incumbent government as they once were. Still, the fact remains that the administration of confederations of trade unions depends on state funds for its survival. And yet, despite chronic problems calling for resolution, the domestic institutional environment is not responsive to reform. Moreover, when the 12

HE PARADOX OF NON-REFORM

executive embarks on reforms, the latter are rarely carried out. Although existing institutional arrangements should have made the passage of reforms a predictable process, in practice, bureaucracy, unions and the courts have periodically acted as institutional impediments, preventing governments from materializing policy shifts. However, successive governments have passed a fair number of wideranging reforms. Tis is due to a number of reasons related not only to the aforementioned domestic institutional arrangements, but also to externallyproduced reform opportunities created by Greece’s integration into the EU, an integration that has become crucial for the numerous reforms attempted in the midst of the economic crisis that began in 2010. For approximately two decades now, the largest political parties (ND and PASOK), the major confederations of trade unions (the General Confederation of Workers of Greece, GSEE, which covers private sector employees and the employees of the largest state-run companies, and the Higher Administration of Unions of Civil Servants, ADEDY), professional associations and commercial chambers have all embraced Greece’s integration into the European Union.

Contemporary Greek institutions policies are doomed to failure. Reforms have included the formal and recognition of not demotic Greek as the official language of the country; the introduction of civil marriage and the amendment of family law in order to promote gender equality in marriage; banking liberalization and the partial privatization of large state-owned enterprises, such as the Public Power Corporation (DEI) and the Hellenic elecommunications Company (OE). Other examples of successful reform are the foundation of local day care centres for the elderly (KAPH), and the foundation of new independent authorities, such as the Ombudsman and the Personal Data Protection Authority (APPD). Notably, however, most of these examples of reform success refer to changes in institutions or the foundation of new institutions, rather than to substantive shifts in policies.

Reform failures Despite the variety of the aforementioned examples, the picture is more mixed, and is in fact more bleak, than the above list of successful reforms may imply. Comparative studies of policy performance and executive and regulatory capacity in OECD countries rank Greece close to the bottom, on the basis of a long list of indicators (OECD, 2001 and Bertelsman 13

FROM SAGNAION O FORCED ADJUSMEN

Stiftung, 2009). Te gravity of the situation can be better assessed by remembering events in Greece which have made international headlines: the unjustifiably high number of deaths occurring because of the heatwave in the summer of 1987; the soaring inflation and public debt in 1989–1990 and the debt crisis of 2010–2011; the huge destruction in terms of human lives, property and forests in the fires of the summer of 2007; the destruction of the city centre of Athens in the upheaval of December 2008, and in the violent social protests of May 2010 and July 2011 against the agreements signed between the Greek government and its international creditors; and the abysmal state of the national economy in 2009: when in October of that year, the ND party fell from power, the rate of economic growth was negative (-1 per cent), unemployment was nine per cent, the budget deficit was thirteen per cent and the public debt was above 110 per cent of GDP (data from press releases of the European Commission, Brussels, October 2009). All of these events cannot be fully understood as either the result of forces of nature or the lapse of a peripheral economy. Rather, they point to clear cases of governance failure, and people recognize them as such. It isseems a paradox that, in a political systemreforms where the incumbent government to have a relatively free hand, are not forthcoming in many policy areas. For more than three decades now, reforms in non-economic policy sectors (examples of which are drawn upon in this chapter) have repeatedly stalled. One only needs to mention the incapacity and corruption of central and local public administration, and the underperformance of secondary and higher education; the dismal state of public pensions, social assistance and public health care; as well as the disheartening condition of environmental protection and town planning. Other disappointing phenomena, such as recurring gender discrimination in the labour market and the public sphere, persistent relative poverty (affecting approximately one-fifth of all households in 1994–2004, Eurostat figures) and high unemployment (ranging between nineper andcent twelve per cent ofand the labour force in 1989–2009, soaring to sixteen in mid-2011 being particularly felt among women and the young), are well known.

Concepts and definitions Reform can be better understood as a substantive change of policy choices in a public policy sector, including the founding of new institutions and the changing of policy direction. A distinction can be made between, on the 14

HE PARADOX OF NON-REFORM

one hand, specific policy measures (e.g. the welcome expansion of pedestrian streets in the centre of Greek towns); and, on the other, policy measures which substantively modify part or the whole of the institutional arrangements of policy sectors (e.g. systemic changes in higher education or in labour relations). It is the latter type of change that interests us here. Another conceptual distinction is that between reform success and reform failure, since what constitutes a successful policy shift is debatable. If there is no tradition of systematic policy evaluation (e.g. in Greece), one cannot be certain about policy success or failure. Of course, some indications exist. ake, for instance, the very low impact of anti-poverty policies, namely the small decrease in the level of poverty before and after social transfers (Matsaganis, 2005); the gradual rise of private spending on health care, manifested in the practice of individuals paying in cash for medical services; and the insolvency of public hospitals, which is preventing them from paying their regular bills for medical supplies. Furthermore, a reform that was initially thought to be a success may turn out to be a failure. An example of this is the introduction of the Greek National Health System (ESY, 1983). Tis is a system to be supported on principle, but the reform of which is long overdue as apparently even middleand low-income strata turn to private health services (to the extent that they can afford them). (See Manos Matsaganis, Chapter 8, this volume.) Reform failure occurs not only when an attempt to change a policy proves unsuccessful, but also when a government makes no attempt to tackle a problem for a long time. A persistent problem may indicate either reform failure or a lack of any attempt at reform. An example of this is the chronic lack of regulation in the sector of Greek nationwide private V stations. Even though such stations have been in business since 1989, broadcasting licences have never been officially allocated to them by Greek authorities, and the relevant broadcasting environment remains unregulated.

Te theoretical framework Reform failure is associated with lack of policy implementation (e.g. Pressman and Wildavsky, 1973, Hood, 1976). Tis is often an important aspect of reform failure in many parts of the world, including of course Southern Europe (e.g. Gunther, Diamandouros and Sotiropoulos, 2006). However, this argument begs the question as to why an implementation gap appears in the first place. Tere is a body of academic literature discussing reform 15

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failure in Western democracies (e.g. Bovens, Paul ’t Hart and B. Guy Peters, 2001). Tere is also work on failed reforms in Greece (e.g. Allison and Nicolaidis, 1997; Papoulias and soukas, 1998; Pagoulatos, 2003; Featherstone, 2006). In Greece, political cynicism and apathy have been on the rise since the late 1980s (Kafetzis, 1994 and 1997), a trend that may not be unrelated to the—at that time already visible—failure of reform in many policy sectors. Te realization that failure has multiple systemic aspects is a welcome and rather recent turn in the relevant literature (Pelagidis, 2005; Featherstone and Papadimitriou, 2008; Voulgaris, 2008). Most responses to the question ‘why do reforms fail?’ are simultaneously useful and inadequate, as they only supply the researcher with abstract analytical tools. Consider, for example, the ‘state capture’ approach, which has been used to analyse how small groups have taken over policy-making in post-communist democracies (e.g. Ganev, 2007); Przeworski’s approach (1991), which links calculations of the short-term costs of reforms with the emergence of opposition by a majority of voters; the rational choice approach emphasizing the role of veto-players (sebelis, 2002); the histori-

cal institutionalist approach ‘locked-in’ decisions, legacies and historical trajectories in theemphasizing reform process (Pierson, 1994; Streeck and Telen, 2005); and the political economy approach which emphasizes fiscal and other economic constraints to reform (see Kaufman, 1997, for a concise overview). Tese approaches are helpful in explaining why policy change is obstructed, but they do not offer more concrete insights into the mechanisms and processes of reform obstruction. A recent study by the OECD (2009) looks at the same problem at a lower level of abstraction. Te study presents twenty cases of reform in ten OECD countries across three sectors (pensions, labour markets and product markets) and concludes that there is a list of eight conditions, which, if fulfilled, may lead to the success of a reform. Tese conditions are as follows: an electoral mandate for reform; effective in favour of reform; solid, data-based preparation of any communication changes; a long gestation time allowed for reform; governmental cohesion; firmness of leadership; the prior erosion of the status quo; and the persistence of reformers in their task despite initial failure. Tis policy-oriented approach and the aforementioned theoretical approaches require further elaboration. Tis is necessary in view of the rather unsatisfactory ‘laundry list’ style of prerequisites of reform success, noted above. Obviously, the eight aforementioned conditions constitute a 16

HE PARADOX OF NON-REFORM

list of causes of failure as well, which, however, should be placed in historical and political context and analysed in terms of a nexus of relations between politics, administration and society. In other words, one should take into account historical legacies of party competition, government organization, political culture, the organizational aspects of institutions, and the interdependence between social and economic interests and the state when attempting to understand reform failure.

How Greek reformers explain reform failure A common answer to the question as to why reforms fail is that decisionmakers do not proceed with reforms that they have already embarked upon because they are fearful of the political costs this involves. For example, ministers do not want to alienate parts of the electorate or confront organized interests because they are afraid that they will be left out in the next reshuffling of the cabinet, or that they will lose their parliamentary seat in elections. In the words of a former ND minister: ‘Tere is a lack of political will to

reform things. Te fear of reactions from different sides is enough for a minister to postpone reforms. However, the personality of the minister in charge is the most important factor affecting the chances of reform success. If the minister is determined to see the reform through the stage of its implementation, then nothing can stop the reform’.2 And in the words of a former minister of PASOK: ‘Te primary cause of reform failure in today’s Greece is the fear of the political cost involved in reforms. Tis fear is owed to three things: first, proposals for policy changes are not documented with necessary empirical data; second, political parties and trade unions function within a narrow frame of mind; and third, there is no substantive public deliberation on reforms’. 3 A second variation of this answer underlines the role of parties and emphasizes the pervasive character of patronage relations in post-authoritarian Greece. Party domination of all aspects of the political system and patronage bonds between parties and clients thwart any attempt at substantive reform. As a former ND minister puts it: ‘Te penetration of the logic of political party competition in all institutions of democracy has created a ground fertile for the decay of public life… no reform will ever succeed unless it is carried out by a strong political agent. And this will never happen as long as political parties are not modernized. Only if parties undergo modernization, then the state itself will be modernized’. 4 17

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However, a demand for explanations of reform failure cannot be satisfied by resorting only to the considerations of decision-makers, and/or party behaviour. Considerations of political cost do not suffice in explaining the multitude and variety of reform failures in Greece. Even if the most plausible answers to the question of why some reforms fail are that individual politicians want to avoid the political costs associated with reform, that patronage prevails everywhere, and that the electoral strategies of political parties are at the heart of the problem, these three answers still do not tell the whole story.

When does a reform fail? Instances of policy failure What is often taken to be the cause of failure is but one of its manifestations. We should therefore determine when a major policy change should be considered a failure, before proceeding to discuss the causes of reform failure. o start with, failure is apparent when, allegedly owing to fears of political cost, a proposed reform is retracted after its outline has been submitted to public deliberation. Tis is an instance of reform failure, rather than a cause, because we do not learn anything about what has made the reform costly. A second instance of reform failure occurs when a bill encapsulating a reform fails to receive the required votes from the legislature. Voting down a reform is a significant cause of reform failure associated with patterns of coalition formation in parliamentary democracies. But reference to parliamentary rejection of a reform has limited explanatory power in the case of unicameral systems, with single-party majoritarian governments, such as that in Greece. A third instance of reform failure occurs when a government, which enjoys an absolute majority of parliamentary seats, proves unable to bring about reform after a law has been passed by parliament. Te failure to implement the reform in the latter case begs the question as to the causes for the lack of implementation. Tus, non-implementation is not a cause, but an indication that a certain reform has failed. Failure is manifested in two additional instances. For example, a new reform may indeed be implemented, but, later on, a negative policy evaluation may take place. Such evaluation often shows that the situation (e.g. in state schools, hospitals or prisons undergoing reform) has not changed at all and is exactly the same, if not worse, as in the time period preceding the reform in question. A second additional instance of reform failure concerns the passage of new legislation, sometimes shortly after the adoption of a reform law, which modifies or reverses what the srcinal reform stipulated. 18

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Although all reforms are bound to expire in the long run, a short-term reversal of a policy shift is another manifestation of reform failure. In sum, reform failure may take at least five forms (abandoning a reform without even submitting it to parliament, voting down a reform in parliament, lack of implementation, no real change even after implementation, and quick policy reversal). Discussions of reform often concentrate on the stage of the formulation of new policy measures and their amendment or rejection owing to ensuing debates. Yet there is less discussion in the literature of the fate of reforms once they are adopted by the legislature. Reform failure, however, may occur after the adoption of the relevant new measures. I now turn to the causes of such failure.

Nine interlinked causes of reform failure Te first three causes of reform failure are connected to the interaction among institutions. A reform may be rejected by another institution after it has been voted on by the parliament, or an already legislated reform may be struck down by the courts. An example of this in Greece is a new social assistance measure designed to provide financial aid to low-income, large families (i.e. poor families with children). Tis was a targeted policy measure (Law 2459/1997) by the Simitis government, the aim of which was to help the most impoverished families with a large number of children. Te reason for the reform’s failure was that associations of families with many children mobilized against the new law and demanded that all such families be entitled to the new allowance, regardless of income level. In 2001, the Council of the State ruled in their favour, which meant that, from then on, any large family, rich or poor, could claim the same allowance. A second cause of reform failure concerns the pace and magnitude of political change. A reform that has been adopted by parliament may be abandoned owing government change, reshuffling, or management turnover in ato state-run agency. Tis iscabinet common in all countries when one government succeeds another in power after general elections. In Greece, the same effect is often produced not only by government turnover, but also after each reshuffling of the cabinet. Te new minister or the new head of a state agency rarely continues a reform started by his or her predecessor, even though they both belong to the same governing party. For example, in a span of twenty-four years (1978–2002), thirteen different politicians of either ND or PASOK were appointed as ministers of health 19

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and attempted to establish and amend ESY (the Greek National Health System) (Eleftherotypia, 19 May 2002). A third cause of reform failure reflects the integration of the Greek political system into the wider governance structures of the EU. A reform may be abandoned because it clashes with existing supranational legislation. For instance, in 2005 an ill-defined reform (Law 3310/2005) that aimed to limit corruption was introduced, but it was aborted within the span of a few months. Tis reform had stipulated that no major shareholder (‘ vasikos metochos’) of a private corporation that was involved in public tenders could also hold shares in a private broadcasting corporation.5 Yet this conflicted with EU legislation, and the Greek government had to abolish the law shortly after its successful adoption by parliament. Te next set of the causes of reform failure refers to the administrative system. A fourth cause of failure may be the obstruction of a reform by civil servants. Bureaucrats are able to the delay implementation of a reform or to interpret the new regulations in such a manner that the ‘logic’ of a reform is undermined. For example, two laws advocating the decentralization of

the public administration in 1984because and 1986 (Lawsof1416/1984 1622/1986) were not implemented bureaucrats the Ministryand of Interior, aware that they might lose part of their power, made sure that no important competences or funds were transferred to prefectures and the local government (Hlepas, 1999). Decentralization did not actually begin until ten years later, in 1994, when prefects were elected by local electorates for the first time in Greek history. A fifth cause of reform failure has to do with state capacities. A reform may be voted for by parliament and may even be well funded, but it may fail at the stage of implementation owing to a lack of expertise. Greek civil servants rarely possess skills other than elementary legal and economic knowledge, or secretarial skills. An example of how this can affect reform is ation policy introduced in thecoasts. late 1990s, whichfell aimed to develop the national cultivaof seashells in Greek Te policy through as neither administrators nor local officials knew how to proceed (Spanou, 1996). A more telling example is the introduction of new information and communication technologies (ICs) in public administration. Only a few public services, such as the taxation authorities, have entered the digital era (‘AXIS’ program). Te introduction of ICs has not led to a change in the traditional organization of work in public administration, let alone an improvement in citizen-administration relations. 20

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A sixth cause of reform failure lies at the crossroads between the political and the administrative system, and can be called the ‘lack of resource provision for the implementation of reform’.6 Examples are the lack of auxiliary legislation (such as suitable presidential decrees specifying the provisions of a law), lack of instructions to ‘street-level’ bureaucrats entrusted with reform implementation, and a lack of financial means to carry out the reform. ypically, failure occurs either because of a lack of financial resources in the first place (which means that the law, encapsulating the reform, was nothing but a decorative exercise), or because of the depletion of funds after the new law has been implemented. An example of this in Greece is the decline of the de-institutionalization reform in the mental health sector. Tis reform led to the closure of a number of asylums in the 1990s, but its implementation has gradually come to a halt more recently. In 2008 there were around 200 local mental health care centres or units, founded and run by fifty-six NGOs. Tey employed a staff of 2500 and cared for 3000 patients. Even before the fiscal crisis of 2009–2010, the reform had stalled as organizations taking care of the mentally disabled were under financial strain and had to lay-off staff. A final set of causes concerns the relationship between society and the state. A seventh cause of reform failure is resistance ‘from below’, by popular strata and their representatives, or by social movements. An example of reform failure due to mass mobilization is the aborted social security reform attempted by the Simitis government in 2001. Tis reform was guided by an egalitarian philosophy, but it touched upon the rights and benefits of insiders, namely well-protected categories of employees in the wider public sector as well as the liberal professions. Large demonstrations, negative publicity, and the doubts expressed in public by some cabinet ministers (after they had agreed on the reform) eventually obliged the government to back down. An adversely eighth cause of reform failureTey is ‘resistance from above’, such namely by elites affected by a reform. may be ‘veto-players’, as the politically influential mass media, groups of businessmen or other powerful elites. For example, during the second term of the PASOK government under Papandreou (1985–1989), the leadership of the Greek Orthodox Church was able to counter reforms that sought to tax church property. Another example of the role of elites in the failure of reform is the Greek government’s reluctance to amend the legislation providing for the election of forty-two deputies (almost one-fifth of the total of 300 seats in the parlia21

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ment) in a single district, the second Athens electoral district. Tis is a vast and densely populated area of approximately 1,400,000 registered voters. Te district includes very rich and very poor neighbourhoods, located to the north, the west and the south of the centre of Athens. Candidates campaign across this area, spending resources that they cannot afford and thus raising the financial cost and lack of transparency of the electoral contest. In this case, elites resisting reform of the electoral legislation include politicians who have built networks of patronage relations with voters over time, and who fight any change of the electoral landscape that may affect the way they run their campaigns. Finally, a ninth cause of reform failure is indifference on the part of prospective reform users. For example, in 2000 the Simitis government passed a law reforming working time with the aim of battling unemployment. Law 2874/2000 stipulated that business owners seeking to increase production would have to pay very high overtime compensation to employees called-in to work additional hours, or, alternatively, that they could hire new employees to cover the needs of any increase in production. Te measure business owners their have own to employees did proved not optineffective, to hire newaspersonnel, which trusted they would train on and the job. Tey preferred to pay higher labour costs and make arrangements with the people already working for them, who naturally—given the additional compensation—were happy to oblige.

Political, administrative, and social legacies impeding reform Te list of nine causes of reform failure does not reveal the deeper causes of the problem, which concern the political and administrative system, and state-society relations. Political system legacies impeding reform Some of the causes of reform failure mentioned above, such as ministerial instability, high management turnover, the misallocation of funds or negligence on the part of policy-makers to provide any funds accompanying a reform, are linked to legacies of the political system dating to 1974, if not earlier. Such legacies include polarized party competition as well as intraparty fighting; the remnants of a polarized political culture; short and unpredictable electoral cycles; the absence of an enduring political will to bring 22

HE PARADOX OF NON-REFORM

about policy reform; a lack of reform strategies on the part of incumbent governments; tension between the over-centralized peak of the government and the centrifugal tendencies of ministries; clientelism and corruption; and reluctance to place reform at the top of the government’s priorities. Polarized political competition is usually translated into considerations of ‘political cost’. New measures, if unpopular, fail to become implemented or are even retracted by the same government that initiated them. As already noted, ‘political cost’ is a factor that impedes reform, but it is not sufficient in explaining why reform fails. In itself, the political cost explanation for reform failure is just as unsatisfactory as another very common explanation, which places all the blame for the failure of reform on trade union leaders. Tis explanation is couched in the following statement by a former Minister of ND: reform failure is owed to the ‘collusion between party cadres who hold public jobs and trade union leaders who also depend on state funds’.7 Instead of looking for one, ‘blanket’ political level explanation, one has to make a selection of the key legacies of the political system that have

impeded reform success. wo such legacies stand out:were first,insensitive the overarching, constant priorities of successive governments, which to the need for reforms in most policy areas other than defence, security and the national economy; and, second, a polarized political culture, which was inimical to reform. Indeed, since the 1974 transition to democracy, the priorities of successive governments have been in defence and foreign policy, integration into the EU, and macroeconomic stabilization. Even when it seemed that priorities had shifted (e.g. towards curbing income inequalities), for a few years after PASOK’s first ascent to power (1981), and again after 1996, defence spending remained high. In the 1980s and the 1990s, the level of Greek expenditure on defence was among the highest of NAO member-states, dedicating, along with the as much as between and per cent of its GDP to defence. TisUSA, was due to Greece’s beingfive part of seven NAO’s sensitive southern flank, which was crucial for NAO’s security throughout the Cold War, as well as the uncertain evolution of Greek-urkish relations. On the other hand, external economic pressures and fiscal constraints were combined with imprudent expansionist measures that followed the political electoral cycle. Tis created an environment unfavourable to reforms in sectors other than macroeconomic policy. Te two oil crises of the 1970s, the extensive public borrowing of the 1980s in order to fund 23

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wage increases and public consumption, and the periodically high levels of inflation in the late 1970s, the mid-1980s and the early 1990s, repeatedly indicated the need for programmes of austerity. After the mid-1980s, the size of the public debt loomed large in discussions about changes in most fields. Greece has had to service a very high public debt (over 100 per cent of GDP), which has cut short ambitions for substantive reforms. Another key political legacy is that of Greece’s polarized political culture. While it is true today that there is consensus between Greece’s two main political parties (ND and PASOK) over foreign and defence policy, the main lines of macroeconomic policy, and the country’s integration into the EU, for over three decades the political system has been permeated by a Manichean view of politics. Indeed, in contrast to the Portuguese and Irish political parties, Greek parties did not even reach a consensus on a strategy to exit the debt crisis that erupted in 2010–2011. Election after election, the political scene remains divided into two halves (left versus right), a rift which has been reproduced by political elites. Prior historical cleavages between liberals and royalists (in the interwar period), and communists and

centre and right-wing parties (in the Greek Civil War period), have fed into this rift. In this respect, as already noted in the second section of this chapter, it is telling that between 1974 and 2009, coalition governments were formed only once and very briefly (for ten months in 1989–1990). In the rest of this period, majoritarian, single-party governments ruled. Te two main parties still share between themselves about eighty per cent of the votes cast in general elections. Tis is the result of the aforementioned political polarization, as well as an electoral system of ‘reinforced proportional representation’, which reinforces the shares of parliamentary seats of the two largest parties. Even in policy sectors where both parties claim that there should be national consensus, such as in education, culture and tourism, their political rhetoric remains inflammatory. all legislation by fact the incumbent government is rejectedAlmost by the opposition and introduced vice versa. Te that the major party of the opposition, ND, voted along with the governing PASOK on a number of bills after 2009 does not alter the picture of an ongoing conflict between the two parties even at historical moments calling for consensus, such as the 2010–2011 crisis. In short, even though political conflicts between the two major parties are less acute today than they used to be, and despite the fact that a few small parties almost always secure representation in parliament, there is still a rigid two party system in Greece. 24

HE PARADOX OF NON-REFORM

o sum up, a rigid bipolar party system, combined with a political culture of uncompromising views, has rendered consensual reform options improbable. Te paradox is that reform is not forthcoming even when there is a strong and disciplined parliamentary majority allowing a government to legislate at will. Still, one may claim that there is no paradox if one thinks of the quality and capacities of decision-makers. Indeed, other contributors to this volume (Monastiriotis and Antoniades in Chapter 4) claim that reforms have neither been documented nor well prepared by successive governments, so it is no wonder that many reforms have failed over the last three to four decades. However, assuming that at least some reforms were technically documented and well prepared by the government of the day, the key to the aforementioned paradox lies at the other two levels of our analysis, namely the administrative system and state-society relations. Administrative system legacies impeding reform

Among the nine causes of reform failure, two causes—bureaucratic obstruction and administrative incapacity—pertain to legacies of the administrative system. Such legacies include administrative fragmentation; lack of an administrative elite; lack of relevant policy expertise and ad hoc, last-minute, use of expertise offered by technocrats selectively invited by ministers to help with policy formulation; negligence of follow-up mechanisms; lack of technical and financial resources and inadequate infrastructure; inconclusive formulation and reformulation of new policy measures; centralization of policy-making authority, to the point that details of policy-making are taken care of by the minister in charge and his or her entourage; absence of consultation among policy makers of complementary policy areas; and lack of interaction among related ministries and public organizations.

legacy,is which should be underlined, lack of skilledthe personnel.One An key example the lack of personnel capableisofthe implementing EU’s First Community Support Framework (1st CSF), which was associated with the misuse of EU funds, and the Second Community Support Framework (2nd CSF), the absorption rates of which were very slow. One has to add the lack of computer systems, the absence of modern management methods, the superficial in-service training given to civil servants, and the irrational distribution of personnel among administrative units, to be convinced that, even in a utopian world with no political 25

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patronage, reform would not come from within the Greek bureaucracy. A minister enjoying political support on all sides would still have a hard time materializing a reform through the services of his or her ministry. Tis is the reason why governments have tried to circumvent the traditional hierarchy of ministries. New administrative institutions, task forces and ad hoc committees have mushroomed over time and have been entrusted with implementing policy changes. Legacies of state-society relations impeding reform

Te political and administrative system may not be able to steer society, but then there is the possibility that society itself may not want to be steered. In the words of another former minister of PASOK: ‘Generally speaking, the Greek political system is not able to produce substantive reform policies, while society itself does not accept significant changes. In Greek institutional culture and in society, the management of and investment in the future are unknown concepts’.8 Several historical dimensions must be added to this damning judgement. Legacies of state-society relations include bonds of political patronage among political parties and elites on the one hand, and individual voters and interest groups on the other; the favourable treatment of certain professional groups and other categories of the population; interest group resistance; lack of trust towards almost all political and administrative institutions; the absence of organized reform pressure ‘from below’, including from among the collective actors representing the low-income strata; the absence of conclusive deliberations with interested parties, for example during never-ending deliberations with social partners; and the reluctance of the private business sector and the liberal professions to espouse reform. Tus, while one could justifiably blame labour interests for systematically resisting reform, also hasoftoliberal think of the role of powerful business interests as well as theone interests professionals (who, incidentally, are over-proportionately represented in the parliament). On the one hand, blaming public sector trade unions for reform failure is a case in point. Tey are the ‘insiders’ of the system in so far as above average salaries, early retirement opportunities and good pension schemes are concerned. On the other hand, the tremendous power of oligopolies that dominate large sectors of the economy, including food, pharmaceutical, retail, construction, mass media, and the transport sector should not be underesti26

HE PARADOX OF NON-REFORM

mated. Oligopolistic structures are partly to blame for the failure of regulatory reform of the market. In the same vein, one has to take into account the influence of selected groups of liberal professionals, including the chambers and associations of lawyers, engineers and doctors, which have managed to obstruct reforms in the policy fields of their interest. An example of this is the resistance of medical school professors who, in the late 1990s, abstained from their teaching duties for almost a year because they did not want to abide by a new law according to which they would have to drop one of their multiple jobs (teaching at the university, practising medicine at public hospitals, practising medicine at private clinics and also keeping a private practice, all at the same time). Tese examples manifest the key aspect of state-society relations that accounts for the failure of reforms: this is the collusion of private and public interests, either because individuals hold jobs in both the public and the private sectors or because businesses develop relations of dependence with the state and rely on a less than transparent flow of public funds, channelled through selective contracts, subsidies and low-interest loans.

Conclusions In this chapter, I have argued that while Greece appears, at first sight, to be an ideal-typical case for successful reform, in practice reforms have not been forthcoming. Tere is a recurrent and widespread perception of state failure, with particular reference to stalled reforms. Tis perception is correct, even though Greece consolidated its democracy, developed economically, joined the eurozone and improved its infrastructure after 1974, achievements underestimated by most observers of the crisis of 2010–2011. Tere has been much more success at the level of creating new institutions than at the level of formulating and implementing new public policies. In vital policy areas, central public administration,protection higher education, public pensions, such socialasassistance, and environmental and town planning, there is reform failure. In all these sectors, new dramatic policy shifts were legislated under the government of PASOK in 2010–2011 and it remains to be seen whether the attempted reforms will reach the implementation stage. Large-scale theories, such as the historical institutionalist, rational choice and political economy approaches may illuminate the larger picture of whether a certain socio-political context has been conducive or not conducive to reform, but they often fail to focus on the particular constraints and 27

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obstacles to substantive policy change. At a less abstract level of analysis, it is common to argue that lack of planning for a reform or lack of implementation are the causes of reform failure. I have argued that even well-planned reforms have fallen through and that, while it is customary to associate reform failure with lack of implementation, this is but one instance or form of policy failure. After a new policy has been formulated by government, failure may take five different forms, namely: (a) retracting a reform before it is even submitted to the legislature; (b) voting down a reform in parliament; (c) lack of implementation; (d) no real change even after implementation; and (e) quick policy reversal. o say that reforms fail because they are not implemented does not suffice, as it begs the question as to the reasons why a reform has not been implemented. Many of the inadequacies of policy reform, discussed in this chapter, are not associated with any kind of Greek ‘exceptionalism’. Similar observations have been made for other countries of Southern Europe (Gunther, Diamandouros and Sotiropoulos, 2006). However, studying the case of Greece may provide a preliminary basis on which to construct the following hypothesis: after a government in (1) having a reform voted the legislature, reform may still fail succeeds because of: rejection of the newby policy measures bya the courts; (2) government change, cabinet reshuffling or management turnover at the helm of institutions entrusted with reform implementation; (3) rejection of the reform by international institutions and particularly the EU; (4) bureaucratic obstruction; (5) administrative incapacity and in particular a lack of skilled personnel; (6) underfunding or depletion of funds and other resources; (7) resistance by a strong coalition of popular social interests; (8) resistance on the part of powerful socio-economic elites; and (9) inertia or indifference on the part of prospective policy-users. Te conclusion is that explanations of reform failure are more differentiated and more complex than is often thought. Reform failure cannot be

accounted foralone. by calculations of political cost,failure, financial constraints partya competition Te nine causes of reform occurring evenorafter reform has been legislated, have been discussed at three analytical levels: the levels of the political system, the administrative system, and state-society relations. Historical legacies in all these levels create constraints on reform. At the level of the political system, there is an almost forty-year long legacy of Greek governments usually placing reform priorities in defence and in the national economy above priorities in other policy sectors, and a tradition of polarized party competition and a political culture characterized 28

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by conflict. At the level of the administrative system, there is a legacy of weak state capacities. Finally, at the level of state-society relations, there is a legacy of exclusionary intervention of the state in society, systematically favouring powerful interests at the expense of others and allowing the former to obstruct reforms.

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3

ASSESSING REFORM CAPACIY IN GREECE APPLYING POLIICAL ECONOMY PERSPECIVES

Kevin Featherstone and Dimitris Papadimitriou

Introduction A recent study organized by the Bertelsmann Stiftung in Berlin concluded that Greece has the lowest reform capacity of any of the thirty nations comprising the OECD (Bertelsmann, 2009).1 In 2009 and 2010, reports in the foreign media also characterized Greece as a ‘basket-case’ of the eurozone; a weak economy so divergent from the rest that it prompted questions as to its membership of the single currency club. A spate of new books identified systemic problems hindering adaptation and reform (e.g. Mitsopoulos and Pelagidis, 2011; Manopoulos, 2011). Te recurrence of street riots—first in December 2008, then at various points in the following two years—together with of theAthens demonstrations of portrayed the ‘Indignados’ in Syntagma Square in the centre graphically the frustration and alienation stored within the political system. Much of the domestic debate shared the sense of the intractability of reforming the ‘system’, and there was not much evidence of a consensus over the content of reform. A common reference point for the sense of frustration felt by ‘modernizers’ is Greece’s standing within the European Union (EU), which extends a tradition of equating modernity with Western Europe. In reality, Greece’s record in the EU has proved contradictory. Entry to the eurozone was 31

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achieved and Greece, backed by strong public support, remains a core EU member. Yet, the record of transposition of EU laws has been poor and the evidence of their infringement has been high. Moreover, the performance of Greece in adopting the reforms of the Lisbon 2000 agenda was amongst the worst in the EU. Academically, many scholars have charted Greece’s adaptation to EU reform stimuli within the conceptual framework of ‘Europeanization’. Anecdotal impressions of the number of recent PhD theses in this vein testify to how fashionable the approach has become. But, precisely because the record of reform has seemed poor and external stimuli have proved inadequate, it seems timely to reverse the conceptual lens and to examine the structural conditions within the domestic system that limit reform. Te purpose of this chapter is to place the study of Greece’s reform process within the contemporary literature on comparative political economy. It examines three sets of literature—on neo-corporatism, varieties of capitalism, and welfare regimes—and attempts a conceptual synthesis so as to offer a preliminary assessment of how far these alternative frameworks might better identify the constraints on Greek domestic reform. Tepersonality—but, aim here is to clarify systemic party, ideology, beforethedoing so, it‘problem’—beyond is appropriate to consider how significant the issue of Greece’s ‘reform capacity’ may be in comparative perspective.

Comparing Greece’s ‘reform capacity’ Te concept of ‘reform capacity’ has been developed in recent years by a number of authors. Several have defined the concept or developed a typology for it in the context of seeking to account for why the impact of ‘Europeanization’ varies from setting to setting (Heritier and Knil, 2001; Radaelli; 2003). Others have placed it within a more conventional com-

parative political economy frame (Schmidt, Te conditions the capability to reform have been portrayed2002). somewhat differently.affecting Te comparison of national reform capacities took a step forward with a recent project organized by the Bertelsmann Stiftung in Germany. Tis project created indices for all thirty nations belonging to the OECD (Bertelsmann, 2009), and was the first attempt to measure reform capacity comparatively. o do so, the project created two scales. Te ‘status index’ identified the need for reform in each country by reference to the operation of democracy and a nation’s performance in specific areas of public policy. 32

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A second scale—‘the management index’—assessed the reform capacity of each nation. Tis was measured across two dimensions: the capacity of government and the extent to which government was accountable. Greece fared very badly on both indices. On the status index (the need for reform) Greece was ranked twenty-eighth out of the thirty countries, just ahead of Mexico and urkey, but significantly worse than Italy or Portugal. Indeed, Greece’s performance was judged to be the lowest of any OECD country on issues including social and welfare provision, employment, and sustainability (the environment, education, and R&D). For the management index (the ability to reform), Greece was assessed as the worst of all thirty OECD states. It ranked significantly below the other weak states: Poland, urkey, the Czech Republic and Italy.2 As with any such international comparison, there are legitimate queries about the definition of the criteria that form the index. Te scores of an individual country should not be interpreted too precisely. But this was a serious attempt at comparison. Te scales combined a vast array of empirical data, drawn from a wide variety of international and domestic sources. 3

Tis data was then placed alongside of a panel specialists. Te questions on reform capacity the werejudgement very relevant to theofGreek case. Amongst a large set of data and questions, the project asked ‘how effectively does the prime minister’s office monitor the activities of ministries?’, and ‘does the government frequently engage in “regulatory impact assessments”?’ Tese are two areas where governmental capacity in Greece is often accepted as being deficient. Te ‘Sustainable Government Index’ of the Bertelesmann Stiftung thus gives an order of magnitude portrayal of the problem of reform capacity in Greece. Te question for researchers is how to analyse and explain these structural constraints. Te following sections consider this issue within the three frameworks of comparative political economy referred to above.4

Neo-corporatism: a Greek variant? Te Framework Te complex relationship between government, unions and employers in Greece is at the heart of the economy and of policy-making. As such, the ‘neo-corporatist’ approach appears directly relevant. Tis refers, at a minimal level, to the ability of a government to negotiate sustainable bargains (e.g. on 33

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wages, employment and/or social policy) with union and employer organizations (Schmitter and Lehmbruch, 1979; Berger, 1981; Goldthorpe, 1984; Alvarez et al., 1991).5 Te model posits a small number of organizations possessing a representational monopoly within their own area of interest, which are then incorporated into policy-making as co-responsible partners (Schmitter, 1977: 9; Sargent, 1985: 232; Cawson, 1986). Te ‘political exchange’ also depends on incentives from government and the discipline of unions to establish reciprocal agreements (Scharpf, 1987, 1991). Adaptation to the Greek Case Tere has been a healthy debate on the nature of the Greek system in this respect. In the post-war period, Greece has usually been seen as constituting a ‘state corporatist’ model of some type, a concept that emphasizes the reach of the state. Mavrogordatos (1988) was the first to provide an insight into the historical trajectory and contemporary pathologies of state corporatism in Greece. State interference in the trade union movement began under the premiership of Venizelos, with a package of legislation in 1910 and subsequent political interventions; this was greatly extended by the authoritarian Metaxas regime (1936–41), and subsequently reinforced by the Colonels’ junta (1967–74) (Featherstone, 1987; Leon, 1976). Te Greek state’s intervention in the trade union movement sustained a very fragmented, skewed and highly regulated structure of trade unionism that can easily appear opaque to the outsider. Collective bargaining has been subject to extensive state regulation, with various forms of bilateral (‘collective’) agreements being signed between unions and the employers on an annual and, more recently, biennial basis. rade union density (that is, the proportion of unionized labour force) is relatively low. Estimates of trade union density place Greece alongside the UK, Germany and the Netherlands in the 20–29% high number of small in Greece are largely unaffectedrange. by theAcollective agreements of enterprises the corporatist structures. Pagoulatos (2003), on the other hand, claims that the notion of ‘state corporatism’ belongs to the era of the ‘developmental state’, pre-1974; latterly, the term overstates the scope for state control over organized interests and of the possibility of state-imposed concentration. He stresses, instead, the fragmented and rent-seeking character of interest mediation in the Greek system. Tus, he prefers the identification of the system as one of a unique type of ‘parentela pluralism’ (2003: 162). Lavdas had earlier 34

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described the Greek system as one of ‘disjointed corporatism’—a pithy term, but one defined rather cumbersomely as a system where there is ‘a combination of a set of corporatist organizational features and a prevailing political modality that lacks diffuse reciprocity and remains incapable of brokering social pacts’ (1997: 17). Te enclaves of sectoral corporatism ‘have been the result of mutations’ in the state corporatist tradition (1997:17). By contrast, Pagoulatos wishes to give more emphasis to the ‘generally pluralistic group setting’ of the Greek system (2003: 162). Te extent to which the Greek system has undergone significant changes since these conceptions is not clear. Pagoulatos argues that in the 1990s government and party intervention in trade union organization and activity had ‘relaxed, financial autonomy of labour unions was increased, the General Confederation of Greek Workers (GSEE) acquired significant political autonomy, and collective bargaining was liberalised’ (2003: 167). Further, ‘consensus-oriented, neocorporatist-type procedures and institutions were strengthened’, with ‘centralized collective bargaining and the pursuit of social pacts coexisting with highly decentralised company-level agreements’ (2003: 167). Tis seemsoftosocial exaggerate the degreeTe of consensus significance of the pursuit pacts, however. rhetoric onand the the importance of social dialogue only emerged gradually in the late 1980s and early 1990s (Ioannou, 2000). Since then, social dialogue has been marked by a ‘stop-go’ character, discrediting it as a process and creating further mistrust. Moreover, the agenda of social dialogue has been inconsistent and fragmented, resulting in ad hoc, partial bargaining. Tus, there is still some truth to Lavdas’ earlier pessimistic view of the Greek system. Before returning to power, PASOK in 1993 had attacked the Mitsotakis Government for the absence of social dialogue. In government, its strategy was criticised for being ad hoc and opportunistic (Ioannou, 2000). It created several bipartite and tripartite bodies to facilitate dialogue (most notably the Economic and Κοινωνικ Επιτροπ ή in Social OKE: Οικονομικ ή και 1995), Committee, but it then neglected and bypassed them when itή was politically expedient to do so. In 1997 a new ‘National Social Dialogue’ was introduced, but its institutionalization and purpose was inconsistent (Featherstone and inios, 2006). Certainly, the ‘tripartite social dialogue’ initiatives in 1997 and 2000 were widely seen as failures (Zambarloukou, 2006: 220–23). Te unions had initially shifted ground by supporting dialogue because of the transformation of the economic setting (increased unemployment, declining union

35

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density, privatization, the opening to foreign competition, technological change, and the abolition of compulsory arbitration) (Zambarloukou, 2006). Yet the dialogue broke down: Zambarloukou argues that this was due to long-term problems of a lack of trust and the absence of a culture to support dialogue, as well as the internal structural problems of the unions. More specifically, the unions came to view government initiatives on pension and labour market reform as a ‘zero-sum’ agenda, involving costly losses and few gains. Tus, in the Greek case, the neo-corporatist focus suggests—with the ‘disjointed’ or ‘parentela’ character of interest mediation—a structuring of conflict that is almost impossible to manage. With poor coordination and few opportunities for consensus-building, all major departures from the status quo are soon engulfed by a climate of antagonism and mistrust. Indeed, Greece is typically depicted as exhibiting low ‘social capital’ (Putnam, 1993; Lyberaki and Paraskevopoulos, 2002). Moreover, the structure of conflict is strongly marked by the mode of representation within the major bodies. Both the union (GSEE and ADEDY) and employers’ (SEV)

federations internal the representation skewedwhilst towards certain groups, thushave over-playing interests of that someisgroups, completely ignoring others. In the union confederations, disproportionate strength has been enjoyed by employees of the public sector, affecting the stance of the leadership on key economic and social issues. At the same time, the employers’ federation is dominated by a few, very large Greek firms (some ex-state monopolies). Tis has favoured the distinctive interests of those who have benefited from the prevailing market regulations, barriers to entry, and stable product demand. Moreover, the membership of Greek firms in the major employers’ organizations is relatively low in European terms. Te representation balance is tipped away from those with interests in more open, competitive private markets. Interest representation tends to reflect the legacy of thestate’. risk-averse, statist and anti-competitive traditions of the ‘developmental

What variety of capitalism is this? Te Framework

Research in comparative political economy has, in recent times, moved away from neo-corporatist frameworks to develop a rather more holistic approach on the nature of the domestic economy. Hall and Soskice (2001), 36

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in particular, broke new ground with their ‘varieties of capitalism’ approach, which has encouraged a burgeoning literature in comparative political economy. Hall and Soskice set out to answer how different models of capitalism, defined by their institutional characteristics, shape economic performance. In particular, their work ‘provides a new analysis of the pressures governments experience as a result of globalisation and one capable of explaining the diversity of policy responses that follow’(Hall and Soskice, 2001: vi). Teir starting point is that national economies can be modelled in terms of their institutional frameworks, and the behaviour of these economies can be explained by reference to the propositions of rational interest derived from the models. Whilst this perspective accounts for different kinds of actors, the models are strongly focussed on the behaviour of firms as ‘companies [are] the crucial actors in a capitalist economy’ (2001: 6). Tey are the key agents of change within systems. With respect to types of national setting, Hall and Soskice draw a central distinction between liberal market economies (LMEs) and coordinated mar-

ket economies (CMEs). Te former comprise nations such as the USA, UK, Australia, Canada, New Zealand and Ireland. Here, a market-friendly economy structures interactions: firms coordinate through an ‘arm’s length exchange in a context of competition and formal contracting’, responding to market signals in the manner described by neoclassical economics (2001: 8). Te supply of finance and the system of industrial relations are dominated by market mechanisms. By contrast, in CMEs (such as Germany, Japan, the Netherlands and Sweden) firms rely more on non-market relationships to resolve their coordination problems (including finance and industrial relations). Economies are structured by an embedded network of corporate institutions and collective organizations, which encourages collaborative relationships and sensitivity to the interests and strategies of other actors. Tis approach is not, however, without its critics (Morganet al., 2005). Adaptation to Greece Unfortunately, Hall and Soskice left France, Italy, Spain, Portugal, Greece and urkey out of their models (2001: 21). Te Southern European states are seen as ‘ambiguous’ cases falling between the two ideal types. Neither of the models reflect the Southern European experience, given their stress on firms whilst downplaying the centrality of the state; their neglect of other 37

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forms of non-market relationships (e.g. clientelism, corruption); their difficulty in accounting for the distorted nature of the welfare regime; and their underestimation of the relevance of the EU as a trigger to reform in small, marginal economies. o underplay the role of the state in Southern Europe is to take the ‘politics’ out of the model, leaving it incomplete. Te tradition of state-driven development in Southern Europe is central to Greece’s economic history (Diamandouros, 1994: 11, 1993; soucalas, 1993: 62). o make the approach of Hall and Soskice more relevant to Greece, the typology is therefore in need of adaptation. Tree alternative typologies are worth examining in this regard: ‘state capitalist’, ‘mixed market economies’, and a more holistic representation. Schmidt has elaborated a ‘state capitalist’ model, with which she approximates France and Italy (2002). She contrasts this model with the ‘market capitalism’ of the US and the UK and the ‘managed capitalism’ of Germany, the Netherlands and Sweden. She outlines the ‘ideal-typical’ characteristics of state capitalism as follows: In state capitalism, the business relationship tends to be state-organized. Inter-firm relations are mediated by the state, while interaction between firms when not mediated by the state is generally as competitive and distant as in market capitalism [e.g. US, UK] except where there are ties through cross-shareholding akin to the managed capitalism model. Industry-finance relations are similarly state-mediated. Industry is more dependent on the state than the banks or the markets for financing and takes a more medium-term view due to the state’s greater focus on national politico-economic priorities than on firm value or profits per se. Terefore, business-government relations tend to be state-directed, with the state influencing business development through planning, industrial policy, or state-owned enterprises. It often picks winners and losers rather than only arbitrating among economic actors or facilitating their activities. Government relations with labour also tend to be state-controlled although more distant than its relations with business. Wage bargaining is largely determined by the state, which often imposes its decisions on fragmented unions and business, while labour-management relations are mostly adversarial (2002: 116).

Although underestimating the importance of the informal economy, this ideal model is closer to the Greek historical reality. Later, Schmidt suggested that the relevance of the ‘state capitalist’ formulation has waned: she has preferred ‘state-enhanced’ capitalism (2002: 141) and, even more recently, ‘State-influenced market economies’ (2007) as alternative models. Yet, while the role of the state within the Greek economy has undergone various and 38

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significant changes over the last two decades, its distinguishing features remain consequential for the modelling of the interests and behaviour of the state, firms and unions in Greece. A second approach to understanding the Greek system is the more holistic approach of Amable (2003), who deploys cluster analysis (and principal components analysis) to investigate a range of prevailing empirical conditions across twenty-one OECD countries. He offers a typology of five ideal types: the market-based (akin to an LME for Hall and Soskice); the social democratic; the continental; the Mediterranean; and the Asian. A summary of his Mediterranean type is given in able 3.1. able 3.1: Southern European Capitalism (Amable, 2003)

Institutionalarea

SouthEuropeancapitalism

Product-market competition

Price—rather than quality-based competition, involvement of the state, limited ‘non-price’ coordination, moderate protection against foreign trade or investment, importance of small firms

Wage–labour nexus

Highaemployment protection (large firms) but dualism: ‘flexible’ fringe of employment in temporary and part-time work, possible conflicts in industrial relations, no active employment policy, centralization of wage bargaining Low protection of external shareholders, high ownership concentration, bank-based corporate governance, no active market for corporate control (takeovers, mergers and acquisitions), low sophistication of financial markets, limited development of venture capital, high banking concentration Moderate level of social protection, expenditures structure oriented towards poverty alleviation and pensions, high involvement of the state Low public expenditures, low enrolment rates in tertiary education, weak higher-education system, weak vocational training, no lifelong learning, emphasis on general skills

Financial sector

Social protection

Education

Source: Amable, Barré, and Boyer (1997); Amable (2000).

Tis portrayal of the Southern European conditions reflects a number of important realities. Te depiction recognizes the extensive regulatory role of the state and it usefully broadens the picture to incorporate the institu39

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tional complementarities with welfare and education. Tese complementarities help to highlight a likely pattern of interests held by actors: for example, limited welfare provision increases the attachment to job security. Tis point is returned to later in the chapter. Amable’s methodology provides a rich empirical account, and an impressive overview of the features of Southern European capitalism through the use of quantitative data. Unlike the modelling of Hall and Soskice, it is not an ‘ideal-type’ model of strategic behaviour as such, rather it is a categorization of prevailing conditions, with less priority given to theoretical support (Hancke et al., 2007: 23). Its depiction is close to the conditions evident in Greece, but an interpretation has to be added of actor interests and behaviour before explanations of outcomes can be developed. A third alternative formulation for the economic features of the Mediterranean states is provided by Molina and Rhodes (2005). Working within the framework of Hall and Soskice, they propose an additional model: that of mixed market economies (MMEs). In MMEs, unions and employers have stronger organizational structures than in LMEs (such as the US and the UK), they arethan more have moreand problems in MMEs articulating theirbut interests in fragmented CMEs (suchand as Germany Sweden). have difficulty in delivering collective goods and in sustaining autonomous coordination in collective bargaining. However, they do have the strength to veto reform: indeed, the political system is marked by a capability problem in responding to reform pressures. Reform is arduous and depends greatly on the leadership of government actors in being able to overcome the coordination problems and to manage domestic veto points. Te creation of reform coalitions is more prolonged and problematic than in LMEs or CMEs. Te MMEs exhibit some stability: they are more than ‘a cluster of countries in transition with only partially-formed institutional ecologies’ (Hancke et al ., 2007). Moreover, MMEs are hybrid systems: Southern European have low levelsbelow). of welfare high employment protectionstates (discussed further Tisprovision, depictionbut of MMEs appears to be more conducive to developing theoretical explanations of interests and behaviour in the Greek context. As a model, the MME depiction supports an explanation of the problems involved in the implementation of Lisbon-type reforms in Greece. Te inability to sustain social concertation between government, unions and business is at the heart of the problem. In addition, coordination problems and veto points abound. Moreover, the ‘hybrid’ character of the Greek 40

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system is reflected in skewed and limited social provision (see below), which affects the rational self-interest of key groups affected by economic reform.

What type of welfare regime? Te Framework Te linkage between capitalist models and welfare regimes is an important one for political economy approaches, and it has been the subject of much debate in the literature. Te focus of contention is whether complementarities lead to optimal outcomes or whether they sustain inefficiencies. Either way, as Pierson has argued, analysts need to consider how different national patterns of social policy are ‘embedded in and help to shape distinctive national “varieties of capitalism”’ (2001: 5). Te focus on social models predates that on the varieties of capitalism. Esping-Andersen’s ground-breaking analysis of ‘three worlds of welfare capitalism’ depicted the features of liberal, Christian democratic, and social democratic welfare regimes (1990). His limitation in addressing prevailing welfare conditions in Southern Europe was taken up by Ferrera (1996), who argued that there was a distinctive type of welfare regime in the region. With respect to specific pension provision, a conventional distinction is that drawn between ‘Bismarckian’ social insurance schemes and the ‘Beveridge’ poverty-prevention model. Such features suggest that ‘policy makes process’: the nature of provision affects the reform process. Moreover, Europe’s ‘welfare states’ have reached different stages of development: these raise different issues for a reform agenda (Pierson, 2001: 431n). Te objectives of reform must thus be placed within the domestic context of provision: a politics of retrenchment (Pierson, 1998) is distinct from an agenda of diverse policy objectives (Pierson, 2001; Natali and Rhodes, 2003). In some contexts, the

agenda on pensions must be directly related to wider issues of welfare, employment, education, taxation, and wages. Te politics of welfare reform are complex. Pierson (2001) argues that welfare system reform is ‘path-dependent’ and his analysis places welfare systems within a frame of historical institutionalism. Tus, welfare institutions are ‘sticky’, immovable objects. Te capability of a government to achieve (e.g. pension) reform will be circumscribed by the political power of blocking constituencies formed by those regarded as the current ‘winners’ of the system; the latter will act defensively, fearful of incurring ‘losses’. 41

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Similarly, Esping-Andersen referred to a ‘frozen welfare landscape’. According to this view, reform initiatives are likely to be seen as involving ‘zerosum’ outcomes, with clear winners and losers. Adaptation to Greece Te Greek ‘model’ follows that of the Mediterranean welfare state (Ferrera, 1996).6 Te system is shaped by incomplete coverage and a highly fragmented pattern of income maintenance, with peaks of generosity and major gaps in provision (e.g. pensions); a shift towards universalistic principles in healthcare (albeit with major problems of adaptation and funding); a low degree of state provision in social assistance (and a reliance on other sources of non-state support); and the persistence of clientelism affecting the selective distribution of benefits and privileges. Te major gaps in the provision are left for other structures to fill: traditionally, the extended family and informal social networks. From the inauguration of compulsory social insurance in 1934, the Greek system has been anarchic, separating social need from a rational allocation of scarce resources and struggling to develop notions of solidarity and citizenship (Venieris, 1996). Indeed, social policy has been subordinate to ‘social politics’. Katrougalos and Lazaridis (2003) distinguish the systems of Greece and Italy from those of Spain and Portugal: the former are more fragmented in structure and more costly as a percentage of GDP.7 But alongside matters of cost are major issues of the coverage and equity of provision. Social conditions in Greece reflect the country’s relatively late economic development, a labour force more skewed towards agriculture and services, and continuing poverty (particularly amongst pensioners) relative to the EU averages. Successive governments have given higher priority to redistributive policies at various times from the 1970s onwards. In parallel there has been increased debate in Greece over the effectiveness, efficiency and equity of social provision, in the context of deepening concerns over the failings of the Greek state. Te domestic agenda on pension reform has not been one of simple retrenchment, but rather of reordering privileges and coverage alongside rationalization. It is a variant of the ‘late-comers’ agenda recognized by Pierson, where welfare provision is in some respects still being created. Te institutional setting is critical to the explanation of reform (or its failure)—composed apparently of ‘immovable objects’ and ‘irresistible forces’ (Pierson, 1998). Successive reform initiatives on pensions have faced powerful veto points, with current stakeholders defending entrenched and 42

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highly iniquitous privileges and with other groups being squeezed out, whilst the political system as a whole has been constrained by the pervasiveness of clientelistic interests. Few would argue that the linkages between the Greek economic and welfare regimes produce Pareto-optimal outcomes. Te welfare system is expensive, wasteful and socially exclusive. Tere is much concern that it fails current and future needs. Similarly, the economic system displays inefficiencies and dysfunctionalities. It is a juxtaposition of over-regulation and a large black economy, of business collusion and dependence on the state, strong labour protection and high structural unemployment. Finding Paretooptimality for a majority across these regimes seems to be an illusion.

Explaining Reform Constraints in Greece Having examined the three approaches, the task now is to consider how they might be combined so as to establish a research hypothesis relevant to the problem of reform capacity in Greece. Tere are several steps to take when considering the of interest of the ‘rationalstructures, actor’ in the thislabour context. Within the context domestic economic and product markets define the rational interests of the relevant actors. A ‘varieties of capitalism’ perspective—the MME model is closest to the Greek reality— focuses on the rational interests of the ‘median voter’ towards policy reform and assumes their representation through the labour mediation process. However, in the Greek context, there is a marked contrast in the interests of voters. Katrougalos and Lazaridis identify a division in Greece (and other Southern EU states) between the protected core of the labour market (consisting mainly of those employed in the ‘wider’ public sector and the banking industry) and the rest, especially those in temporary and irregular employment, those working in the informal sector and the unemployed (2003: 33–34). Tey term this division ‘Janus face’byofrigidity the Southern labour market, where one side is the characterized and theEuropean other by flexibility and irregularity (2003: 42). Tis is directly relevant to the discussion here. Workers in the public sector enjoy high employment protection and seek to safeguard it. In the absence of high unemployment benefits and a developed system of vocational training, job protection is cherished. Tis indicates the close linkage between the labour market and the pension system: heavy regulation and skewed welfare complement each other, as a ‘varieties of capitalism’ approach would expect. By contrast, workers in the private 43

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sector enjoy lower job protection, are often ‘hidden’ in a myriad of small family businesses, operate with lower unionization, and face the regulatory inefficiency of the state administration in enforcing legislation. Teir regulatory benefits are fewer, though their material rewards are typically higher. Te ‘voice’ of private sector workers within the major unions is weaker. At the same time, the large firms leading SEV, the employers’ association, have shown an attachment to anti-competitive product regulations and barriers to entry, with stable product demand. In contrast, the ‘voice’ of the huge number of small and often micro-enterprises—a potential constituency for liberal market measures—is weaker. Interest mediation is thus characterized by contrasting interests and strength of voice. With these points in mind, a general hypothesis can be derived to explain the limitations in achieving market-liberalizing reform outcomes:

Market liberalizing reforms encounter a weak domestic constituency for support as the structure of interest mediation favours the interests of the ‘wider’ public

sector and the privileged position of the few large private corporations. As a result, the key social partners defend a sub-optimal status quo, fearing the risks of morea open competition anddeparture the consequences low state provision. Tus, stop-go, incremental from theofstatus quo welfare is the most likely outcome of domestic reform initiatives. Tis general hypothesis leads to two propositions that can be tested empirically: •

•

Te institutional position of the major employers is marked by problems of representation. Major firms may tolerate lower efficiency in the deployment of labour and in the welfare regime at home in favour of the comparative institutional advantages that stem from the high level of regulation: stability and peace, and barriers to market entry. Union confederations, dominated by public sector interests, resist greater labour market flexibility and pension reform for fear of losing of privileges and low welfare protection. Tey have little interest in a widening of employment protection (e.g. to part-time workers, immigrants) if it risks opening-up an agenda of reform threatening current job securities. Te privatization of state enterprises will be similarly opposed as a threat to current protection and privileges.

Each of these propositions reflects the rational economic self-interests of the key actors and they are endogenous to the system, which highlights the impediments to radical policy change in Greece. 44

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Tese propositions may be used as a starting point in a wide range of case studies relating to market-liberalizing reforms. A first attempt in testing our main hypothesis is offered in Featherstone and Papadimitriou (2008), with particular reference to labour market and pension reform (along with the privatization of Olympic Airways). Although we acknowledge that the dependent variable (reform outcome) is likely to vary in light of the specifics of each sector under examination, we believe that the testing of our general hypothesis (combined, when needed, with a number supplementary ones) can be used in a wide range of case studies as a means of structuring a more general narrative on the country’s reform capacity.

Conclusions Te task of defining and measuring a nation’s ‘reform capacity’ is problematic. Te existing literature suggests different conceptualizations. In political reality, few would doubt that the Greek system has exceptional difficulties in enacting substantive economic and social reform, particularly of the kind

that is informed by has the reviewed principlesGreek elaborated in the EU’s Lisbon agenda. Tis chapter conditions in the context of 2000 three of the most important strands of comparative political economy and social policy: neo-corporatism, varieties of capitalism and welfare regimes. Drawing on these frameworks, the chapter has provided structural explanations of how the interests and strategies of rational actors are shaped by economic and social conditions. Te frameworks discussed in the chapter posit a path dependency of reform constrained by indigenous conditions. As such, they offer a useful counter-point to the currently fashionable academic application of the ‘Europeanization’ conceptual framework. Indeed, given the contrasting and contradictory patterns of Greece’s adaptation to EU obligations and stimuli, the exploration of such embedded domestic features At theseems samehighly time, relevant. it is acknowledged that ‘reform capacity’ must be assessed as a multi-dimensional subject. Te comparative economy and social policy frameworks presented here need to be placed alongside other approaches that identify parallel constraints and weaknesses in the institutional capacity of government, for example. Moreover, with their emphasis on path dependency, political economy frameworks are not suitable for explaining more radical innovation on the part of actors or the personal aspects of leadership and the consequences of this. Furthermore, they 45

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neglect the significance of external stimuli and the conditions under which the EU can exert leverage on domestic reform. Contrasts can be drawn, for example, between the relative capacity of the Simitis government to attain entry to the eurozone (empowered by a clear EU timetable and criteria), in the context of a relatively closed domestic policy process, and the struggle of successive governments to achieve substantive reforms in areas covered only by ‘soft law’ from the EU and entailing a more diverse and open domestic process on matters with significant and direct distributive implications, such as pensions. Te adage that ‘process makes policy’ is relevant here. Comparative political economy and social policy is better placed to account for the latter. Te instinct is to see the ‘Europeanization’ and ‘varieties of capitalism’ approaches as opposites. Tey do, indeed, define different paths for European economic systems: one asserts the likelihood of increasing convergence, the other of sustained divergence—though both seek to allow for instances of the opposite. Yet, both approaches share more similarities than is often recognized. Neither posits deterministic outcomes. ‘Europeanization’ recognizes divergent outcomes to common stimuli. of capitalism’ has a ‘strong, non-deterministic understanding of‘Varieties change, given its appreciation that the institutions that underpin coordination are subject to constant renegotiation’ (Hancke et al., 2007). Both approaches are concerned with tendencies or trajectories. Both depict system dynamics. Neither readily penetrates the internal processes that transmit stimuli to outcomes, in the sense of highlighting the intervening actors, actions and mechanisms that link them. Further, in an important sense, each approach compensates for the limitations of the other. Indeed, recent work has considered the extent to which the ‘Europeanization’ and ‘varieties of capitalism’ approaches may be synthesized (Menz, 2005; Tatcher, 2007). It may seem counter-intuitive after two Greek bail-outs by its eurozone

partners the inIMF to question the relevance of European to domestic and reform Greece. Yet the path to the Greek sovereign stimuli debt crisis was clearly marked by the domestic impediments to reform. Academic studies of ‘Europeanization’ in Greece and elsewhere are apt to find the effects they seek and to perhaps inflate the significance of the change. It is time for academic research concerned with the realization of reform to correct this imbalance and to consider the systemic constraints that derive from domestic economic and social regimes.

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4

REFORM HA! GREECE’S FAILING REFORM ECHNOLOGY BEYOND ‘VESED INERESS’ AND ‘POLIICAL EXCHANGE’

Andreas Antoniades and Vassilis Monastiriotis

Introduction It is widely recognized in the literature that Greece’s reform record is highly problematic, with failures encompassing all facets of the reform process: the conception and design of reforms; the processes of consultation (public dialogue) and concertation (social dialogue); the process of consensusbuilding; and the process of implementation and enforcement. A number of explanations for this have been offered in the literature. Tese range from explanations highlighting the lack of political will, the fragmentation of We are grateful to a number of colleagues for their useful comments and support both at the stage of writing this chapter and earlier, when shaping the ideas put forward here—in particular to Kevin Featherstone, Nikos Christodoulakis, Platon inios, Kostas Lavdas, Stella Ladi and Sotiris Zartaloudis, as well as to the conference participants at the International Conference on ‘Te Challenge of Reform in Greece, 1974–2009: Assessment and Prospects’ organized by the Hellenic Studies Programme of Yale University (May 2009). Special thanks go to the editors of this volume and especially to Haridimos soukas for their insightful comments on an earlier draft of the chapter. Te usual disclaimer applies.

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organized interests, the extent of rent-seeking and the absence of positivesum exchanges between the interested parties (Ioannou, 2000; Featherstone et al., 2001; Pagoulatos, 2003; Sotiropoulos, 2004; Antoniades, 2009), to ones focusing more on socio-cultural and socio-political characteristics such as clientelism, corruption, inefficient bureaucracy and low social capital (Lyberaki and sakalotos, 2002; Lavdas, 2005; Zambarloukou, 2006; Featherstone, 2008). Interestingly, the literature (and, with it, the wider public debate) has paid much less attention to two other, in our view crucial, factors: the limited role of experts in informing policy-design and the poor content of many reform proposals (for exceptions see Featherstone et al., 2001; Ladi, 2005). Departing from more established explanations of Greece’s weak reform performance, in this chapter we focus on the stage of conception and design of reforms, assigning an elevated significance to the role of research and expert knowledge for policy formation. We are driven to this choice by an observation that has been rather overlooked in the existing literature; namely, that reform proposals and policies often appear to be strictly inef-

ficient (rather in or theinsense of not addressing the than actualcontested problems and that stagnated), they aim toeither resolve, the sense of addressing them in incomplete and fragmented ways (thus, again, not resolving them). Tis suggests an inherent deficiency in designing efficiency-enhancing, positive-sum reforms which, in many cases, is largely unrelated to Greece’s lack of tradition in social dialogue and consensusbuilding, or to its institutional capacity regarding the implementation of reforms—the two factors that dominate the literature dealing with reform failures in Greece. We argue that what is at issue in the failure of reform in Greece is the deficient engagement between the policy-making and expert communities, which appears to be particularly pervasive in Greece. As evidence for this,

we examples where the expert advice of scientific andbeen policy review bodiesnumerous (both government-sponsored and independent) has not sought or utilized, and where the proposals of Expert Committees (Επιτροπές Σοφών), specifically set-up to advise government, have been abandoned or even discredited. Our review suggests two facets of the identified ‘engagement deficiency’: (a) politicians / policy-makers appear to have pre-established agendas and do not engage in a systematic way with expert advice, independent or commissioned; while (b) even in cases where a consultation processes with experts takes place, the resulting policies are often 48

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inconsistent with expert advice. We argue that these two facets constitute a specific pathology of Greece’s reform technology, which is located specifically and solely in the first stage of policy formulation, that of policy conception and design. We argue, moreover, that this ‘deficient engagement’ generates significant stumbling blocks in the policy-learning process (Hall, 1993) and thus in the design and implementation of reforms. Interestingly, in contrast to explanations based on ‘vested interests’, ‘political exchange’ and ‘institutional capacities’, this approach appears capable of explaining a paradox in Greek reform 1 history, that of reform activism with little change in policies and outcomes. But, importantly, this approach also allows us to see how contestation and political exchange, by taking place after the formulation of policy proposals (‘adoption of new ideas’—see Oliver and Pemberton, 2004), is often actually predestined to failure—despite or irrespective of the particular alignments of interests that may be present in any given conjuncture. Overall, we argue that our analysis makes a robust case for redirecting the emphasis away from the identification of ‘vested interests’ and ‘reform resistance’ actors that block to actually seeking to understand the specific(i.e. pathologies that leadreforms) to the production of inefficient reforms that do not allow concerned actors to accept them. We do not claim that our analysis applies to and explains all reform failures in Greece, but instead see our analysis as ‘a missing link’, as complementary rather than contradictory to more established explanations. However, we believe that this shift of attention has the potential to make a significant contribution towards a paradigmatic shift in policy-making that can reform the reform technology of the country.

Reform failure in Greece: waves of explanations Te last fifteen years have thewhy development of a large and thoughtful literature that attempts to seen explain reform efforts in various sectors of the Greek political and economic system have been unsuccessful.2 Te first wave of this literature was dominated by contributions focusing on ‘historico-cultural’ and/or ‘socio-political’ arrangements that have their srcins in the foundation of the Greek state. Dominant factors in these explanations were the enduring clientelism and patronage relations that have dominated Greek political life, as well as the omnipresent and all-pervasive role of political parties and the party mentality in all aspects of political life. 49

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Civil society and other organized interests, which would have balanced the role of the state in other western societies, have traditionally been subsumed by the state in Greece, which in turn was subsumed by political parties (seminal contributions here include works by soukalas, 1993; Mouzelis, 1978; Diamandouros, 1994; Mavrogordatos, 1988).3 In this way, Greece has never experienced an independent state administrative apparatus, along the Weberian lines that characterize other European states (see also Ferrera, 1996, 1998). Building on this research, a second wave of literature focused on the ‘path-dependence’ implications of these socio-political and cultural characteristics in social change and reform efforts in contemporary Greece.4 Calliope Spanou and Dimitris Sotiropoulos have focused on the defining characteristics of Greek public administration and their implications for Greek political life (indicatively, see Sotiropoulos, 1994; Spanou, 1996). Sotiropoulos (1993) developed the thesis of ‘a colossus with feet of clay’. Attempting to re-evaluate the structure of interest intermediation in Greece, Kostas Lavdas (1997) and George Pagoulatos (2003) developed the concepts of ‘disjointed pluralism’ respectively. Yet, the defining aspect ofcorporatism’ this second and wave‘parentela of publications was an explicit concern with the phenomenon of Europeanization (i.e. the impact that EU membership had on the Greek state and its structure, organization, practices and policies) (see Ioakimidis, 1996, 2001; soukalis, 1999, 2001; Featherstone, 1998, 1998a, 2005; Kazakos, 1999, 2004; Mitsos and Mossialos, 2000: parts III and IV; Pagoulatos, 2001; and Allison and Nicolaidis, 1997). Most of this literature therefore focused on externally-driven reforms, that is, how Greece responded to pressures and convergence policies ‘coming from’ the EC/EU. Most scholars suggested that although significant progress has been made, and although ‘Europeanization’ has been clearly visible in some public sectors—in foreign policy, for example (see sardanidis Stavridis, 2005; Ladi 2007), or, with 2010)—Greece some qualification, employmentand policies (Sotiropoulos, 2004; Zartaloudis, has remained one of the least responsive and least effective member-states in implementing EU-initiated policies and strategies (see Featherstone, 2008; Spanou, 2008).5 o explain this reform pathology, some authors looked back into the socio-political and cultural factors mentioned above, while others used newer theoretical or conceptual tools in political science, pointing for instance to factors such as ‘trust’ and ‘social capital’ (see for instance Paraskevopoulos, 2001; Featherstone, 2005; inios, 2005; Zambarloukou, 50

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2006) or to ‘advocacy coalition networks’ (Ladi, 2005). Te explanations advanced in this literature included the significant role of clientelism; the pervasive role of political parties in political life; corruption; the fragmented and particularistic structure of interest representation; the polarization of the political system and the conflictual nature of political culture; the atrophy or weakness of civil society; the weak Greek state apparatus and its incapacity to plan and implement policies, reforms, and to form winning pro-reform advocacy coalitions; the absence of social dialogue combined with a complete absence of ‘trust’ between social partners; the negative public attitudes and the political cost related to reforms; or even the lack of political will in the Greek system (for detailed reviews of the main explanations see Sotiropoulos, 2004; Featherstone, 2005, 2008). Currently, in what appears to be a new wave of explanations, the focus of investigation seems to be on Greek ‘reform technology’ and ‘policy capacity’, regardless, or rather despite, Europeanization and outside-in pressures. Tese analyses both sum-up previous findings and revive the discussion of what exactly is wrong with Greece’s reform technology and what, if any-

thing, be done to reform this reform itself.due Reviewing Greek reformcan failures, Featherstone (2008: 27)technology concludes that, to the nature of the Greek polity, ‘[s]top-go, incremental policy reform[s]’ will continue to be the dominant model of reform in Greece (at least with regard to market liberalization reforms). In this regard the ‘“system”, rather than personalities or parties, [tells] the essential story of both voice and interest’ in Greek reform failures (ibid: 30). Our argument in this chapter is that although these conclusions certainly apply to many failed reform attempts in Greece, their generalization as an analytical framework for understanding and analysing the pathology of Greek reform technology is problematic. On the one hand, using the institutional context to explain social change or continuity, important as it is for comprehending our social world, carries withand it agenerates problemainherent in comparative analysis: it underestimates agency rather deterministic perspective of the social universe in question. Tus change can only come from an ‘external shock’, but even then it is ‘path-dependent’. On the other hand, and more importantly, we contend that the focus on socio-political, institutional and/or cultural factors has drawn our attention away from the content of the reform proposals themselves.6 We claim that a significant number of reforms in Greece have failed not because of the institutional context, but simply because they were ill-thought through, 51

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ill-prepared and poorly substantiated and designed. In these cases the problem was not to be found in the stages of reform communication, negotiation or implementation, but in the stage of their conception and design. Tis remains an institutional problem. Yet what is at issue here is not the structure of interest representation, the lack of social capital or the presence of clientelism in the abstract, but the way in which political power conceives, decides and designs reforms. Te next section analyses the nature of this problem.

From context to content: knowledge in the policy process If our thesis is correct and a significant part of Greece’s reform pathology is due to content rather than broader socio-political factors, then the key question is how reform actors arrive at and decide the reform content (i.e. what knowledge and resources they use in order to conceive, decide and design the reforms they deem necessary). Te issue of when and how decision-makers use knowledge and expertise to design reforms, especially what knowledge they use, an open question in publicand administration and policy studies (seeremains James and Jorgensen, 2009). Speaking to this deficiency in the literature, James and Jorgensen (ibid: 143) have called for a new approach to policy-making analysis that would focus on the ‘utilisation of policy knowledge…as an independent variable in the policy process, a causal factor leading to more informed policy formulation and change with increased likelihood of success’. Te debates that dominate the literature of policy analysis on this issue can be seen as taking place along two intersecting axes. In the first axis, on the one end we have approaches that attempt to ‘describe and analyse networks where possessors of knowledge participate in and influence policy learning and policy change’ (Ladi, 2005: 281). Te three main approaches

here areadvocacy epistemiccoalitions communities (Haas, 1998; 1992; for a critique Antoniades, 2003), (Sabatier, Sabatier and see Jenkins-Smith, 1993; for a critique see James and Jorgensen, 2009), and policy transfer networks (Evans and Davies, 1999), while thoughtful research has also been done on the role of think tanks (Stone, 1996; Stone and Denham, 2004) and transnational networks (Risse, 1994, 1995; Evangelista, 1998). On the other end of this axis is what James and Jorgensen (2009) refer to as ‘utilisation literature’, which is a body of literature that ‘addresses the utilisation, or lack thereof, of applied policy research…[]he primary focus of the 52

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utilisation literature has been to understand the conditions facilitating and inhibiting when and how decision makers use policy information (directly or indirectly)’. Te aim of this literature is ‘not to understand the role of policy knowledge in fostering outcomes’ but to develop a theory that will enhance knowledge utilization in the future (ibid: 148; for a literature review on utilization theory see ibid, especially 147–149; KUPI, 2004). In the second axis the issue in question is the nature of (valid) knowledge itself. One end of this axis is dominated by a narrow positivistic approach to what is valid knowledge, while the other end is dominated by a postpositivistic approach to knowledge. At the positivistic end, the only valid knowledge is knowledge produced by ‘scientists’—therefore, epistemic communities (narrowly defined as scientific communities) are the only source of valid knowledge. Here the focus has traditionally been mostly on modelling and quantitative approaches to scientific research, while knowledge utilization in the policy process has been unidirectional and top-down. On the contrary, at the post-positivistic end, valid knowledge and expertise are not exclusive properties of a narrowly defined scientific community, but

may come practitioners, advocacy networks, stakeholders involved in from the policy area or issue in question. Here or theother emphasis has traditionally been on qualitative methods of scientific research, while the main assumption is that, for knowledge utilization to be effective and successful, learning should not only be top-down but bottom-up too (see Bell, 2004). It should be underlined that this controversy on the nature of valid knowledge is not a debate on whether systematic knowledge is important for the policy process. Tis is taken for granted. Te dispute has been about what forms of knowledge are or can be legitimate participants in the policy process. It can be argued, however, that the distance between the two ends of this debate has reduced over recent years. Tus the need for both quantitative and qualitative methods and evidence, as well as the need for both top-down andpolicy bottom-up knowledge and learning, is now widely recognized in both and scientific communities. In some countries, this recognition of the importance of systematic knowledge for effective policy-making has found its way into policy formulation. For instance, in the UK, evidence-based policy-making (EBPM) is seen as an organic part of policy formulation. Te Cabinet Office’s Better Policy Making (2001) document identifies four key stages in the policy development process: (i) a review of existing research; (ii) commission of new research; (iii) consultation with experts or use of internal and external 53

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consultants; and (vi) consideration of a wide range of properly costed and appraised options. Te definition of what counts as evidence in EBPM is equally important.7 In particular a ‘tripartite approach’ is suggested: Evidence for policy has three components. First is hard data (facts, trends, survey information) but the second component is the analytical reasoning that sets the hard data in context. Tird, an evidence base comprises stakeholder opinion on an issue or set of issues. (DEFRA, official website, 11/09/09)8

Tis approach does not constitute an unconditional delegation of policy design to ‘technocrats’. As DEFRA acknowledges: Decisions are influenced by a wide variety of factors (including Ministers’ values, experience and political judgement). Tis means that even in individual policy areas the evidence base must be both broad enough to develop a wide range of policy options, and detailed enough for those options to stand up to intense scrutiny. Tus an evidence-based approach should clearly show the line of sight between horizon scanning, strategy, policy, and delivery. (Ibid)

In other words, although the production of knowledge is recognized as a sine qua non factor, the political processes of the contextualization of this knowledge, and of dialogue over the policy proposals that stem from it, remain central. Indeed, the production of knowledge essentially serves the purpose of enhancing these processes.

Greek reform pathology: non-evidence based policy and design without knowledge Tis section aims to demonstrate what we deem to be a significant missing link in established explanations of reform failure in Greece (i.e. the deficient engagement between the policy-making and expert communities). o do so, we use indicative examples from reform efforts in policy areas such as the labour market, the pension system and local government administration. Although these examples on their own (within the framework of this short chapter) may not fully substantiate our thesis, we hope that, at the very least, we make a convincing case of why in many instances of reform failure in Greece the problem lies with the content rather than the context of reforms. Commissioning knowledge

In March 2009, amidst the global financial crisis and in response to calls for implementing ‘special measures’ in the labour market, the then Minister for 54

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Employment, Mrs Pali-Petralia, declared in a number of public statements that ‘Greece does not need more flexibility’. Our concern here is not with this position itself, but with its evidence-base. How did the minister know how much flexibility there is in Greece and how much more (or less) is needed? A year earlier, the Ministry of Finance—interestingly, without consultation with the Ministry for Employment—commissioned an independent study at the London School of Economics (LSE) to examine the extent of labour market flexibility in the country and the main institutional rigidities found there. In March 2009, the final report of the LSE study—which, incidentally, provides at least some evidence in support of the ‘flexibility thesis’—was still being drafted and had not reached the hands of the minister of finance, let alone the minister for employment. wo years before the commissioning of the LSE study, the Employment Observatory (EO) of the Greek Manpower Organization (ΟΑΕΔ)—which, despite its legal status as an S.A. is under direct government control 9—published a study on the extent and types of labour market flexibility in Greece (Gavroglou, 2006).

Te EO study volume of of some statistical and concluded that reviewed Greece hasa significant sufficient amounts typesevidence of flexibility (mainly temping), but lags behind significantly in terms of other types of labour flexibility, including both numerical (e.g. part-timing) and, more importantly, functional (job demarcations, occupational mobility, subcontracting, etc.).10 Te report was not without shortcomings. One crucial factor was that it paid relatively little attention to the extent of unregistered employment in Greece, which introduces a large window of what is known in the international literature as ‘flexibility at the margin’ (Boeri, 2005). Te presence of such flexibility, of the most insecure type, tends to negate the adverse effects of almost any type of institutional rigidity (at the expense of equity, of course)—thus making the minister’s assertion that the country does not need flexibility at least (but, by implication, erroneous): themore country does not needhalf-true more flexibility. However, it still does need a different type of flexibility, with many injections of security in the lower tier of unprotected employment and with a selective deregulation (e.g. on tenure and promotions) and re-regulation (e.g. on temporary employment) of the employment relationship in the public sector. Its shortcomings notwithstanding, to our knowledge, the EO study, as well as various less extensive studies on the issue of flexibility conducted by the Institute for Employment (INE) of the Greek General Confederation 55

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of Workers (e.g. INE, 2009), were never used by policy officials to understand the institutional conditions in the Greek labour market. As evidence for this, just one year after the publication of the EO study, and in response to the call made by the Commission’sGreen Paper on Modernising Labour Law (COM, 2006), the Greek government set up an Experts Committee, led by a professor of employment law and former PASOK MEP, Ioannis Koukiadis, to put forward proposals for the reform of the Greek labour market. Te report had an overly legalistic focus and made no reference to the labour market studies produced by the INE or the EO, while none of the authors of these studies participated in the committee. Te report found that many aspects of the Greek labour market exhibit extreme levels of flexibility, but that other aspects of the market are characterized by extreme rigidities. Te main message of the report was that a selective re-regulation of the labour market was needed to tackle pervasive unregistered employment, and to introduce modern forms of ‘flexicurity’, so as to increase both its fairness and its efficiency. Rightly or wrongly, the report was leaked to the press before its official

publication and on it was discredited both by the media (which, curiously, picked up only the pro-deregulation proposals) and, importantly, by the government. Te latter refused to publish it—it is still only available unofficially11–while government officials made a series of demeaning statements on the committee and its proposals. According to reports in the press (Kathimerini, 1/4/08), Mrs Pali-Petralia admitted that she had not studied the report almost a month after it was submitted to the Ministry for Employment. Te ‘Koukiadis Report’ is also indicative of another aspect of Greek reform technology. In its short history of commissioning Expert Committees to advise on specific policies, Greece has an unflattering record of disregarding their advice. Just a few months before the inglorious conclusion of the Koukiadis another Expert Committee, whichReport, was setthe upgovernment to advise onhad the discredited reform of the pension and social security system, chaired by Mr Nikos Analytis, former vice-president of the Federation of Greek Industries and president of the Greek Committee for Corporate Social Responsibility. When this committee published its report in November 2007, Prof George Alogoskoufis, the then minister of finance, responded by saying: ‘we are not bound by the Analytis proposals’.12 Not to be bound by the conclusions and suggestions of an expert committee is fair enough, so long as substantiated evidence-based alterna56

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tives are on offer. After all, there may, or should, be different groups (inhouse and independent) that work in parallel to inform the policy process. Yet, in the aforementioned case, a pension reform was finally implemented that left everyone dissatisfied, including the government, which stated that this was only a partial reform. A few months after its approval in the Greek parliament, the European Commission indicted the legislation, forcing an ECJ ruling that ‘[gender] differences … as regards pensionable age and minimum length of service … are incompatible with Community Law’ (ECJ Judgement C-559/07). Te most famous case of disregarding expert advice is perhaps that of the ‘Spraos Committee’, which was set up in 1997 by the Simitis government to advise on the reform of the pension system. Te committee came up with what seemed at the time to be a set of highly unpopular proposals and was swiftly stashed away—even though many of its proposals are still considered today as essential for the long-term sustainability of the system. A new committee was set up on the issue four years later under the same prime minister. Te ‘Giannitsis Committee’ had a weaker mandate and relied on expert advice from abroad (the British consultancy proposals failed to address key weaknesses of the‘Government Greek systemActuary’s’). (tax evasion,Its low female employment participation, etc.) and were soon rejected under the pressure of trade unions. Te end result was a mini-reform package under the then Minister for Employment Mr Dimitris Reppas. Similar was the fate of the 2002 ‘Georgakopoulos Committee’ (on the reform of the tax system) and earlier of the ‘Aggelopoulos Committee’ (also known as the ‘Committee of the Seven Wise Men’), which was set up in 1990 to advise on wholesale economic reform but saw its proposals rejected by the weak (‘all-party’) coalition government of Zenophone Zolotas. Te ill fate of such Expert Committees has often been explained in the literature by means of political contestation, veto points, vested interests

and costs’ (e.g.do Featherstone, Tere are, however, twoof issues that ‘political such explanations not account2008). for: on the one hand, many the proposals of these committees had been rejected before any systematic opposition had time to be expressed—and surely before any process of analytical reasoning let alone public dialogue. On the other hand, in many instances, the committees themselves did not have the mandate, scientific composition, or necessary evidence base to come up with meaningful proposals. For example, only one member of the Koukiadis Committee was a labour economist; the Giannitsis Committee relied on an evaluation of the 57

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system that was alien to the Greek realities and drew very little information from hard data. (Under)utilizing knowledge Tat is not to say that hard data, albeit sparse, do not exist in Greece, or that the capacity to produce hard data is somehow absent. Relative to its size, the country has a large set of think tanks and policy or research institutes. In the broader field of socio-economic issues alone one can list government-sponsored organizations such as the Centre for Economic Studies (ΚΕΠΕ), the National Centre for Social Research (ΕΚΚΕ), the Manpower Organization’s Employment Observatory Π ( ΑΕΠ-ΟΑΕΔ), the Institute for Migration Policy (ΙΜΕΠΟ), the National Documentation Centre (ΕΚΤ), and others; non-governmental organizations such as the Institute for Economic and Industrial Research (ΙΟΒΕ, affiliated to the Federation of Greek Industries), the Institute for Employment (INE, affiliated to the Greek General Confederation of Workers), the Macedonian Institute for Employment (ΜΑΚΙΝΑ ), the Centre for Export Studies and Research ( ΚΕΕΜ , affiliated to the Greek Exporters Association) and the very active research departments of the Federation of Industries of Northern Greece ΣΒΒΕ ( ) and of the Bank of Greece; and university-based research institutes such as the Institute for Regional Development and the Institute of Urban Environment & Manpower at Panteion University, the Athens Laboratory of Economic Policy Studies at the Athens University of Economics and Business, and many more. Most of these, however, remain underutilized, underfunded, and poorly connected to the policy-making process. Let us use two examples from the Centre for Planning and Economic Research (KEPE). 13 First, in 2004 KEPE published an extensive study on the competitiveness and comparative advantages of the Greek economy (Dimeli, 2004). Te study provides a unique insight into Greece’s chronic problem of interna-

tional competitiveness, which is responsible for the country’s extremely high current account deficits. Amongst its other findings, the study emphasized the need to raise the technology content of industrial production and to support innovation and product differentiation in particular sectors that appear to have an unutilized potential for the country. What was the policy impact of this study? Te most relevant public policy document at that time, the National Strategic Reference Framework 2007–2013, published in October 2006 (MEF, 2006), made no reference to it. While it looked extensively at the issue, it provided its own analysis of competitiveness and 58

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comparative advantages without the sectoral and historical detail of the KEPE study. As a consequence, it reached generic conclusions and thus the policy actions that it proposed were horizontal, encompassing all economic sectors and activities. Naturally, it downgraded the relevant actions on competitiveness, proposed under the heading of ‘Competitiveness and Entrepreneurship’ to fifth place (in terms of funds committed) out of the eight sectoral Operational Programmes envisaged in the Reference Framework. Second, in the last few years one of KEPE’s senior researchers published a series of papers examining the functional and administrative territorial organization of the country, which provided important policy prescriptions about the administrative organization of space (e.g. Prodromides, 2006, 2008a and 2008b). Such studies have been produced in the UK since at least the late 1980s—for Greece, however, this was a unique piece of research. Yet this research has not been taken into account in the policy discussions about administrative re-organization (Καποδ ίστριας ΙΙ), which was awkwardly considered a predominantly non-technical issue (Ladi, 2005). In fact, the debate about administrative re-organization has been conducted between the relevant ministries and, the organizations the local and regional authorities (ΤΕΔΚΝΑ ΚΕΔΚΕ , ΕΝΑΕ )14representing in the complete absence of relevant scientific and professional associations (such as the Greek Regional Science Association, the Greek Geographical Society, the echnical Chamber of Greece, or the Hellenic Association of Rural and Surveying Engineers) and with little reference to the European Spatial Development Strategy. Tis, despite the recommendation of the Institute for Local Administration, affiliated to ΚΕΔΚΕ , that the new zoning system should be established on the basis of concrete spatial-planning criteria (IA, 2008). At least to some extent, this under-utilization of (existing or potential) technical knowledge has to do with the weight that the views of political leaders have in the decision-making process. Te area of labour market

reform offers another example forofthis. 2000 the Greekheaded government to implement a radical reform theInlabour market, by thetried then Minister of Labour, assos Giannitsis—a professor of economics at Athens University. Te reform was vigorously opposed by trade unions and was ultimately only partially implemented. One key aspect of this reform was the changes it introduced to the cost of overtime, which was meant to incentivize employers to substitute overtime use for newly-hired employees as a means of addressing rising unemployment. Zartaloudis (2010) states that this aspect of reform was never discussed in the minister’s meetings 59

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with his scientific and policy advisors and was essentially introduced at the minister’s own initiative. Although the minister (and casual observation) suggested that the blockage of this reform was due to insiders’ ‘vested interests’ (employers wanted to maintain overtime as a low-cost means of employment adjustment, while employees wanted to protect overtime pay as an additional source of income), the interpretation by the wider scientific community (including some of the minister’s policy advisers) was that the reform failed because it was introducing more rigidities in the labour market (higher non-wage labour costs) without solving the problems of demand deficiency or skills mismatch that were responsible for rising unemployment. In the event, the personal opinion of the minister prevailed over the need to examine, on the basis of hard data and scientific analysis, the economic consequences of the proposed reform, and the reform failed. 15 Mind the (knowledge) gap: a missing link in reform failure?

Tere are numerous examples that make clear how poorly thought through, ill-substantiated, or badly prepared public reforms in Greece can be. In many instances of reform, the problem is not about the nature of evidence or whether there have been bottom-up learning mechanisms in place, but rather that there seems to have been no serious prior research, evidence gathering, consultation or planning. Or, even if research has been done or past research was available or consultation mechanisms are in place, these seem to have been completely sidestepped without any justification or counter-evidence given by the political leadership at the helm of the reforms. Furthermore, the above examples suggest that the troubled relationship between knowledge and reform in Greece moves along two different axes. Te first concerns ‘knowledge availability’. What knowledge and research is available on each reform area? Are policy-makers aware of existing ‘knowledge gaps’? Do new they research? seek to identify knowledge gaps and ‘close’ them by commissioning Te second axis concerns ‘knowledge utilization’. Do policy-makers engage with the existing / available stock of policyrelated knowledge? Do they seek, or feel obliged, to base their policies on existing or requested evidence? Te examples used above seem to suggest that the Greek reform apparatus scores low on both these axes. Tat is, not only is ‘knowledge availability’ (which would support reform efforts) limited, but, even when such knowledge is available, the reform apparatus fails to utilize it. 60

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o conclude, there is ample evidence that in a plethora of instances Greece’s policy-making technology, from the design of simple policies to wholesale reforms, suffers from a lack of engagement with scientific expertise and the relevant knowledge-base. Admittedly, the evidence base and knowledge production in the country is particularly thin, despite the reasonably large number of think tanks and policy/research institutes. But even when the evidence base is there, or when the capacity to produce it is present, in most cases this expertise is not sought for or, in instances where it is, it is often discarded even before it reaches the level of political contestation and without the need for any counter substantiation or justification. Tus, whereas the thinness of hard data may be taken to suggest that the deficient engagement is predominantly a supply-side problem, the underutilization of the evidence that is available suggests that this is at least as much a demand-side problem (i.e. a problem of the policy-making institutions not seeking, considering or engaging with the existing or required evidence and knowledge base). A number of factors may be responsible for this—indeed, in the next section we consider somedeficient potential candidates.isWhatever the causes, however, it appears that this engagement a fundamental problem in Greece’s reform technology that really goes beyond (in fact, precedes) the problems of political contestation and lack of consensus-building. Te claim here is that ill-informed policies produce sub-optimal results, as most of the time they are not able to convince the involved stakeholders and/or create positive-sum exchanges (because the payoffs and costs to different players are unknown, as the evidence-base is lacking to inform policymakers on these). If this claim is correct, then a large number of new policies are bound to fail due to their ill-thought through and ill-informed content. Tis may indeed be a missing link in current understandings and explanations of reform failure in Greece, as contestation is bound to happen

even if there are nofor ‘vested’ (but merely ‘simple’) interests and even with the best of intentions consensus.

Concluding remarks: what explains the deficient engagement? Our discussion has shown that the role of experts and the degree of knowledge production, generation or utilization in the Greek public policy process is particularly limited or fails in a series of levels within the policy formulation process. Yet, relative to the size of the country and its scientific 61

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community, it can be claimed that there is a reasonable number of think tanks and public or non-governmental policy institutions. Although the evidence base itself may be weak, the institutions that could take on the role of producing and contextualizing this evidence base (the first two steps in Britain’s EBPM model) appear to be present. It could be argued that the non-production and non-processing (contextualization) of knowledge by these institutions is more the result of a deficient demand for policy advice (as expert advice is discredited, sidestepped or circumvented) which in turn produces the supply-side problem of a weak evidence base (hard data and their contextualization). If this is the case, then what are the causes of the deficient engagement between policy-making and expert communities that underlies the failing reform technology of Greece? Examining the role of experts in reforms in Greece, Ladi (2005) observed an ‘organic relationship’ between political parties and experts. In the case of the 2001 constitutional reform, she found that it was common among experts who participated in the reform process to have a clear political affiliation with particular parties or even to be leading party members (for instance the then PASOK MP Evangelos Venizelos and ND’sprofessors Minister of the Interior Prokopis Pavlopoulos who are both renowned of constitutional and administrative law). Furthermore, she found that experts with tight links to political parties had more opportunities to participate in reform processes, and that it is only a relatively small elite of experts that participate in reform debates. Along similar lines, focusing on pension reform, Featherstone (2005: 739) notes: ‘No effective community of policy expertise has been established in Greece: no group, network or institution independent of party or government has identified itself in this manner or developed a political voice… Tis is symptomatic of the rarity of effective, independent policy think-tanks in Greece’ (on the case of labour market reform see also Papadimitriou, 2005). problem of expertise and knowledge utilization extends to the core of Te public administration itself. Both Spanou (1996; 2003) and Sotiropoulos (2001; 2004) have perceptively discussed the issue of the politicization of Greek civil service, especially of the higher echelons, and its negative implications in terms of planning, continuity, efficiency and effectiveness (see also Ballas and soukas, 2004). Discussing different reform trajectories within the ‘Napoleonic model’, Spanou (2008) notes in this regard: ‘even though ministerial cabinets have not even remotely the structure, expertise nor the policy capacity of the French cabinets ministériels, they tend to play 62

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an important role at a policy level, since they are mostly staffed by persons that enjoy the minister’s political and personal trust’. Te negative impact of this structure on knowledge production, contextualization and utilization is further enhanced by institutional competition among government departments. As was discussed earlier with regard to the issue of labour market flexibility, reports have been commissioned and expert advice sought separately by the two relevant ministries (finance and employment) and with little, if any, coordination between them. It is thus no surprise that policy proposals by the different ministries may appear divergent and that the resulting policies may seem inconsistent and are thus contested politically by the social partners. Finally, as was discussed above, another factor that enhances deficient engagement is the strong weight of political personality in any reform process. Te relevant ministers seem to place their opinion and preferences not simply in a central position in the decision-making process but also above the experts at all levels of opinion-formation, contextualization and even of evidence collection itself. Ministers often appear to know what the problems and thus the facts are before It can be argued thatthe theexperts. Greek reform technology resembles a closed party-dominated circuit that uses experts (who are often already affiliated with political parties) either as personal advisors or as decisionmakers themselves. Tis use of experts attempts to legitimize reforms and the circuit itself. In essence, however, what it does is to destroy, or overshadow, the need for dealing with the state’s ailing governing, thinking and reform capacity. Te need for enhancing the state’s governing capacity via institutional research (both in-house and independent), learning, and knowledge production, generation and utilization is replaced by, and reduced to, the choice of one or more individuals to participate in the policy-making process. All of this combined has rendered ‘research’ and ‘evidence’ properties to Greek reform and have generated a deepforeign antipathy and mistrust to any formtechnology, of ‘technocracy’ in society. Tis chapter attempted to identify a largely overlooked facet of Greece’s failing reform (and policy-making) technology. More often than not, reform proposals are drawn-up with little reference to a solid evidencebase and with very little attention to contextualization. Tey are thus thrown into the field of political contestation without the level of maturity (i.e. the ability to identify and create positive-sum games) that will allow the constructive formation of stakeholder opinions—which should 63

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in turn allow the transformation of the epistemic input into a politically shaped outcome. We can place this process in the context of Peter Hall’s model of policy learning and change (Hall, 1993; Oliver and Pemberton, 2004). Te lack of evidence-base and engagement with expert knowledge leads to a limited realization of the problems of the system (learning failures in the ‘accumulation of anomalies’) thus producing experimentations with ‘instruments’ and ‘settings’ (first and second order changes, in Peter Hall’s terminology) that are incapable of correcting the underlying anomalies. As a result, fine-tuning of the system fails and the latter becomes inherently unstable, calling continuously for attempts at reform. Tis is not uncharacteristic of Greece, where one observes significant reform activism (or, at least, consensus on the idea that reforms are needed), albeit with little actual (and effective) reform. We attribute this failure to implement reforms, despite the reform activism, to the fact that the deficient engagement with expertise is prevalent also at a later stage in the policy learning/change process, namely the stage of ‘fragmentation of authority’, where new ideas are sought for and utilized. line with our of discussion, search ideas forIn a combination reasons: policy-makers the productiondoofnot such ideasforis new not supported by the structure (the demand-induced supply deficiency identified earlier), the policy-makers place themselves ‘above’ the relevant expertise and/or rely on party-affiliated individual experts, and institutionally the relevant ministries have limited capacity to process/contextualize knowledge and limited willingness to cooperate amongst themselves. In this sense, third-order learning (i.e. the adoption of new ideas) does not occur. What appears as a failing ‘battle to institutionalise the new policy framework’ (see Oliver and Pemberton, 2004) is in fact an ill-situated political bargain over instruments and settings that may (or may not) belong to a new policy paradigm but are in any case applied to the existing paradigm.

Under reading, the continuous reform‘reform failuresresistance’ in Greece areblock not always thethis responsibility of actors that exhibit and reforms. Despite the resistance applied, the pension system, the education system and the labour market (among others) have been reformed in recent Greek history—perhaps a few times too many. Many times the reform failure is located in the ability of the (proposed, contested, rejected or implemented) reforms to address the anomalies of the system that they seek to transform. Tus, the issue of political contestation and reform resistance becomes not one of power and veto points but one of efficiency and reform 64

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technology, where the proposed/resulting reforms are such that they do not allow concerned actors to accept them; while the issue of successful reform implementation becomes a question of productive engagement with expert knowledge in all three levels: its production, contextualization and political negotiation. We hope that this call for a shift of our attention to these specific pathologies that lead to inefficient reforms has the potential to make a significant contribution towards a paradigmatic shift in policymaking that can reform the very reform technology of the country.

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5

ENACING REFORMS OWARDS AN ENACIVE HEORY

Haridimos soukas

Like any theory of deliberate social and economic change, a theory of reforms is plagued with ambiguity concerning what it is supposed to achieve. On the one hand, insofar as theory is traditionally taken to be about something (namely, it is thought to be externally related to an object), it has a representational function: its main objective is to represent the phenomenon of interest as accurately as possible in order to ascertain regularities, which can be submitted to social scientific testing. On the other hand, a social theory is not—and cannot be—merely representational; insofar as it enters actors’ vocabulary, it helps shape the social practices actors are involved in, thus having an enactive (i.e. performative, practical-constructivist) function.1 If representational theories primarily aim to explain retrospectively, enactive theories principally aim to make action elucidated. In this chapter I position myself in the enactive camp of theorists, aiming to sketch a general outline of a theory of reforms. I argue that to merely explain reform episodes retrospectively is not sufficient. Instead, we should focus on how reforms are enacted, which is critical if we are to understand the process of bringing reform about (or failing to do so). In the world of practice, enacting reform (and, thus, understanding and shaping process) is more important than explaining reform outcomes. In turn, as I will argue, this entails focusing on meaning, context and time. 67

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Te chapter is structured as follows. In the next section I discuss representational and enactive theories and argue for the merits of the latter. In the subsequent section I sketch an enactive theoretical framework of reforms that helps us understand the dynamic of reforms at different levels. In the final section I outline the contribution the suggested framework makes and how it may inform future research.

From representational to enactive theories: recovering meaning, dynamic context, and agency From a representational perspective, a theory of social reforms is, in principle, about developing hypotheses that describe regularities, or orderly and systematic mechanisms generating regularities, to be empirically tested and theoretically accounted for. A great deal of research on Greek reforms, for example, may be cast in the following logical form: the weaker the institutional capability of the state to deliver reform, the less successful structural reforms will tend to be (Featherstone, 2005; Featherstone and Papadimitriou, 2008); the more blockages to reform, stemming from the particular pattern of interest mediation and associated cultural attitudes and institutional settings, the less effective reform will be (Featherstone, 2005; Lavdas, 2005; Nikolentzos and Mays, 2008); the stronger the key veto-players in a reform process are, the less likely it is for reform to succeed (Featherstone, 2005; Featherstone and Papadimitriou, 2008; Pagoulatos, 2005). Te main value of representational approaches is explanatory. Trough the use of, typically, outcome explanations (soukas and Knudsen, 2002: 414–6), such as rational-choice and structural-functionalist models, representational approaches help explain the outcome of reforms rather than the processes leading to the outcome. ypical examples of outcome explanations include sebelis’ (2002: 11–12) explanation of ‘policy stability’ as a function of the number of veto-players and the ideological distance between

them; Papadimitriou’s (2005) explanation of the failure of the Greek labour market reform in 2000 through game theory; and Mossialos and Allin’s (2005) explanation of the ambitious (and, to a large extent, failed) attempt to reform the Greek National Health System in 2000 through rational choice institutionalism. Interestingly, the authors of the two latter studies tell their story of reform in process terms, but the explanation is couched in outcome terms, namely in terms of an underlying set of utility maximization principles (i.e. actors seeking to maximize their interests) that govern how the respective processes are ‘optimally’ played out. 68

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Where, however, outcome explanations are weak is in enabling practitioners (i.e. politicians, policy-makers, and public sector managers) to enact social reforms in real time. Outcome explanations of reforms retrospectively show why reforms did or, more usually, did not take place by appealing to some utility maximization strategies that key actors pursue, but they offer little help in understanding how reform has or has not been brought about, or how it may actually take place—the process is typically missing. Or, insofar as the process is included, it is done so in an ad hoc manner—the process itself is not revealing since the underlying actors’ strategies and the abstract principles they pursue is what really matters. Yet process is everything in the management of reforms. We know, for example, that the rule of law, protection of property rights, and a professionally-run civil service that is relatively independent from political interference are conducive to growth (Olson, 2000; World Development Report, 1997), but we do not quite know how to bring these about in particular contexts—the know-how is missing. Similarly, from knowing that, on the whole, privatization leads to increased performance of privatized firms

(D’Souza and Megginson, 1999),ofone hardly state moves closer to knowing how to bring about the privatization particular organizations. As studies of privatization show (Johnson et al., 2000; Panozzo, 2000; Pagoulatos, 2001; soukas and Papoulias, 2005), know-how is deeply contextual, dependent on meaning and sensitive to process. Research into the knowhow of reforms needs to take seriously into account meaning and dynamic context, both of which are abstracted away by outcome explanations. Below, I briefly explain why. Meaning. A reform, say in education or health, typically involves altering, in various degrees, historically established socio-material practices which are constituted by certain self-understandings, expressed as sets of languagebased distinctions shared by the community of practitioners. In investigating a particular practice (e.g. hospital, educational or banking practices), researcher does not explore isolated entities but meaningful practices (Brun-a sson and Olsen, 1993: Ch.1; soukas and Papoulias, 1996). How is this so? o be a member of a practice is to be someone for whom what is going on in the practice necessarily matters. Tis is the case because practices are constituted by certain collectively held self-understandings that situate actors relative to particular standards of excellence and to obligations. Tese self-understandings cannot be qualitatively neutral; they are articulated through contrasts (e.g. of the right and wrong use of concepts) and, hence, 69

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entail an evaluative component (aylor, 1985a: 19). Both self-understandings and evaluative components are learned through engaging in and with the practice, not through thinking about them. For example, notions such as ‘shame’, ‘trust’, ‘work ethic’, ‘superiorsubordinate relations’, ‘competence’, ‘loyalty’, and so on are inextricably bounded with a subject’s experience (aylor, 1985a: 54). Having the experience of, say, ‘ineptness’, as trainee physician Gawande did (2002), involves seeing that certain descriptions apply—the particular use of language marks certain qualitative distinctions concerning what is considered ‘inept’ (and by implication ‘competent’) behaviour, and how one ought to respond to it. Similarly, ‘mistrusting’ educational authorities, as Greek trade unionist teachers typically do,2 indicates a semantic space marked by certain distinctions concerning what is and what is not to be ‘trusted’. Te language actors use to describe their goals, beliefs and desires also defines the meaning these terms have for them (aylor, 1985a: 71; 1985b: 23). Language is constitutive of the meaning of human experiences, fears, and aspirations. Dynamic context. Focusing on entities and studying how their abstract properties are epistemology, contingently linked in aggregates (since, to representationalist it is only at this level thataccording valid explanations may be derived), fails to capture the irreducibly situational, non-linear, actor-dependent and temporal nature of reality that practitioners experience (Roth, 1992; urner, 1997; Sandberg and soukas, 2011). As Starbuck (2006: 143) remarked, in aggregating, it is inevitable that ‘researchers construct homogeneity in heterogeneous phenomena’, generating propositional (i.e. ‘If …then’) statements, which, even if true at the aggregate level, inevitably tend to simplify the phenomena at hand when seen from the situated action perspective of practitioners. Moreover, being logical formulae, the propositional statements generated by outcome explanations do not incorporate time. As Bateson (1979: 63) aptly remarked, ‘the if…then of causality contains time, but the if….then timeless’.situation, Te ‘causality’ that concerns practitioners—what to do,ofinlogic this is particular to achieve the results they wish—is not included in the propositional statements they are offered. For example, the well-established proposition: ‘participation in the implementation of new ideas makes the ideas more acceptable’ (Starbuck, 2006: 128) is of little help to a manager intending to implement a change programme. Tere are occasions where participation helps, but there are also occasions, especially when issues turn out to be highly political, where 70

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it does not necessarily do so. Not to mention, of course, that there are multiple forms of participation, none of which can be specified in abstracto but must be seen in concreto—in the particular context at hand. It all depends on the particular circumstances, of which only practitioners possess the best knowledge. Pyrgiotakis and Papadakis (2003), for instance, have shown how the effort of the Karamanlis government in 1975 to achieve maximum consensus towards higher education reforms, widely acclaimed by leading intellectuals across political parties, ultimately had the opposite results, since it enabled resistance to reform to be successfully mobilized by organized interests. In short, even if a propositional statement is true at the aggregate level, it does not necessarily make it true for my situation, in this particular context, at this particular point in time. For all their explanatory strengths, insofar as outcome-oriented representational theories fail to take seriously into account the meaningful practices and the dynamic contexts actors are involved in, their actionability (i.e. practical use) is reduced. An enactive (or performative) perspective, by contrast, gives priority to meaning and dynamic context: it pays particular attention how meaning relationally enacted time into and account what patterns of actiontoemerge; processisand context are taken over seriously (Langley and soukas, 2010; Shotter and soukas, 2011a; soukas, 2005a: Ch.16). More specifically, an enactive perspective is: (a) phenomenologicallyoriented, insofar as it is open to actors’ meanings and experiences, and how they are re-constituted over time, focusing especially on how the past is constitutive of, or internally related to, the present (namely how events and experiences grow out of earlier events and experiences); (b) process-oriented, insofar as it traces the multiple interacting actors embedded in sociomaterial practices, exploring how each actor draws on types of political and symbolic capital and how actions are mediated by institutional, discursive and objectual artefacts; and (c) action-oriented, insofar as it invites practitioners attend to theI will grammar their namely habitual ways of to acting. Below expandofon theactions, latter, since this to is atheir less explored feature of enactive theorizing.3 While enactive theories may usefully constitute process explanations— and to the extent they do so they offer illuminating analyses of how reforms are (or are not) enacted over time—their actionability4 is enhanced when emphasis is placed on description rather than explanation. ‘We must do away with all explanation, and description alone must take its place’, notes Wittgenstein (1958no. 132). Why? Because descriptions are sought in order 71

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to alert practitioners to what is routinely occurring in their involvements with each other and with their surroundings. Outcome-oriented, retrospective, explanatory language is insufficient in bringing into the foreground what usually remains in the practitioners’ background. Being immersed in their historically constituted practices and coping with the solicitations of their tasks at hand, practitioners, be they politicians, policy-makers or managers, are not focally aware of the already formed ways they have been drawing upon for doing what they specifically do—the tacitly held ways of looking, listening, deliberating, interacting, and so on, into which they have been socialized and are subsidiarily aware of while engaging in a particular project.5 For example, the government-controlled-cum-impositional policymaking process that Pagoulatos (2001) discerns in the handling of privatization by the Greek centre-right government, between 1990–1993, has been a long-standing feature of Greek policy-making (Sotiropoulos, 2001; Spanou, 2000; Makrydimitris, 1994). Seen as a practice embedded in context and time, ‘privatization’ involves practitioners subsidiarily drawing on a historically entrenched feature of the Greek government’s modus operandi (i.e. high government control over public policy) for focally handling particular privatization projects. Descriptions act as reminders to practitioners about what they already do (as, for example, when practitioners help preserve the status quo even when they claim to be doing the opposite), so that they potentially re-orientate themselves to crucial aspects of their context. For example, the ‘paradox of privatization’ that Pagoulatos (2001: 141) discusses can be understood as the government’s attempt to reduce the governmental sector (i.e. deliberately/focally bring about something new) by intensifying government control over the policy process (i.e. by subsidiarily drawing on the historical modus operandi of Greek governments). Understanding the historical ways of acting—what practitioners already (i.e. historically) do—is a valuable

contribution totheir elucidated action: practitioners with the means to re-articulate historical patterns of actionare inprovided order to obtain a clearer picture of their grammar of action, and to see fresh possibilities of action. Tus, for example, from an enactive perspective, a researcher is less inclined to ask ‘why have efforts to introduce teacher performance appraisal in Greek secondary schools been unsuccessful?’ and is rather more keen to explore, ‘what and how, in the given context, has helped sustain the status quo with regard to performance appraisal?’. Putting the question in this way opens up a horizon of inquiry that includes not only those who habitually 72

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resist this particular reform (e.g. teachers’ trade unions, opposition parties, etc.) but, importantly, those who introduce the reform as well. Resistance to reform can now be seen in broader terms: How do reformers act? What patterns do their actions manifest? What, specifically, do resistors react to? How, in turn, are reactions reacted to? Te possibility that resistance to reform may be sustained by both resistors and reformers can now be explored. Focusing on description, we are enabled to see what has been going on in a particular context that gives rise to patterns of interlocked action that sustain the status quo. It is not just that a reform fails but, more importantly, that the status quo is actively maintained over time—and that is as much an achievement as reform is. 6 It should be clear by now that, as well as being actionable (through reminding practitioners of fresh possibilities of action), a descriptive analysis has the advantage that it can be historical-cum-systemic: it can show how a pattern of interlocked actions emerges through feedback loops over time which, ultimately, helps sustain the status quo. For example, mistrust in a chronically politicized, traditionally slow-moving, and historically weak

in degree of privatization-management expertise public bureaucracy, theitscentre-right Mitsotakis government (1990–1993) to rely selectively led on a few politically sympathetic civil servants and, mainly, on the ministries’ political leadership (ministers at all levels, politically appointed secretaries in general and brought-in advisers), thus leaving the civil service disengaged from policy-making related to privatization and hampering the implementation of the privatization project (Pagoulatos, 2001: 133–4). As well as being sensitive to interaction patterns and feedback loops, historical-cum-systemic analyses take meaning and the discourses that shape it into account. Tus, a particular reform, introduced in a particular context, may activate certain types of resistance, which, underlain as they are by the need to defend particular interests, draw their credibility and appeal from discourse,self-understandings. grounded on narrativized historical experiences,certain which types shapeofcollective Te past is a discursive resource on which actors selectively draw in their dealing with the present. Exploring the types of discourse resistors draw on and how politically as well as symbolically potent those types are in a particular context, enables us to better capture the way reform develops (or does not develop). ake, for example, the case of the teachers’ union persistent resistance to efforts by the Greek Ministry of Education to introduce performance appraisal for teachers in state secondary schools. Although claiming that, in 73

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principle, they are not against this particular reform, in practice the union (OLME) has been vocally opposed to it by invoking the danger of ‘partypoliticization’ of the whole process and arguing against ‘surveillance’ and 7 ‘manipulation’ on the basis that they undercut ‘professional autonomy’. For a researcher to understand what is going on here, he/she needs to move within a hermeneutical circle: for this type of experience to be called ‘resistance’ it is essential that it be related to this type of situation (the ‘scary’, ‘threatening’, etc.) and that it gives rise to this type of action (‘lobbying’, ‘disobedience’, ‘strikes’, etc.). Experience, situation and action constitute a hermeneutical circle, within which a researcher necessarily moves (aylor, 1985b: 23). o understand, therefore, the maintenance of the status quo, one needs ‘to understand a certain language, not just of words, but also a certain language of mutual action and communication’ (aylor, 1985b: 24). In other words, one needs to understand a language game—a discursive practice—by tuning oneself into the significance of the distinctions employed in it. Doing so will likely reveal that party politicization and an authoritarian administrative culture have been historically entrenched features of the Greek civil culture, thus collective self-understandings andservice interpretations, and discursively legitimatingshaping reactions. In summary, an enactive perspective ontologically focuses on sociomaterial practices (rather than on contingently linked entities with pregiven properties), which it regards as the bedrock of social inquiry; epistemologically, it gives prominence to lay knowledge, meaning, and human experience, which it seeks to incorporate into theoretical accounts; and praxeologically, it helps generate actionable knowledge by bringing forward the grammar of actions practitioners are already involved in. In that sense, insofar as enactive theories are primarily concerned with description, they enable practitioners to obtain a clearer sense of what they already do. By getting to know the interlocked patterns of action that sustain problematic situations, practitioners betterenactive able to notice possibilities fresh beginnings. Generated ‘fromare within’, accounts constitutefor qualitative portraits aiming less at prediction and control and more at gaining a grasp of the potentials inhering in a situation. Tey seek to make action more perspicuous by providing practitioners with the conceptual means to re-articulate their taken-for-granted assumptions and their modes of orientation, their ways of relating themselves to the situations in which they work. Enactive accounts, being actionable and process-oriented, work to draw practitioners’ attention to aspects of their interactions (patterns of 74

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interlocked action) that are not usually noticed, to bring to awareness habits, prejudices and images that hold practitioners captive; and, furthermore, to point out that other continuations of them than those routinely followed are possible. Tis is a view of theory as perceptually reorienting rather than as cognitively explaining (as is the case of representational theories) (see Shotter and soukas, 2011b).

Enacting reforms: a framework Having outlined what enactive theories of reforms may achieve, what would an enactive general theory of reforms look like, and what should its conceptual backbone be? Tis is what this section sets out to do. Broadly put, reforms are deliberate efforts on the part of some authorities to effect change in a public policy domain, be it education, health, utilities, civil service, the pension system and so on, and to do so in a way that change becomes institutionalized and, as a result, a new relevant modus operandi comes about (Brunsson and Olsen, 1993: 1–2; Kazakos, 2010: 21–28; 1994). Policy domains typically operate on the legislation voted byWilliamson, democratically elected governments aiming to regulate definition and provision of collective goods. For a change to qualify as reform it should lead to a new system of delivering (or a system component contributing to the delivery of) an existing or new collective good. Policies normally reflect dominant understandings in a domain and are delivered by an array of organizations, many of which are directly owned by, or are heavily dependent on, the state. In ideal-typical terms, a reform would include passing legislation through parliament or another representative body that leads to changes in current organizational cultures, values, and/or policies, and, further down, to alterations in administrative routines, systems and structures, in order to improve or bring about some collective

goods delivered to citizens. reform,domain severalatchange are set in motion at different levels:Tus, fromin a policy large, processes through organizations, right down to how a collective good is delivered to users. Furthermore, it is worth noting that ‘reform’ has an inherently positive value insofar as it is designed to improve a current state of affairs, and it is legitimated, in principle, on that basis (Brunsson and Olsen, 1993: 2). Reform is programmatically designed as well as argued to make a current situation better, because the current situation is deemed to be undesirable, dysfunctional or below aspiration levels. Of course, what constitutes 75

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‘improvement’ is bound to be conflict-ridden, since it is inevitably dependent on diverse ‘appreciative judgments’ (Vickers, 1983). Reform can never be neutral; it necessarily has a value-slope and is couched in the language of improvement. Several typologies of reforms may be devised, for example, in terms of scale, time, life-cycle, frequency, orientation (purely legislative versus purely administrative), theme, mode (creating new organizations/collective goods versus changing existing ones) and so on. However, to capture the different levels that are involved in the reform process, it will be analytically useful to distinguish between three types of change (one of which is policy reform), depending on the extent to which underlying values, norms and collective scripts are challenged. In the scheme that is outlined below, reform is part of a complex change process, which is marked by different characteristics at different levels. First-order change

Tis is problem-solving that typically involves a mismatch between key

stakeholders’ aspirations and current organizational practices and/or performance. Te mismatch is corrected through changing particular organizational policies and/or action strategies. For example, delivering pensions through holders’ bank accounts rather than through the postman would be an example of first-order change. Te current system of delivery may be deemed inefficient and subject to fraud, and a better one needs to be devised. Te mismatch between current practice and authorities’ expectations leads to the undertaking of corrective action. In problem-solving, technical and managerial issues tend to be the salient ones to be considered in the process of change. Second-order change Tis is an organizational transformation that typically involves a change in the underlying ‘governing values’ (Argyris, 1993: 95; 2004: 10) of an organization that delivers a collective good, namely change in the values underlying and guiding the action strategies of the organization. Governing values may be explicit or, more usually, implicit, and provide the guidelines regulating organizational behaviour. Examples of governing values include: ‘repair equipment breakdowns regardless of costs’; ‘when things turn out badly, it is the users’ fault’; ‘to move ahead in this organization you need to be a ruling 76

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party sympathiser’; and ‘do what is required but no more, and always cover your back’. Making the, until relatively recently, state-owned Hellenic elecommunications Organization (OE) more customer- and performanceoriented would be an example of second-order change. In organizational transformation, as well as ‘hard’ (i.e. technical-cum-managerial) issues, ‘soft’ questions of communication, trust and credibility become important. Tird-order change Tis is policy reform that typically involves changing (some of) the constitutive rules of a policy domain, especially institutionalized meaning systems and values, established ways of doing things, and overall policy objectives. As Brunsson and Olsen (1993: 11) remark, the primary effect of third-order change is ‘the creation of meaning and the moulding of public opinion. Attempted reforms can then be regarded as part of a cultural struggle for norms, world views, symbols and legitimacy. Reform processes are characterized more by the creation and reshaping of aims and preferences than by the transformation of predetermined aims into new structures and processes’. Policy reform thus differs from organizational transformation in that a broader (i.e. extra-organizational) institutional-political-cultural template is challenged. In the policy domain, institutional arrangements and practices are bounded with macro-cultural and political issues. Tird-order change does not merely involve the transformation of a particular organization or public policy but, through it, it impacts on the broader institutional field in which an organization is embedded; the organization helps change its institutional field as it is changing itself. An institutional field, such as, for example, health or education, consists of several organizations which, in the aggregate, represent a recognized area of institutional life, whose constituent members systematically interact with

one and partake a common meaning system 1995; aggioanother and Powell, 1983; in Wooten and Hoffman, 2008).(Scott, Members of DiMinstitutional fields include governments, various state bureaucracies and agencies, professional associations, trade unions, private providers, special interest groups, and the general public. In institutional fields, ‘disparate organizations involve themselves with one another in an effort to develop collective understandings regarding matters that are consequential for organizational and field-level activities’ (Wooten and Hoffman, 2008: 138). It is these collective understandings that are challenged with policy reform. 77

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It is not uncommon for third-order change to be part of a broader political project to modernize a country’s institutions: it is the medium as well as the outcome of such a project. Privatizing (in part) and restructuring Greek utilities (e.g. Public Power Corporation—DEH) would be a good example of third-order change. Te main challenge in such cases is, typically, to turn a ‘state-political firm’ (soukas and Papoulias, 2005: 80), such as DEH, into a conventional firm—a relatively autonomous unit of authoritative resource allocation and economic decision-making—that learns to compete in the market place; is subjected to independent scrutiny from the outside (whether by markets, regulatory authorities and/or civil society organizations); and is organized and managed for achieving particular results, which serve as the yardstick in terms of which the effectiveness of the organization and the latter’s management are judged. Tis kind of change is not narrowly organizational, since it involves important shifts in how the broader institutional context is structured. Along with all relevant issues mentioned earlier, ‘macro’ political-symbolic skills become very important here: reformers need to develop a coherent and persuasive macro-narrative of institutional and forge political alliances to support Prime Minister Simitis’change ‘modernization’ project in the 1990s was anit.example of a macro-narrative that provided the overall rationale for the reforms his governments pursued.

Exhibit 5.1

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Moving from problem-solving through organizational transformation to policy reform entails moving towards greater complexity, higher conflict and stronger recursivity (see Exhibit 5.1). Complexity is greater to the extent that there are more agents involved in (and affected by) the change process. Conflict is higher insofar as problems become less technical and more valueladen, context-dependent, and political. And recursivity is stronger, since policy reform is both a medium towards effecting broader change in the institutional-political-cultural template of a country and, at the same time, an outcome of that change. For example, to remove political patronage from the personnel practices of Greek state-political firms, the political culture of the country would, to some extent, need to change too—to change the part, the whole needs to change, and vice versa (soukas, 2005b). Higher degrees of complexity, conflict and recursivity make the change process more uncertain, symbolic, and political, thus more open-ended. o put it differently, the more localized, technical, and congruent with organizational values and institutional-field meaning systems a particular change can be made to be, the more likely it is that it will be adopted. is worth notingathat no objective criterion is suggested here inorganizaterms of Itwhich to assign change as administrative problem-solving, tional transformation or policy reform. Tese distinctions are merely analytical and have heuristic value. Even seemingly ‘technical’ changes, such as introducing performance appraisal systems for state school teachers, may turn out to be closer to policy reforms, insofar as they are heavily dependent on broader institutional-cultural-political templates that structure key constituencies’ (e.g. teachers’) discourse, thus lending credibility to resistance to reform. Similarly, changing some of the governing values of a statepolitical firm such as DEH (for example, ‘a job is a job for life’; ‘the trade union is one of the sources of authority in the organization’; ‘political patronage is instrumental in recruitment and promotions’, etc.), often turns out to be closeare toapolicy (third-order change), insofar as those governing values part ofreform the meaning system of an (extra-organizational) institutional field and the associated political, cultural-cognitive, and normative structures (soukas and Papoulias, 2005). Te three types of change suggested here are nested within one another in an ascending order; how they are aligned is a contingent, empirical matter. Reforms that are taken to be mainly ‘technical’ projects, as was the case with Labour Minister Giannitsis’ effort to reform the pension system in 2001 (inios, 2005), neglecting the embeddedness of the reform into the 79

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broader institutional field, lead to an underestimation of the high complexity, conflict, and recursivity of the reform, and the need for skilled politicalsymbolic management. Even so, unless there is a more radical shift in hegemonic institutional-political discourse, brought about by the concatenation of several factors, including civil society organizations, opinion makers, international bodies, electorally legitimated party political projects, critical events that help focus popular perceptions, a favourable political environment, and bold leaders, it is doubtful whether third-order change can be successful. It is the dependence of third-order change on such a fragile joining up of a constellation of diverse factors that makes it so precarious and open-ended (Sissouras, 2010). Several processes, events and leaders need to be joined together, in real time, for such change to be successful. How this joining up takes place (or not) is an interesting question to explore empirically. Whereas outcome explanations can usefully elucidate institutionalstructural features of the Greek political system (e.g. structure and clientelistic functioning of political parties, interest mediation, veto points, etc.) and point the utility-maximization logics thatreform drive collective strategies astoexplanatory variables of particular outcomes,actors’ it is process 8 explanations that show how such outcomes are achieved. A process approach allows us to understand differences between outcomes (e.g. the failure to privatize Olympic Airways in the late 1990s versus success in privatizing certain state-owned banks; failure to partly privatize OE in 1993 versus successfully floating OE in the stock market in 1996—Pagoulatos, 2005) by focusing on the processes that generated those outcomes. More generally, process explanations, such as, for example, path-dependence (Sydow et al., 2009; Davaki and Mossialos, 2005) and Actor-Network Teory models (Czarniawska, 2008; Latour, 2005) can offer illuminating analyses of how a concatenation of reform-relevant factors is or is not achieved, of reforms (such as, example, the privatization,leading in part to orthe on success whole, and restructuring of for certain state-political firms (Pagoulatos, 2001, 2005; soukas and Papoulias, 2005)), or to reform failure, such as the failure to privatize Olympic Airways for about twenty years (Pagoulatos, 2005). For example, the reform-minded socialist Prime Minister Simitis turned out to have been unable to establish a hegemonic presence in his party (PASOK) during his reign (1996–2004). Narrowly elected as prime minister by his parliamentary party in 1996 and constantly challenged by the 80

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populist fraction of PASOK, his ‘modernization’ narrative was never fully embraced by his party, a large part of which still subscribed to the populist narrative of its founder Andreas Papandreou. A result of Simitis’ weak grip on his party was that the attempted bold pension reform of 2001 had been strongly contested and politically-symbolically eroded from within both his party and his government, well before it had been challenged by the trade unions on the streets. Similarly, as Papadimitriou (2005) notes, Labour Minister Giannitsis’ handling of the labour legislation reform in 2000, especially his relative political inexperience and his somewhat strained relationship with the unions and influential PASOK cadres, was conducive to the failure of his reform. From a process perspective, actors’ choices are not treated as mere inferences, namely as occurring in a closed logical space, where ‘no new candidates for belief are introduced’ (Rorty, 1991: 94), but as contextually shaped, temporally involving possibilities. Actors’ rational disposition understood as utility maximization cannot be automatically assumed. What constitutes success (utility) and how it may be achieved are, to some degree at least, open-ended. As Granovetter (1992: 49–50) has remarked, ‘ways of doing things begin for reasons that relate to the various purposes of the actors involved and to the structure of relations they are embedded in’. Both purposes and relations are not given but dynamically as well as contextually shaped. Far from collective actors being homogenous entities, populated by self-identical utility maximizers, actors have the ability to shift—re-interpret—the constraints within which they operate (Porter, 1991: 110). When the very language of reform and the associated values of economic and organizational rationality are an integral part of the national political culture, providing legitimacy to governments and structuring political debate accordingly—as is often the case in countries where a modernist discourse prevails—reform is part of the taken-for-granted stock of lay knowledge and can be relatively easily mobilized by reformers. In such a case, recursivity tends to be reduced, since reform is less part of changing the institutional-cultural-political template of a field-cum-country and more about changing the governing values of particular organizations. Making hospitals, for example, more accountable, cost-aware and performanceoriented is more of an organizational challenge in the UK than in Greece, where such a change is closer to being a third-order change (policy reform), since the very values of ‘accountability’, ‘economic rationality’, and ‘rational management’ have traditionally been weak in the relevant institutional field-cum-political culture (Ballas and soukas, 2004). 81

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Similarly, changing state school teachers’ performance appraisal system in UK schools is likely to be seen as an organizational transformation or problem-solving issue, since ‘accountability’ and ‘performance management’ are part of the rationalized institutional field and the broader political culture of the country. Te specifics of performance appraisal may be debated and disputed by those affected but the concept is unlikely. Not so in countries like Greece, however, where ‘accountability’ and ‘performance appraisal’ in the public sector have historically been associated with particularistic forms of management, authoritarian forms of government, and partypolitical meddling. In a historically clientelistic and populist political culture, performance is not seen as something to be judged objectively’—namely ‘ by specifying general objectives and criteria, following abstract forms of reasoning, and looking for evidence that can be commonly regarded as valid—but as something to be either disregarded or viewed with mistrust and, therefore, strongly disputed. In such a context, it is not accidental that any time the issue of performance appraisal comes up, the following question is raised: ‘who is to be trusted to do it, in the first place?’ In a histori-

cally institutional setting, authorityInfigures not ‘trusted’ for to carry low-trust out performance appraisal ‘objectively’. short,are ‘accountability performance’ as a taken-for-granted institutional-field value has not gained the same currency in the Greek public sphere as in the UK; hence the very concept itself is contestable (Ballas and soukas, 2004). Te high recursivity of third-order change often causes reforms to get caught up in vicious circles. Te implications for the management of reforms are significant. Consider the following two examples. 1. It is well known that a politicized civil service tends to be ineffective, since institutional memory is weak and extra-professional incentives are instituted (World Development Report, 1997). Despite knowing this, a new government is nonetheless typically faced with pressing administra-

tive problems and, suspicious of the civil service that has been politicized to varying degrees by its predecessors, is tempted to appoint politically friendly cadres as secretaries of ministries and as heads of public organizations, along with several political advisors, in an effort to speed up policy-making and enhance the effectiveness of the running of state organizations. As mentioned earlier, Pagoulatos (2001) describes such a process of heavily involving political cadres in the planning of privatization by the Mitsotakis government, between 1990–1993, while sidelin82

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ing the civil service. Short-term problems may be addressed in this way, but the long-term issue of the politicization of the state is not only unaddressed, but is further perpetuated. Te real problem here is the way the problem has been historically addressed—it is a meta-problem. Solving a particular administrative problem (first-order change) is dependent on a supervenient institutional-political-cultural template (third-order change), drawing on which perpetuates the problem at hand. What appears as a first-order solution, if seen from the perspective of third-order change, is yet another instance of the problem. 2. Tis vicious circle can be seen more clearly in the following cartoon of the Greek cartoonist Costas Mitropoulos (published in the daily newspaper a Nea—see Exhibit 5.2).

Exhibit 5.2 about here

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Te then Prime Minister Costas Simitis (on the left) reprimands the Greek civil service (the lady on the right), saying: ‘Bribes are finished, I say’. o this remark, the lady (the civil service) replies: ‘Let me work out how much you need to bribe me for this!’ Tis cartoon graphically illustrates the vicious circles third-order change needs to overcome: ‘Stop bribing’ is the directive, while ‘bribe me to stop bribing’ is the response. In other words, the reaction acquiesces by reproducing what it is supposed to stop from occurring! Te problem here is not that the civil service does not understand the particular utterance, but how it does so: by embedding it in the hegemonic language game (the language game of corruption). Te speaker may be new, but the same utterance has often been enunciated in the past with limited results and, crucially, the language game within which the utterance is understood remains the same—and this is the problem; it is a meta-problem (Ballas and soukas, 1998). A word has meaning only as part of a sentence, notes Wittgenstein (1958:No. 49), and continues: ‘o understand a sentence means to understand a language’ (Wittgenstein, 1958: No. 199). Understanding is holistic. o understand of ‘mastering a technique’ (Wittgenstein, 1958: No. 199),a language and this isisapart profoundly practical, rather than merely linguistic, matter. We master a technique by participating in a socio-material practice and being socialized in its key distinctions and how to employ them. Te meaning of words is in their use. For third-order change to take place, a new language game needs to emerge, and the role of the reformer is to help bring it about. Alas, this is a costly matter for the reformer, since it is not just others who need to change: he/she must change too. Te real problem—the metaproblem—is not ‘tackling corruption’ per se but ‘tackling “tackling corruption”’, which includes reformers’ hitherto ways of tackling corruption. In the Greek context such ways have traditionally been marked by inconsistency, particularism, politicians’ impunity, political in the tokenism, justice system, partisanship, and petty party rivalry. As a interference result, mis9 trust prevails. Governments ritualistically condemn corruption while, at the same time, carry on drawing, in various ways, on the old language game of self-serving party politics (which includes corruption). Teir allegations and admonitions count for little insofar as they do not obtain new meanings by being embedded in a new language game. Te latter consists of no mere utterances but of practical gestures that signify new beginnings (Shotter and soukas, 2011a). 84

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Te basis of a language game is activity, not knowledge; practice, not thinking; certainty, not uncertainty, remarks Wittgenstein (1979: no. 473– 479). Experience comes first, knowledge later. As Wittgenstein (1980: 31) famously remarked (quoting Goethe), ‘language is a refinement, “in the beginning was the deed”’. For a reforming Greek government, a practical gesture would be to self-limit the way it exercises political patronage over state institutions, by cutting the umbilical cord between the ruling party and the state (e.g. through appointing senior civil servants as ministry secretaries, respecting seniority in the judiciary, appointing professionals as heads of state organizations, etc.). Such Wittgensteinian ‘deeds’ would signify new beginnings—a new language game—insofar as they would manifest in-deed an alternative cultural template; trust could gradually begin to be built. Within a new language game, the utterance ‘stop taking bribes’ would acquire a new meaning.

Conclusions Iand have argued here for an enactiveframework approach towards study may of reforms have outlined a conceptual for howthe reforms be so studied. Unlike representational approaches, enactive approaches offer process explanations and/or actionable descriptive knowledge by taking sociomaterial practices as the main objects of inquiry; paying attention to the relationally-cum-discursively constructed meanings that infuse actors’ actions over time; and bringing forward the grammar of actions practitioners are already involved in. Moreover, I have suggested that reform should be analytically seen as a complex process of change that includes three levels: policy reform (thirdorder change), organizational transformation (second-order change) and problem-solving (first-order change). Tird-order change is the most com-

plex of all since and it involves multiple actors,it challenges key institutional understandings is recursive, namely does not merely involve the transformation of a particular organization but, through it, it impacts on the broader institutional field in which an organization is embedded—the organization helps change its institutional field as it is changing itself. Viewing the reform process in its entirety we can better see what is at stake at each level and how a possible alignment or interaction between them is achieved. Policy reform may be successfully initiated but fail later to be translated into organizational transformation. Similarly, problem-solving 85

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may be initiated but encounter obstacles if organizational conditions are not right. Or organizational transformation may be precarious and shortlived if it is not backed up by policy reform or is not translated to problemsolving. All these remain matters to be empirically researched. Te theoretical framework suggested here makes the following contributions, which have implications for further research. First, the framework makes it possible to empirically explore recursivity and how it can be managed. Tis is important because high recursivity leads social systems to becoming self-referential, since policy domains reflect dominant institutional-political-cultural beliefs and practices. Given that policy reform is set in motion by politicians, the latter are already embedded in a historically established political culture (and discourse) whose crucial features are likely to be the ones reformers attempt to change through the particular policy reforms they initiate. Tis is likely to create vicious circles. From a practical point of view, by zooming into patterns of interlocked action over time and making available to practitioners their grammar of actions, an enactive approach makes it possible for practitioners to re-articulate their habitual

ways of which acting;holds theythem are enabled pattern captive.to see and possibly revise the historical Opening up a self-referential system may occur through the use of ‘external constraints’ (Featherstone and Papadimitriou, 2008: 30; Pagoulatos, 2005: 366; soukas and Papoulias, 2005: 90), such as EU-mandated deregulation and/or floating state-political firms on the stock market, which remove the trigger of change from the local political context and expose the organization to behaviour-shaping information and constraints. ypically, external constraints, such as membership of international authority structures (e.g. the EU) or the 110 billion euro loan to Greece by the EU-European Central bank and IMF in April 2010, may be chosen by countries for geopolitical and/or macroeconomic reasons. Such external constrains are then trans-

formed into particular triggers for changeobliquely, that are difficult to politically symbolically resist successfully, leading, to further changes. and Secondly, an enactive approach makes it possible to study how external constrains are translated into triggers for change and how the latter lead (or not) to the gradual establishment of new discursive templates. For example, adopting entry into the EMU and the consequent meeting of the Maastricht reaty criteria as a national objective by both of the main political parties of government, primarily for geopolitical and macroeconomic reasons, enabled the modernizing Simitis government (1996–2004) to launch 86

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a programme of cautious privatization (Pagoulatos, 2005). Te external constraints of the EU single market and of EMU membership set off waves of economic reform, especially deregulation and privatization, which gradually led to a redefinition of the objectives and criteria of evaluation of some state political firms. Similarly, with even greater force, the 2010 mega loan to Greece not only saved the country from bankruptcy but, crucially, set off a wave of hitherto unthinkable reforms (e.g. in the pension system, in regional government, opening up of closed-shop professions, layoffs in the public sector, extensive privatizations, etc.). A good example of how external constrains may lead to triggers for change and the establishment of new discursive templates is the case of DEH in the early 2000s. As soukas and Papoulias (2005) have shown, third-order change was triggered by the EU-mandated energy market liberalization and the floating of DEH on the stock market between 2001–2003. While these may have appeared at first as ‘technical’ solutions to the problems of making energy generation more efficient and DEH capable of raising capital for future investments, they were endowed with significant

discursive potential. Te IPOs and market(Johnson liberalization were part of a new discourse—a new ‘institutional template’ et al., 2000)—centred on ‘markets’, ‘efficiency’, ‘competitive advantage’, ‘transparency’, and ‘accountability’. Having to accept initially the notions of ‘stock market’ and ‘market liberalization’ meant that, sooner or later, the company would also have to accept the underlying business values of these notions—it legitimated these business values within the company and disrupted the latter’s self-referentiality by making DEH look to the outside business world (i.e. to stock markets and competitors). Having legitimated those business values in a company which, historically, has had little understanding or appreciation for them, it was a matter of time and intelligent management before the same values could be extended to other life, such as thepractices creation(i.e. of the a proper business planparts and of theorganizational adoption of professional HR partial renewal of executive talent by recruiting from outside, and meritalone evaluation of managers at all ranks). How such discursive extensions occur, with what results, and in what cases, are interesting questions to explore empirically. And thirdly, an enactive approach invites us to see reform in its full complexity by looking at the different levels of change and how they interact over time. As Brunsson and Olsen (1993: 6) remark, ‘reform is easier to 87

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initiate than to decide on, and easier to decide on than to implement’. Reform may be seen as successful even when it results in few visible changes. Reforms are part of a cultural-political re-definition process, which alters values, aspirations and preferences. ‘Reform processes can affect what participants and observers regard as possible, true and right’ (Brunsson and Olsen, 1993: 13). Te centre-right government’s attempt to privatize OE in 1993, for example, may have ended in failure, but it paved the way for its successor centre-left government to carry through the reform in 1996, albeit more cautiously and with no ideological fervour (Pagoulatos, 2005: 376). Te very attempt to privatize a major utility put ‘privatization’ on the political agenda and rendered it a legitimate topic for discussion. Privatization was no longer a taboo topic when it came to utilities (Papoulias, 2007). Materially, the reform may have failed at the time, but, when seen in discursive terms, it prepared the ground by helping focus attention on the problem of state-run utilities and altering aspiration and preference levels. Te relevant discourse began to shift. However, the third-order change of DEH was rather bumpy following

the election ofwas the replaced, Karamanlis government 2004. Prioritiestochanged, top management and, as a result,inthe willingness see through the change that had already started was somewhat lacking. Te DEH transformation closely followed the twists and turns of the broader political game; it lost momentum. Karamanlis was elected waving the ‘anti-corruption’ flag. ‘Cleaning up’ state-political firms became the new priority. Te new DEH top management team started looking for ‘scandals’, allegedly committed by its predecessors, rather than carrying through the change the previous top management team had started. What began as a change of a state-political firm eventually became entangled into the political game. Te traditional features of Greek politics (polarized party politics, politicization of state-controlled organizations) prevailed; the reform came to a halt. the dynamic of reforms—how policy is played outTus, with exploring different actors in different organizations,aor in thereform same organization over time—enables us to capture the nuances of the reform process, insofar as the latter is embedded into the broader political system and its local enactment in particular organizational contexts is explored. Looking at different levels of change, how they function and how they interact offers us a rich picture of the reform process.

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6

MARKE REFORMS IN GREECE, 1990–2008 EXERNAL CONSRAINS AND DOMESIC LIMIAIONS

Nikos Christodoulakis

Introduction Economic reforms in Greece have occupied a central place in the mainstream public agenda of the last two decades. Against a history of inertia and opposition to economic liberalization, several market reforms were initiated in Greece on the way towards participation in the European Economic and Monetary Union (EMU) as the convergence process to EMU acted both as a political disciplinary factor in the formation of economic policy in Greece and as a catalyst for easing the implementation cost of reforms—mainly through the systematic decline of interest rates. But despite apparently overwhelming support for EMU membership and broad

political endorsement of the necessity to eliminate parochial practices, Te author is grateful to G. Pagoulatos and other seminar participants at the Yale Conference for comments on an earlier draft, to D. Varakis and C. Foulidis for helping with the collection of data and to an anonymous referee for some critical suggestions. Disclaimer: All views expressed in the paper are solely those of the author and do not necessarily reflect the position of any other person or party involved in Government during the period of examination. Te author was involved in the process of several reforms, thus certain points of the analysis may not be viewed as balanced by all readers.

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reduce rent-seeking and unleash the country’s growth potential, progress in the actual implementation of market reforms has been less evident. Attempts to restructure the economy were met with a cautious or even hostile social response and frequently became the terrain of fierce political attrition. In the economic literature, there are three main approaches describing the conditions under which reforms might be successful that can be used to interpret the delays and eventual mode of implementation of reforms in Greece. Firstly, the ‘crisis hypothesis’ postulates that an adverse shock to the economy speeds up pro-reform decision-making and weakens the resistance of those in favour of the status quo. A ‘war of attrition’ framework has been employed by Alesina and Drazen (1991), Fernandez and Rodrik (1991) and Drazen (2000) in which the cost of changes falls unequally on various groups within society. Reforms are delayed due to the power of social groups to veto policies that are deemed to be disproportionately costly to their vested interests as compared with other groups. Te occurrence of a crisis reveals which group suffers a higher cost from postponing the reforms, and thistoeventually leadscan to the resolution However, the extent which a crisis be seized uponofasthe an stalemate. opportunity to promote reforms depends on a number of political characteristics. Estimating an empirical model, Alesina et al. (2006) establish that a crisis most effectively catalyzes reforms when it occurs with a ‘strong government’, meaning either presidential systems or single-party governments with a large majority and an absence of party infighting. Along the same lines, the ‘honeymoon’ hypothesis implies that unpopular or divisive measures should be taken shortly after the elections (the famous ‘first 100 days’) when the reform-mandate is still untarnished and the remaining time is sufficient for the government to capitalize on the beneficial outcomes of reforms. Even when the above conditions are met, crisis-driven mayascome at policy a high measures cost for the government if they reforms are viewed ad hoc thatincumbent could be reversed when the crisis is over. Tis can be exploited by the parties affected and increase opposition, especially if the reforms are ill-prepared and their future benefits are vague and non-identifiable with potentially supportive groups. As a consequence, public opinion may neither be convinced of the necessity of reforms nor mobilized for their implementation. Te history of market reforms in Greece coincides to a large extent with the occurrence of fiscal crises. Whenever state finances have gone out of 90

MARKE REFORMS IN GREECE, 1990–2008

control, emergency plans have been launched to contain the explosive pattern of debt and correct unsustainable current account imbalances. Tese plans have usually been accompanied by promises of structural reforms in the hope that they would eventually bring about a sustainable improvement of the economy and make future emergency policies unnecessary.1 Another opportunity for a country to adopt and implement a reform agenda is the occurrence of an ‘external conditionality’. ypical examples are the IMF structural programmes and the terms of reference applied to international aid. A distinct case of external reform requirements emerges when a country seeks to become member of a supranational institution, where some form of eligibility criteria applies. For example, a country’s participation in the World rade Organization is conditioned on the implementation of measures of trade liberalization. Also, states that seek membership in the European Union are required to undergo extensive institutional harmonization. Open-ended periods of transition, opportunistic governments and oneoff conditionality procedures without subsequent surveillance tend to reduce pressure to credible carry outpolicy and maintain On the other end, inelasticthe time frames, agendas reforms. and continuous auditing encourage reform-minded governments to speed-up structural changes. Given the complex nature of such interactions, it is not surprising that the economic literature is not firmly conclusive on the effectiveness of external constraints. For example, Alesina et al. (2006) find only a mild correlation between actual reforms and IMF conditionality programmes, while Ivanova (2006) notes that an outcomes-based conditionality pays off only when domestic consensus and a lack of widespread opposition are ensured. A widely-debated conditionality is the convergence process that is required before an economy qualifies for entry in the EMU. As explained by Featherstone and Papadimitriou (2008: 64) in the case of Greece, the

process of of ‘Europeanization’ much of theIndomestic change as a result pressures arisingaccounts from EUfor membership’. a seminal paper‘… on the disinflationary impact of the European Monetary System that preceded the EMU, Giavazzi and Pagano (1988) have argued that policy credibility to carry out the required fiscal reforms was ‘borrowed’ by participation in a set of rules beyond the reach of domestic politics, so that they cannot be denounced at a national level. Reforms in Greece intensified in the run up to its membership of the EMU, but later decelerated because the external requirements became vague and less time-specific. 91

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A third strand in the reform literature relates the intensity and social approval of reforms with ‘regime changes’ that overturn previous practices and establish new socio-economic paradigms. Tis was the case in Eastern Europe after the collapse of communism in 1989–90 and in Latin America after the fall of military dictatorships in the 1980s. In such circumstances, reforms gain socio-political support if voters are convinced that the benefits will be widely shared and not expropriated by new powerful nomenclatures (see Desai and Olofsgard, 2006). o ensure this condition and provide credibility that the benefits will be spread equitably, the government may find it advantageous to follow policies that enhance the prospects of economic growth, increase employment and raise labour income. In this framework, reforms are seen as a vehicle of general well-being and new opportunities; thus resistance by pressure groups can be more easily marginalized. Boeri et al . (2006) explore how governments can tailor their reform strategy to alter the redistributive effects of reforms and assist implementation. In contrast, if gains from reforms are captured by well-placed groups such as party apparatchiks, insider traders or powerful interests, the public be alienated the reforms the weaken. political2 impetus for market will liberalization andfrom privatization will and quickly Te above theories suggest that the intensity of policy instruments to carry out reforms and the extent of achieving the desired outcomes in each particular country vary significantly among different governments and under different external obligations. Tis chapter develops a quantitative framework similar to that developed by the IMF (2004) to assess the progress of economic reforms in Greece, and to identify the main political and economic factors that have either hindered or encouraged implementation. Te analysis covers the period 1990–2008, which is important for three reasons. First, this period is important because extensive reforms were not com-

mon before themarket 1990s.and Despite the fact that several in the EU had adopted open deregulation agendas by countries the mid-1980s, Greece failed to organize a similar political momentum for cutting red-tape and liberalizing inefficient state monopolies. Reforms became inevitable only after the deterioration of fiscal and external imbalances, and after sweeping inflation and lack of growth became endemic. In 1986 a far-reaching stabilization programme was implemented that included measures to modernize the tax system, overhaul public utilities and reform the framework of collective bargaining. At the same time, Greece initiated a major overhaul of 92

MARKE REFORMS IN GREECE, 1990–2008

the banking sector as part of the single-market programme of the European Union (Pagoulatos, 2003). Growing stabilization reduced Greece’s fiscal and external deficits, but fierce opposition and infighting within the ruling party led to the abandonment of the programme two years later. Only the process of restructuring the banking sector survived the policy shift, while most of the other measures were cancelled. In subsequent years, the country experienced a protracted period of successive elections and weak governance, and the reform agenda was dormant until the beginning of 1990 when a conservative government with a strong privatization agenda came into office. Market reforms then became strongly established as a standard political reference point for both the proponents and the opponents of reform more generally. In the early 1990s Greece started preparations to participate in the convergence process towards the EMU. Logically, this was expected to exert a powerful effect on reforms, as had been the case in several countries where the Maastricht reaty proved to be a major opportunity to promote changes and satisfy the eligibility criteria. In Greece, however, external conditional3 ity didwas notoverwhelmingly prove adequate endorsed to kick-start reforms. Despite the fact that the treaty by parliament, the government failed to exploit the EMU consensus in organizing a similar cross-party support for reforms.4 Political opposition and social resistance were so strong that the first convergence plan was abandoned in 1993 and a new credible framework was required to accelerate reforms and achieve EMU accession in 2000. Te reform agenda continued to be a policy priority after Greece’s EMU accession, as the EU launched the ambitious ‘Lisbon Strategy for Growth and Employment’. However, the world recession and a sense of post-EMU reform fatigue led to the deceleration in the implementation of structural reforms in several eurozone economies, including Greece (for an extensive analysis see Duval and Elmeskov, 2006). Te period under exami-

nation evenlyconditionality divided between pre-EMUreforms and post-EMU, andanalysed. thus the effect ofisEMU on domestic can be clearly Finally, another reason that makes the analysis of reforms in 1990–2008 interesting is that the two main political parties in Greece held office for roughly equal time spans (conservatives for eight years in 1990–93 and 2004–09 and socialists for ten years, 1994–2003) so that the importance of ideological factors can be also assessed. Tis chapter relates the progress of reforms to a number of political and economic factors. In general, structural changes in Greece are found to be sluggish and suffer from frequent changes 93

FROM SAGNAION O FORCED ADJUSMEN

in government, as the new incumbent needs time to establish new priorities. On the other hand, strong governments, higher growth and the timewindows imposed by the EMU process are found to exert a positive influence, thus explaining the alteration between speeding-up and slowingdown in the reform process. Tis chapter employs a number of structural indicators to assess the progress of Greek reforms in the financial sector, the labour market, the restructuring of public utilities, the regulatory framework and the tax system. Te limited reforms in the labour market are also discussed. wo phases of reforms are considered. Te first took place in the early 1990s amid fierce political opposition and social resistance. Following this, a number of market reforms linked to the accession to the EMU were launched in the late 1990s including the flotation of public companies in order to expose them to market-oriented practices and generate proceeds for the reduction of public debt. After the adoption of the single currency, Greece endorsed a ‘second phase’ of market reforms that included deeper-scale privatizations aiming to reduce the entrepreneurial activity of the state and remove barriers inin various economic activity. After entry the global crisis 2008,sectors Greeceof failed to manage its soaring public and external deficits and was soon trapped amid a deep recession and the prohibitive cost of debt servicing. Te country was finally granted a bail-out by the joint action of the European Union, the European Central Bank and the IMF on the condition that structural reforms were implemented to increase competitiveness and to return growth to the Greek economy. Tough the present study stops short of analysing the extent and consequences of the new strand of reforms, it may nevertheless offer some useful hindsight. Te rest of the chapter is organized as follows. Te second section discusses the history of reforms in Greece over the period 1990–2008 in the

two phases before after EMU accession. Tefifth thirdsection sectionconcludes describes the the determinants and and indicators of reforms and the chapter. Data sources and tables are listed in the Appendix.

Te history of market reforms in Greece ‘Market reforms’ in the present context refer to policies that affect either the composition between public and private ownership of a given sector of economic activity, or the reduction in the cost and enforcement of barriers 94

MARKE REFORMS IN GREECE, 1990–2008

to entry in it, thus directly creating new business opportunities within the sector. In this sense, reforms in the labour market, the financial system or major changes in the tax environment and the public utilities are treated as market reforms in this chapter. Te restructuring of public administration or decentralization schemes are not considered as such, although they might indirectly affect business perspectives. Troughout the 1990s, all reform programmes aimed—albeit with different degrees of success—at modernizing the outmoded banking and financial system, restructuring public companies and redressing public finances. Four main types of policy instruments were employed to pursue market reforms during the 1990–2008 period: (i)

(ii)

Reducing state ownership: partial or full-scale privatization of public utilities by means of initial public offerings (IPOs), management agreements and private acquisition in order to expose them to more transparency and accountability. Market liberalization in protected sectors with state monopolies (e.g. telecommunications, airways, etc.)

(iii) Removal of entry barriers in sectors of economic activity with oligopolistic structures (e.g. trade, shipping, hotel construction, regulated professions). (iv) Restructuring of public administration in general and the tax sy stem in particular. Tis chapter examines the progress of reforms over three sub-periods. Te phase of hostility: 1990–94

Capitalizing on the fact that Greece was lagging far behind other European economies, as well as the urgent need to contain public indebtedness, a new government was elected in 1990 with a clear mandate to restructure the public sector. its one-seat majority in parliament,and theagovernment announced anDespite ambitious programme of privatization, new legal framework of market liberalizations was enacted in 1991 to speed up reforms. A major reform of the social security system was also implemented in 1992. Te privatization of utilities by directly selling state-owned companies was considered to be the quickest way to reduce the swollen public debt and avoid a new fiscal crisis. As systematic reform efforts had not been implemented before this period, most sectors were still in an over-regulated initial 95

FROM SAGNAION O FORCED ADJUSMEN

condition that made the political case for making structural changes more convincing. But implementation was delayed and the government failed to attract new investment, boost growth and generate new employment. Te fact that the programme coincided with other austerity measures and a major curb of benefits in the social security system provided affected groups with the opportunity to coordinate opposition and turn public opinion against the reform agenda. In the end, any success was limited, and most of the promised reforms were abandoned at a later stage. Perhaps the most dramatic failure was the attempt to privatize city transport in Athens in 1992. Te main argument put forward by the government was that the budget could no longer service the financial burden caused by overstaffing and out-of-market fares. Property rights were to be transferred to a small group of insiders, while the rest of the staff could keep their jobs in less-protective conditions under their ex-colleagues. Tere was neither a systematic argument on possible improvements in the services, nor any reference to similar privatizations in other European capitals. Te outcome was quite predictable: claiming that a massive increase in fares was

underway theand new enterprise plan was fiercely attacked into themake media violent clashesprofitable, took placethe between the hard-line transport union and the would-be owners. Although approved by parliament, the scheme was abolished altogether after the elections in 1993 and there has never been any other attempt to privatize city transport in Greece since this point. Tere were drawbacks in other reforms as well. Te market-opening to the newly arrived mobile telephony was limited by not allowing the public incumbent to participate. Tis restriction was imposed on the assumption that the market would otherwise be dominated by the sheer size of the state company, but competition did not fully prevail in the duopolistic market that was created. Attempts to privatize the ailing national carrier or to promote joint ventures by theeither. publicFinally, power corporation and foreign investors did not prove successful a major attempt to privatize the telecom utility sparked a factional revolt within the ruling party, which led to the collapse of the government and a landslide defeat in the ensuing 1993 elections. Teories of reforms provide a number of explanations for these failures. o start with, none of the conditions of ‘strong governance’ and prompt implementation of reforms as envisaged by the ‘war of attrition’ models was met during 1990–93. Te government was relying on a single-vote majority 96

MARKE REFORMS IN GREECE, 1990–2008

transplanted from another political group and was geared on the reform agenda only after a long delay and two cabinet reshuffles. Te condition that reforms should bring about widely-shared benefits was also undermined. Instead of creating new employment opportunities, uncertainty mounted, fuelled by dismissals in the public sector and fears that flux of immigrants from were Eastern Europethrough would further jeopardize jobs.the Moreover, as privatizations pursued the direct transfer of property rights, they gave the impression of expropriation to selective groups and, as predicted by Olson (1965), this was exploited by those seeking to forge resistance against reforms. 1994–2000: Acceleration towards EMU

After the elections in 1993, several previous reforms were retroactively cancelled, such as the privatization of Athens city transport, the partial sale of the Olympic Airways group and all schemes of PPI in the energy sector. Additionally, one of the first measures taken by the new government was to set-up novel consensus-enhancing institutions such as the Economic and Social Committee and to introduce collective bargaining in public utilities, replacing an administrative—and usually more restrictive—model of pay negotiations. Te role of the trade unions was significantly strengthened and privatization was effectively dropped from the priority list, though not fully and formally denounced. wo factors proved crucial in revitalizing the reform agenda one year later. Te first of these was that the risk of explosive public finances had further increased. Market uncertainty was so widespread that, when capital controls were lifted, a fierce speculative attack against the drachma took place in 1994. Te defence turned out to be successful (Flood and Kramer, 1996) and this created a sense of confidence in the effort to reform the economy. Seizing the opportunity, the government launched alinked new convergence plan, including a series of market reforms specifically to participation in the EMU. Several decrees on market liberalization were issued in 1994–95 (see Figure 6.1) and a more pro-reform environment started to prevail. Second, the privatization process for major utilities was substantially revised so that it was now based on public offerings, which diluted ownership and avoided the risk of expropriation by specific groups. o further ease the resistance of the insiders, the government pledged that the reforms would not harm employment. 97

FROM SAGNAION O FORCED ADJUSMEN Fig. 6.1: Number of market-liberalization decrees 7 6 5 Decrees

4 3 2 1 0 1990

1992

1994

1996

1998

2000

2002

2004

Source: Savva-Balfousia (2006, ables 1 and 2).

Te first successful IPO of Greek elecom (OE) took place 5 in the middle of 1996 and this enabled a more coherent reform agenda to be launched. But the legacy of failed privatization at the beginning of the 1990s was not easily forgotten and implementation continued to be sluggish. Violent clashes took place between union hard-liners and government ministers in the event of selling a state-owned bank in 1997. Yet instead of reversing the clock, the incident proved to be a turning point in strengthening the government’s determination, and reforms at last received the muchneeded political momentum to proceed further. Te reduction of public ownership in the economy was pursued by the closure of outlived and launching IPO for public utilities of todozens take advantage of organizations the international stock exchange bonanza. Flotation exposed public companies to more competition and raised substantial revenues for the reduction of public debt, thus further enhancing Greece’s prospects of joining the EMU. Other structural changes included the lifting of ‘cabotage’ in shipping, the entry of Greek elecom (OE) into the mobile telephony market, which led to wide price competition, and efforts to make the economic environment more conducive to entrepreneurship and employment. 98

MARKE REFORMS IN GREECE, 1990–2008

After the adoption of the single currency in 2001, the agenda had to be revised since the collapse of the dot.com bubble in international markets and the bearish sentiment prevailing after the 9/11 attacks in the US hindered the pattern of IPO that had dominated the previous period of reforms. In accordance with the ‘Lisbon Strategy of Growth’, a new round of reforms began in Greece that aimed to increase employment participation, reduce the entrepreneurial involvement of the state and remove entry barriers in key sectors of economic activity. Te ceiling for private shareholding was raised to 65% in some public utilities, two more state-controlled banks merged with private institutions, several state tourist enterprises were sold to the private sector and the maverick Public Power Corporation (DEH) was floated by 49.9%. Reforms included several simplifications of the tax system and some interventions in the labour market aiming to enhance participation and flexibility without threatening job security. Barriers to entry were lifted in hotel construction, corporate auditing and land purveyors, though the liberalization of electricity production did not go much beyond enacting the legal framework. But to there were noticeable drawbacks A was major banking merger failed materialize, privatization of the as airwell. carrier again inconclusive, and an attempt to overhaul the pension system in 2001 had to be withdrawn and significantly watered down before being approved in the following year. Helped by the strong growth prevailing in the economy, the reform momentum accelerated in 2002 and convergence with the most advanced EU economies continued. In 2003, this momentum slowed down mainly because of the world turmoil due to the war in Iraq and the fact that elections were approaching (for details see Christodoulakis, 2006). Te post-EMU fatigue After joining the EMU, the scope of reforms was limited for the following reasons: (a) Tere was an upper ceiling of 65% that total flotation of most public utilities could reach so as to maintain state control over management. Only a few companies and small banks were sold outright to the private sector. (b) Flotation was not preceded by deregulation in the respective sector and this ensured that public utilities were not fully exposed to market discipline and competition. 99

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(c) Liberalization of product markets and professions was very limited, as governments wanted to minimize the upfront cost of the reforms that were needed for ascension to the EMU. In a sense, the prospect of EMU, which had been used so effectively at the beginning to speed-up reforms, became an argument for postponement at a later stage.

Te reform process slowed down significantly after the elections of 2004, despite the fact that the New Democracy government had made a strong pre-electoral pledge for far-reaching changes in the economy and a radical restructuring of the public sector. Deficits in public companies widened considerably due to extensive new appointments and a bonus extravaganza for the new generation of managers. Reforms were concentrated on some small-scale IPOs, and the controversial sale of Greek elecom to the German state company, Deutsche elecom. After a long and inconclusive tender for the privatization of the air carrier, the government sold Olympic Airways to a Greek private investor following direct negotiations. A new framework for joint ventures between the private and public sector was established and new legislation was introduced to increase labour market flexibility and reform the pension system, notably by curbing early retirement and disability claims and merging a number of pension funds. In 2005, a major shift in taxation took place by abandoning conditional tax breaks and replacing them with a cut in the corporate tax rate from 35% to 25% within a four-year period. Te policy seemed to be in line with the literature that favours extensive tax cuts to boost economic activity, as argued by Mendoza and esar (1998) and Zhu (1992) among many others. However, most of the results in this literature are based on perfect foresight models and do not survive in the presence of adverse supply-side shocks. In the latter case, agents, not knowing the duration and severity of the shock, adjust their expectations downwards and tax cuts may be counter-productive; noting this point, (2006) argues ‘…ofwhen thestock, (tax) reform coincides with aGiannitsarou negative shock and/or a lowthat level capital production falls below the pre-reform steady-state’. In fact, the corporate tax cut in Greece coincided with galloping oil prices that prevented enterprises from increasing investment and raising employment. Since the measure was accompanied by several other tax facilitations for enterprises, the widespread fall in public revenues forced the government to raise indirect taxes in order to control the inevitable deterioration in public finances. Te share of direct taxation in total revenues 100

MARKE REFORMS IN GREECE, 1990–2008

declined, and composition between corporate and labour income tax shifted substantially in favour of the former.

Indicators and determinants of market reforms Te quantitative assessment of structural reforms is far from straightforward, as the extent of actually implemented reforms is frequently quite different from the target initially set by the government. For example, labour market legislation often turns out to be a lot less effective in practice than envisaged in the legislation itself due to unforeseen difficulties and field resistance to its implementation. Measurements of the benefits of market reforms may sometimes be misleading because some reforms materialize with a long lag and it is not always possible to separate their beneficial impact from other developments. For example, a significant contribution to improvements in labour productivity in several West European countries was more likely to stem from the immigration flux from Eastern Europe after 1989 rather than from a profound restructuring of industrial relations. A comprehensive framework in industrialized countries has been devisedfor byassessing the IMFmarket (2004)reforms using time-series of relevant indicators as proxies for actual structural changes, so as to enable pool econometric estimates and cross-country comparisons. Indicators from various countries were scaled between 0 and 1 with increasing values indicating a less regulatory regime. Te outcome indicators are then regressed on a number of explanatory variables that include institutional, economic and political factors. Data in the IMF study cover twenty industrial countries but not Greece, thus structural indicators have to be constructed anew for five areas that have attracted most of the reform attention during the period 1990–2008, namely: (i) (ii) (iii) (iv) (v)

the labour market; the regulatory environment in product markets; the banking sector; the tax system; and the public sector and public utilities.

Compared with the IMF classification, the first four are the same, one is dropped and a new one is added: IMF indicators include the liberalization of the merchandise sector, but this is left out of the subsequent analysis as 101

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most reforms in this area had already been accomplished by 1992 through the EU single market project. Instead, structural changes in the public sector and public utilities are included, because they were a critical part of the reform agenda. A set of indicators was constructed in such a way that they increase with the progress of reform. Details and sources are given in the Appendix. Te use and meaning of the indicators are described separately for each domain of reforms as follows. Labour market reforms Measuring labour market reforms poses serious difficulties because data is sparse and work flexibility is not easily quantifiable. Moreover, the extensive—and partially unrecorded—employment of immigrant workers in Greece after 1990 is likely to have left several actual characteristics of the Greek labour market out of official measurements. First, I discuss some specific labour market reforms in Greece vis-à-vis those in the OECD countries, using the measurements of reform intensity constructed by Duval and Elmeskov (2006) by taking the ratio of actual to potential changes over the period 1994–2004. Selective labour market indicators (depicted in Fig. 6.2) show that the intensity of reforms in Greece was lower than most of the average intensities observed in the OECD and the twelve first-round EMU countries (EMU12). A noticeable exception regards active interventions in the labour market, where Greece scores 42% against 33% for the OECD and 36.9% for the EMU, as summarized by index ALP. Tis area included initiatives financed by the 3 rd CSF Programme (2000–2006) to encourage outside groups to enter the labour market and measures to subsidize part-time employment in the aftermath of factory closures. Flexibilityonintemporary working time (FLX inand Fig.Greece 6.2) was enhanced by behind easing restrictions employment scores 17%, still the EMU but a little above the OECD average of 15%. Te score in the pension index ERIP is negative due to the extensive use and abuse of early retirement schemes during the 1990s as a means to reduce overstaffing in public utilities and to make privatizations more attractive. Tis measure was applied in Olympic Airways twice (1994 and 1998), in the Duty Free Shops (1998), the Hellenic Shipyards (2000) and in several other cases before finally being abandoned in 2001. Such practices were introduced 102

MARKE REFORMS IN GREECE, 1990–2008 Figure 6.2: Intensity indicators of labour market reforms Reform Intensity in Labour Markets: 1994–2004 Indicators are percentages of maximum possible score 40 30 20 10 0

ALP

TSS

EPL

UBS

WFIR

FLX

–10

ERIP EMU12

Greece

OECD

Notation:

ALP: Active Labour market Programs TSS: Tax and Social Security EPL: Employment Protection Indicators UBS: Unemployment Benefit System

WFIR: Wage Formation and Industrial Relations FLX: Working-time Flexibility ERIP: Early Retirement, Invalidity and old-age Pensions

Source: Duval and Elmeskov (2006, able 1).

again in 2006, when a lucrative early retirement scheme was used in Greek elecom to reduce overstaffing prior to the sale to Deutsche elecom. On tax and social security costs (index SS) Greece lags far behind due to the high levels of employers’ and employees’ contributions. Despite the fact that such a policy raises the incentives for evasion and encourages black market appointments, the government was hesitant in reducing on the the rates owing to its fear of possible adverse short-term consequences budget.6 Greece is found to be more flexible than the average in both groups in terms of the wage formation process (WFIR) (where it scores 5% against 2.3% for EMU12 and 2.6% for OECD) and also in the eligibility of unemployment benefits (UBS). Tough illuminating, the above measures are not useful for time-series analysis. Te only available time-series is the index of Employment Protection Legislation (EPL), published by the OECD Employment Outlook 103

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(2005). able 6.1 shows again that very little change occurred in Greece between 1985 and 2000. Regarding this aspect, regulation in Greece seems to be one of the most restrictive among OECD countries. Given the nearconstancy of the indicator, it is not included in the estimated set. able 6.1: Index of Employment-Protection Legislation (EPL) in Greece.

Year

1985

Protectionagainstdismissals Regulationontemporaryjobs OverallEPLstrictness

2000

2.46 4.75 3.61

2.33 4.75 3.54

2003 2.41 3.25 2.83

2008 2.5 3.25 2.88

Note: A higher value indicates more protection. Source: OECD, Employment Outlook (2005). Estimates for 2008 are from Anagnostopoulos (2009).

Te banking sector

Reforms in the banking system are captured by the increase in capitalization of the banks, and the expansion of banking operations in Greece (see Fig. 6.3). Increased competition between banks and the fall in interest rates

Fig. 6.3: Reform indicators for the banking sector 4000 500 3500 Branches (rhs)

400 s o r u E n o lil i B

3000 300 2500

Assets (lhs) 200 Loans to enterprises (lhs)

100

2000 1500

0 90

92 94

96

98

00

02

04

Source: Bank of Greece and Hellenic Bank Association. 104

06

MARKE REFORMS IN GREECE, 1990–2008

caused a substantial rise in lending to enterprises, including small enterprises that were practically excluded from bank loans due to high borrowing costs and prohibitive regulations. As a result, the expansion of corporate loans is an indicator of less restrictive practices towards enterprises. o quantify the structural changes in the banking sector, three indicators are constructed by taking the growth rates of the banks’ capitalization, of total loans to enterprises and the expansion of bank branches throughout Greece. Te regulatory environment

Market reforms in Greece included attempts to liberalize some state monopolies and remove red-tape from various activities. Other measures aimed at the simplification of the administrative sector, and the creation of an environment that was more business-friendly and less costly to new investment. Such reforms are also expected to lead to the reduction of corruption and rent-seeking practices in the wider public sector. Detailed measurements of product market liberalization are not available for Greece, and two indicators compiled by the World Bank for the quality of the regulatory environment

and the control of corruption are used instead. Tey are displayed in Figures 6.4 and 6.5 respectively, revealing a noticeable improvement in the run-up to Greece joining the EMU, and a gradual deterioration afterwards.

Fig. 6.4: Reform indicator for market environment Quality of Regulatory Environment (Score index, World Band Indicators, 2008) 1.05 1.00 0.95 0.90 0.85 0.80 0.75 0.70 90

92

94

96

98

00

02

04

06

105

FROM SAGNAION O FORCED ADJUSMEN Fig. 6.5: Reform indicator for fighting corruption Control of Corruption No corruption = 100, Source: World Bank 76 74 72 70 68 66 64 88 90 92 94 96 98 00 02 04 06 08

Te tax system Following the IMF (2004), two structural indicators were constructed to capture distortions of the tax system. Te first is the ratio of corporate revenues to those collected from personal income. As taxes paid by households are comprised mainly by taxes on labour income, a fall in this ratio creates disincentives for those seeking employment and causes a distortion in the factor mix of the economy. Te second indicator is the ratio of revenues from direct to indirect taxation. Although there is no unequivocal interpretation, its rise is usually regarded as socially more equitable because indirect taxation lacks progressivity as opposed to income tax. Te two indicators are depicted in Fig. 6.6. Regarding top marginal income tax rates, Gwartney and Lawson (2008) report that there has been practically no change in the distortion scale in Greece during 1990–2006, thus no such indicator was included in the present examination. Public sector and utilities

Since the 1990s, the main target of public sector reforms has been to reduce fiscal imbalances, and the extent to which such policies have been successful is measured by the reduction of debt and deficits of the general 106

MARKE REFORMS IN GREECE, 1990–2008 Fig. 6.6: Indicators of the tax structure Annual revenues as % of GDP 100 90 Corporate/Households

80

Direct/Indirect

70 60 50 40 30 90

92

94

96

98

00

02

04

06

08

Source: Ministry of Finance and Government Budget Report, various years.

government. However, the deficit figures for Greece are not comparable over the period examined here, because they were severely distorted by the attempt of the New Democracy government to rewrite fiscal history in 2004.7 Public debt was not seriously affected by the revisions, thus its yearto-year changes can be used to describe the extent of fiscal consolidation in a more reliable manner.8 One of the key factors contributing to fiscal imbalances in Greece is the chronic deficit of public utilities. Updating business plans, corporate restructuring and a series of IPO helped to reduce deficits and improve the performance of public utilities. Tis reform activity is described by the pattern of the annual balances of public companies, the reduction of the need for issuing state guarantees for the new loans and the amount of privatization proceeds (see Fig. 6.7 and 6.8). Determinants of reforms

o determine which political and economic factors have influenced the reform process in Greece, a set of explanatory variables was constructed similar to that in the IMF study (2004): 107

FROM SAGNAION O FORCED ADJUSMEN Fig. 6.7: Privatization revenues and Public debt Annual data as % of GDP. Debt of General Government 112 4

108

Debt (rhs)

104 3

100 Privatisations (lhs)

2

96 92

1

88

0 90

92

94

96

98

00

02

04

06

08

Source: Ministry of Finance, Eurostat. Fig. 6.8: Reform indicators for Public Utilities Annual balances and new loans guarantees as % of GDP 4 3 Loan Guarantees 2 1 0 –1

Balances

–2 90

92

94

96

98

00

Source: Government Budget Report, various years. 108

02

04

06

08

MARKE REFORMS IN GREECE, 1990–2008 •

•

•

•

•

Growth: the growth rate of GDP is used to reflect the overall mood prevailing in each period concerning the prospects for the economy (see Rodrik, 1996; Calmfors, 2001; and Calmfors and Driffil, 1998). As shown in Fig. 6.9, growth accelerated in the period leading towards membership of the EMU and slowed down afterwards. Elections: this accounts for the frequently observed fact that most of the reforms are abandoned before elections in order to avoid social protests. Te index is set equal to one on election years and zero otherwise. First year: frequently, reforms are delayed after elections due to the need for new legislation or lack of preparation, especially when there is a change in government. For example, the framework for privatizations was first established one year after the elections of 1990, was revised one year after the elections in 2000 and again after the elections of 2004. Te index is set equal to the previous one, lagged by one year. Majority: the size of the government’s majority is an important factor in political stability and may be critical in carrying out controversial reforms. Te index is set equal to the number of seats held by the ruling party in:the 300-seat Greekonparliament 150 (see Fig. Ideology in the literature reforms, itinisexcess oftenofsuggested that 6.10). parties at the centre-right of the political spectrum are more reform-minded as

Fig. 6.9: Growth rate of GDP 6 5 Growth rate

4 3 2 1 0 –1 –2 90

92

94

96

98

00

02

04

06

08

Source: IMF WEO data (2008). 109

FROM SAGNAION O FORCED ADJUSMEN Fig. 16.10: Parliamentary majority Parliamentary Majority 25 20 15 10 5 0

90 89 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20

Conservative

Socialist

As at the end of the year. At the end of 1989 there was an ecumenical government with no opposition, so the index in that year is meaningless.

Source: Greek Parliament.

•

compared to centre-left parties. Following the World Bank classification, the index of government ideology takes the values 2, 1 and 0 for rightwing, centre/left and leftwing parties respectively. External conditionality: the most important external factor during the period 1990–2008 was the convergence process towards EMU. An index is constructed by a simple upward trend in 1990–2000 and a downward one afterwards. A value of 10 is assigned for the accession year 2000.

Empirical assessment A tentative analysis of the determinants of reforms was conducted by examining their correlation with the indicators of reforms. Data was used in such a way that a rise in an indicator corresponds to more reform taking place, and thus a positive correlation coefficient denotes a factor associated with more structural changes. Coefficients are displayed in able 6.2 and the following remarks are drawn:

(a) Election years: election years are found to be negatively correlated (at 10% significance) only with the reduction of public debt and the extent of privatization. Tis implies that reforms involving privatizations are likely to 110

MARKE REFORMS IN GREECE, 1990–2008

be postponed on the eve of elections so as to minimize friction with trade unions. It also implies that fiscal management and deficit-reducing policies in public utilities are similarly relaxed.9 Te remaining structural indicators are not significantly correlated with the occurrence of elections.

(b) Majority: parliamentary strength is found to be negatively correlated with controlling corruption and improving theformer regulatory (significance at 5%). One explanation for the couldenvironment be that large majorities make governments feel more secure from the criticism of opposition and this leads to less vigilance against corruption and lack of urgency in adopting market-improving measures. It is found to be positively correlated with public utility balances, the reduction of new state guarantees and the expansion of banking activities.

(c) First year in office: no reform indicator seems to be positively correlated with the relevant variable, implying that governments are reluctant to undertake reform initiatives right after the elections. Te negative correlation with all variables concerning public utilities is explained by the vastwhen boardthe andincumbent management changes that take10place after the elections—even party is re-elected —causing serious delays in deciding and implementing restructuring measures.

(d) Ideology: conservative ideology is found to be negatively correlated with all structural indicators, except banks’ capitalization. Tis finding is in sharp contrast to the literature on reforms, where conservative parties are classified as more reform-minded vis-à-vis the centre-left. An explanation for this may be that in Greece the conservative government in 1990–93 lived through a heavy recession, while the centre-left government that followed in 1994 happened to be in office during the years closer to the accession to EMU. A less coincidental explanation might be that centre-left governments are traditionally more associated with trade unions, and thus it is easier for them to negotiate a feasible reform agenda and minimize social disruption.

(e) Growth: the growth rate is found to be strongly and positively correlated with most reform indicators. A simple explanation for this is that growth creates optimism for further improvements in social well-being, generates new opportunities and diminishes entrenched resistance against reforms. For example, higher growth rates reduce the debt burden expressed as a ratio of debt to output, makes privatization easier and increases the demand for bank loans to enterprises. 111

FROM SAGNAION O FORCED ADJUSMEN

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E R H T B G T B A S N R O C I U N R D R A E Q C T D P N P R B B L

112

7 1 = 2 N r fo se lu av la ci ritc d el ia te n O ( .s te k ca r b n i n w o h s er a sc it si t

.) yl ev it ce p se r 9 8 . 1 d n a 1 .4 1 e m o ce b ye h t R O C d n a E R Q r o f sea c

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MARKE REFORMS IN GREECE, 1990–2008

Under a progressive income tax structure, higher growth moves part of new income into higher tax brackets, thus raising direct revenues more than it does for indirect ones. Tis implies that the direct/indirect tax ratio improves as shown by the strong correlation with indicator DI. Te ratio of corporate to household income tax also appears to rise, reflecting the fact that profits are rising faster than labour incomes. Growth rates are found to be positively correlated with the quality of the regulatory environment (significance at 5% level), as investment opportunities are multiplied and protectionism is diminished.11 Te corruption index is found to be uncorrelated with growth.

Conclusions Over the period 1990–2008, Greece experienced a major transformation from a low-growth, high-inflation and isolated regional economy towards becoming a full-scale member of the euro-area. In this period, growth rates were persistently higher than the European average and economic policy was more easily geared around market reforms, the outcome of which fed back on further economic and political developments. Tis chapter has established a quantitative framework to assess the extent of reforms along the lines that have been studied for other countries. Te main findings are as follows: (i)

Market reforms in Greece were sluggish and coincided, to a large extent, with the effort of the country to comply with the EMU criteria and become eligible to join the common currency. Tis pattern corroborates both the reform-driven policies experienced in other European countries prior to the implementation of EMU and the reform-fatigue observed afterwards.

(ii) Strong growth is foundconditions, to be a key facilitates determinant of market reforms as it improves economic compensation payments and eases the resistance of insiders against change. Te pains of restructuring seem to be more palatable in an environment of higher growth prospects. (iii) Of the political factors, it is found that governments at the beginning of their period in office lack a cohesive reform agenda and need time to organize and implement the structural changes. If they happen to command only a slim majority in parliament, such a delay may prove 113

FROM SAGNAION O FORCED ADJUSMEN

fatal for their capacity to push reforms as political resistance is strengthened and the incumbent is prone to party infighting. If implementation delays are long and the time remaining until the next election falls short of the time required for a structural change to pay off, the reform is likely to be abandoned. (iv) Conservative ideology does not increase the reform capacity of the government. Centre-left governments in Greece proved to be more competent in speeding-up growth and implementing reforms due either to a historical coincidence of being in office in the run-up to membership of the EMU or that they were able to arrive at a consensus with trade unions more easily.

In the aftermath of the global economic crisis in 2008, the reform agenda in Greece came once more to the forefront of Greek politics. On the one hand, market-oriented policies suffered a setback because the financial system had been discredited. Additionally, the urgency for huge state programmes to save the banks and stimulate the economy overshadowed the need for reforms. On the other hand, structural changes are becoming even more imperative in order to improve competitiveness and correct the alarming fiscal and current account deficits that threaten stability and prosperity in Greece. Amid a deepening recession, widespread social tensions and increasing signs of weak governance, it is perhaps useful to recall the lessons of the past.

114

7

HE PENSIONS MERRY-GO-ROUND HE END OF A CYCLE?

Platon inios

A perennially open reform finally closes? In October 1997 Greek public opinion was shocked by the publication of the ‘Spraos Report’ (Spraos Committee, 1997). Te report argued that the country had ‘until 2007 to decide on pensions’, as dramatic financial deterioration was expected to occur around that date. 1 In order to reassure the public, the head of the Confederation of Greek rade Unions (GSEE) Ch. Polyzogopoulos said in early 1998 that ‘the pension system will (only) collapse after the collapse of the State budget and of the economy’ (quoted in inios, 2001: 155). Te decade that elapsed saw two pension bills (Law 3029/02 and 3665/08), each passed by a different government, and each hailed as ‘solving the problem for a generation’. Yet only months after the second reform, the Bank of Greece and the OECD were asking for more. (Bank of Greece, 2009; OECD, 2009).2 Troughout this period, official publications of independent bodies (Bank of Greece, the EU, etc.) had been broadcasting a list of pension woes, which can be summarized under five headings: 3

1. Cost. In 2007 pensions absorbed more than 12% of GDP (OECD, 2007). 115

FROM SAGNAION O FORCED ADJUSMEN

2. Demographic challenges. Te dependency ratio is expected to deteriorate at the second fastest rate amongst the EU-15, while Greece faces the highest expected pension expenditure in 2060 (CEC, 2009). 3. Economic inefficiency. A multitude of regimes leads to a patchwork of cross-subsidization, and high non-wage costs. Te private sector and exports shoulder the brunt of the cost while the public sector retains its privileges (Börsch-Supan and inios, 2002). 4. Social ineffectiveness. Official reports admit that ‘poverty is grey in colour’. Once the population crosses from the vicissitudes of the globalized labour markets to the bosom of the welfare state, their risk of poverty increases by 50% (inios, 2010a: 76). 5. Resistance to change. Since at least 1990 the pension system has been under the threat of a major reform that was always postponed, in a perennial ‘Reform by Instalments’ (inios, 2005; riantafyllou, 2006; Featherstone and Papadimitriou, 2008). In early 2010 the unwitting prophecy of the union leader came close to being fulfilled: the finances of the state neared bankruptcy, and pension

deficits shared much of the blame for this. Te dramatic first half of the year saw pension reform becoming one of the first conditions of the huge stabilization loan accorded to the Greek state (IMF, 2010a; passed as Law 3845/10). Indeed, in the midst of strikes, pension reform (Law 3863/10) was passed in early July 2010 under the watchful eye of the ‘troika’ (the IMF, the ECB and the European Commission). Te IMF welcomed the ‘landmark pension reform, which is far-reaching by international standards’ (IMF, 2010 b). Does this mean that Greece went from being a laggard to a trail-blazer in terms of pension reform in the space of a few months? Did 2010 signal the definitive end of the Greek pension problem? Tis chapter aims both to explain the role of pension inertia in the development of the Greek economic crisis, as well as to understand the dynamics of the 2010 reform. It argues that the syncopated reform to 2010 is best understood as a piecemeal and interrupted attempt to implement and complete an srcinal blueprint for the pension system formulated in the 1930s. Tis defined a trajectory around which centrifugal forces pulled away, and which homeostatic mechanisms tried to rein in. Tis trajectory culminated in the 2010 crisis. Overcoming the mechanisms that sustained this process in the past (or, equally, preventing their re-emergence) will ultimately decide the fate of the externally-supervised pension reform of 2010. 116

HE PENSIONS MERRY-GO-ROUND: HE END OF A CYCLE?

Te political economy approach: vacillations around a reform trajectory 2009 marked the 75th anniversary of the founding charter of the Greek social protection system (Law 6298, 1934); 4 this law founded the Institution for social insurance (known by its Greek acronym IKA), which is still the cornerstone of the Greek pension and health insurance systems. Te

formulation and passing of this law was by no means easy: it was associated with the demise of two centre-left governments and was finally passed as a compromise in 1934.5 Te 1934 law replaced an earlier law (5733/1932, passed but never implemented), which had encountered determined opposition from the medical profession, trade unions and the occupational pension funds. Te central issue at stake was the fate of those funds: would they be consolidated into a unitary social insurance body to cover the entire population, as both economic theory and the blueprint composed by experts working for the League of Nations had intended? Or, would the older funds be allowed to continue, as the ‘social partners’ preferred? Te 1934 law fudged the issue, and the resulting compromise still shapes the landscape of Greek social insurance seventy-five years later. Te ‘Founding Vision of IKA’ exhibits two central characteristics (inios, 2008): Firstly, IKA is the backbone and central pillar of a universal pay-as-yougo (PAYG) state system of social insurance6—founded on building up rights through the payment of contributions by employers and employees. Te IKA design was based on the interwar Czech system, and embodied stateof-the-art provisions reminiscent of US social security (which is its junior by a few months). Secondly, and most crucially, the 1934 compromise entailed the evolutionary implementation of the law. Rather than enforcing the consolidation of all employees into IKA, the law allowed their gradual integration into the national system over time: both geographically (IKA spread from the major

urban centres outwards over the following two–three decades) and occupationally (by incorporating pre-existing funds). IKA was to operate as the pole of attraction, pulling in occupational groups on the strength of better benefits and surer financing. It is clear from early discussions (e.g. Agallopoulos, 1955) that consolidation was expected to proceed relatively swiftly and fragmentation was thought to be a transitory problem. Yet two generations later, most analysts cite fragmentation as the defining characteristic of the Greek social insurance picture (Petmesidou, 1991; Börsch-Supan and inios, 2001; rian117

FROM SAGNAION O FORCED ADJUSMEN

tafyllou, 2006). Te number of separate social insurance funds grew from 153 in 1956 to a peak of 325 in 1997 (inios, 2001); consolidation since then has concentrated on administrative changes, whilst retaining the differences in the insurance terms offered to separate occupational groups within the same entity. It is notable that, even within IKA, 85% of new pension applications were able to invoke some favourable ‘exception’ to the rules; only 15% had to make do with the general rules (OECD, 2007; inios, 2010a: 304). Tis process of obscuring differentiation by folding pension funds into wider units was vastly expanded in 2008 by Law 3655. All in all, one cannot but agree that the evolutionary process of consolidation foreseen in the IKA vision proved a resounding failure. An official 1958 Ministry of Coordination report found an ‘absolute inequality of protection so that the constitutional principle on citizens’ equality has been totally forgotten’ (quoted in inios, 2001: 73), an evaluation that is still common forty years later. Social insurance reform consequently remained on the agenda in early 2010, having made its regular reappearance with equal urgency. Tus thereand areultimate three aspects reform to process be explained. Teatfirst is the delay failureofofpension the evolutionary foreseen the start of the ‘IKA Vision’. Te second is the syncopated nature of serial pension reform, where pension discussions returned with apparently equal force. Finally, the third aspect is the periodicity and cyclical nature of the reform episodes. Te mechanism proposed to explain this process involves the existence of a central reform trajectory, the objective of which was to complete those matters left undone in 1934; in other words the completion of the IKA vision. Around this trajectory operate, on the one hand, centrifugal forces pulling away from the reform path and, on the other, homeostatic mechanisms attempting to restore the reform path. A key feature of the process of Greek pensionrepeated reform itself is theregularly. relative impermeability of the process, which simply Tese matters will nowwhole be considered in turn (the Appendix provides a chronology). Te centrifugal forces were embedded in the mechanism at the very start of the evolutionary process and are innate to it. A decision to proceed gradually created the conditions for the ‘prolonged immaturity7’ of the system as a whole. As social insurance spread progressively through the population (at both the extensive and intensive margins), 8 it generated current surpluses as the stock of contributors outweighed the flow of new 118

HE PENSIONS MERRY-GO-ROUND: HE END OF A CYCLE?

benefits (which needed time to build up). Te existence of surpluses (combined with lax actuarial control)9 created euphoric conditions in which to spend the cash that was generated. Pension arrangements thus placed in the hands of governments a valuable ‘governance tool’. Denial of the use of that tool in the 1960s and 1970s seemed, at the time, impractical and perhaps even irresponsible, by placing distant interests above immediate and worthy priorities. Te process was legitimized by what might be called ‘second best economics’ and ‘second best politics’. Second best economics involved proffering pragmatic solutions to medium term problems. Such were the use of social surpluses from the 1950s to 1970s to finance industrial development. Less easily defensible, yet no less widespread, was the use of cross-subsidies to aid particular sectors (Börsch-Supan and inios, 2003).10 In a similar vein, second best politics involved pragmatic solutions to pressing political problems by accommodating groups through ‘special dispensations’,11 often hidden in the small print of otherwise incomprehensible legislation. System fragmentation was put to use by governments in order to strike separate deals, which elevated pension arrangements to the decisions, role of a key in clientelistic politics. When faced with difficult mostinstrument governments excused themselves from remembering that the ‘resourceful solution’ to their immediate problems exacerbated the fragmentation of the social insurance system, and moved it further away from the attainment of the evolutionary vision of the IKA. Te system was not totally derailed due to the operation of homeostatic mechanisms, which favoured the return to the srcinal goal. Any social insurance system implies the existence of ‘guardians’—i.e. cadres aware of the long-term importance of the completion of the evolutionary project. Such individuals should play the part of ‘whistle blowers’ when the long-term is mortgaged to immediate concerns. Indeed, the ‘first generation’ of social insurance operatives keenly the importance the completion of the project and thewas need for itaware to be of consolidated. Te of Ministry of Coordination commissioned reports in the late 1950s, which aimed to pave the ground for more thorough-going pension reform in the mid-1960s. Te dictatorship interrupted that work.12 When discussion resumed in the 1980s, the thread in terms of the srcinal aims of social insurance appears to have been lost, and fragmentation was treated as the status quo, ‘a fact of nature’. Nevertheless, no pension system can rely exclusively on good intentions. Te srcinal law foresaw the problem and embedded mechanisms to return 119

FROM SAGNAION O FORCED ADJUSMEN

to stability. Te problem with immature PAYG systems is their lack of a budget constraint (inios, 2005); it is the function of regular actuarial reviews to play such a role. Such reviews were foreseen in the srcinal legislation, and this requirement was subsequently repeated. Despite the legislative provision, actuarial reviews were seldom undertaken and, when they were, they were ignored.13 Te process of ‘promoting immaturity’ kept the wolf from the door up to the early 1980s: the extension of compulsory auxiliary coverage to all employees in 1983 was the last major attempt to generate new current surpluses. After 1983, IKA and other funds were structurally unable to cover their current expenditure and were forced to resort to banks for short-term lending to finance pensions. Tis state of affairs was superseded in 1987 by the regular payment of government grants to finance pensions; by 2009 around 30% of all pensions were financed by ad hoc government handouts (inios, 2010a). Tis practice effectively abolished the budget constraint to social security by severing links between benefits and income. As one-third of expenditure was covered by the state anyway, any individual benefit increase could be granted and charged to the state Tegrant. direct involvement of the government budget turned pension fund independence into a fiction, yet it upgraded social insurance deficits as key determinants of the general government deficit. Government finances thus became the dominant homeostatic mechanism. Tis was subsequently brought to the fore by key actors in social insurance reform, including international organizations such as the IMF and the OECD, and eventually the EU (inios, 2002). Greece’s entry into the eurozone meant that the influence of social insurance on public finances, from being an interesting sub-plot at the fringe of the EU, was moved to the centre stage—the Achilles’ heel of the world’s second currency. Greek public finances attracted greater scrutiny, while the importance of pensions for their long-term viability was increasingly recognized (at least beyond the country’s Tis recognition spread from official bodies compiling technicalborders). reports (CEC, 2009), to private sector bodies (ratings agencies, bond holders) concerned about the long-term stability of Greek official public debt. Tey thus acted as ‘telescopes’ bringing distant actuarial threats to immediate view.14 As the international observers focused on public finances, their viewpoint was of necessity macroscopic. Tey treated the social insurance system as a unit rather than a collection of independent autonomous entities, and were instrumental in bringing the matter of consolidation to the attention of 120

HE PENSIONS MERRY-GO-ROUND: HE END OF A CYCLE?

public opinion.15 Nevertheless, little awareness was generated as to how the macroeconomic financing issues were linked to the micro-operation of social insurance in the separate funds. Te international organizations could pose the question or possibly signal urgency, but they could neither organize an answer, nor plan corrective action, while they could hardly intervene directly in a domestic, Greek debate. How did the counteracting influences of centrifugal forces and homeostatic mechanisms play out in practice? ‘Ostrich interventionism’ consists of regular episodes of frantic intervention to satisfy outside pressures, followed by a nirvana of abandon (inios, 2010a). Te chronology provided in the Appendix shows that, since the 1990s reform episodes regularly went through a number of phases: •

•

•

•

Pressure built-up outside Greece to ‘do something’ to reduce government deficits. Public opinion and the media ‘discovered’ an immediate threat to pensions, usually voiced into headlines such as ‘Pension funds are sinking’, ‘Pensions under threat’ and so on. Tese headlines may or may not have been accompanied by data (most frequently demographic projections). Social dialogue ensued that lasted a few weeks. Te dialogue was marked by confusion, strikes in the public utilities and frantic side negotiations with separate groups of workers. Laws were passed in great haste. Tey were hailed as of ‘epochal importance’. Te laws kept the structure of the system and inched along in the direction of the srcinal reform trajectory: somewhat lesser distance dividing groups, slightly later retirement ages, slightly fewer exceptions. Such laws were passed in 1992, 1998, 2002 and 2008; the next episode could have been expected around 2012–13.16

Te unique feature of this process occurred between reform episodes. Te whole passed into denial phase, everyone talked and behavedsystem as if there never hadabeen a threat to where pensions. Processes of reflection were prevented and calls to reform maligned. Te example of the Spraos Committee is characteristic of this process (Featherstone et al., 2001); the treatment its report received meant that it had no emulators. Te same pusillanimity implied that no political actors could withstand a possible accusation that they were preparing for a pension reform. Consequently, all technical preparations for future reforms were prevented. When the call from outside came to start the process afresh, everyone behaved as 121

FROM SAGNAION O FORCED ADJUSMEN

if a natural catastrophe had struck. Given the short institutional memory of the political system, each reform episode was treated as if it was the first—a case of ‘Serial Reform Virginity’? By this point, no time was available for preparations. Solutions had to be sought from the existing toolbox. Te periodicity of this cycle was of the order of five–six years, straddling two parliamentary terms. Te first parliamentary term after a reform episode would pass by with politicians trying to forget and to heal the wounds of the reform. Tis allowed sufficient time for pension deficits to build up and led to the first calls from outside to act, close to the end of that term. Exorcism of the issue continued past the election (during which pensions were mentioned as being insufficiently generous); the post-election government discovered to its horror that it had to do something to allay outside pressures, and so the cycle repeated. Giannitsis (2007: 19) states that pension reform was ‘a tragedy in many acts’. Te account above, in contrast, comes closer to repeated showings of a popular comic opera. Te leading parts are taken by the same actors, whose roles are tightly scripted and the reactions are carefully choreographed. Social dialogues are set to favourite themes, the theatrical exits after pas-de-deux eagerly awaited. Te parliamentary climax and triumphal ministerial declarations of eternal salvation bring down the house at the end of each performance.17 Te repetition of the show may be attributed to a ‘society blocked’ ( societé bloqué). Nevertheless, the fact that the plot turned in 1992, 2001 and 2008 almost at the same points, while actors tended to stick to their roles, leads one to suspect that a catalyst to give the plot a new twist ought to have been there—somewhere. Should the catalyst—the missing ingredient—be found, then the predictability of reactions could have been stage-managed to produce a new play with a different ending. Indeed, the experience of pension reform elsewhere essentially shows that many objections can be accommodated in order to move forward: pension reform is ultimately a question of governance (Barr and Diamond, 2010; ompson, 2009). Te fault may not have been with the actors, but with the play itself. Te failure of reform lay in the preparation and contents of the reform, and not in the violence of the reactions to it. 18

Absence of debate as an obstacle to progress When triumphal declarations such as ‘the problem has been solved for a generation’, were immediately followed by calls for more reform, it is perti122

HE PENSIONS MERRY-GO-ROUND: HE END OF A CYCLE?

nent to ask ‘which problem was solved?’ Fragmentation of the system and fragmentation of control implies that pension reform may be interpreted in three ways:

1. As a redistribution between generations, namely as an actuarial issue. o correct this, one must adopt a long-term perspective and attempt to deal with debt dynamics. Tis viewpoint should interest the contributor who is concerned with providing for his/her old age. 2. As a redistribution within a generation, namely as a public finance issue centred on the question of ‘who pays for pensions?’ Tus, a medium term perspective is favoured and the focus is on the public sector deficit. Tis is the viewpoint naturally adopted by ministries of finance. 3. As a redistribution of political influence, a question relating to the dayto-day governance of the system. Fragmented laws in over-determined systems demand constant attention; overlapping laws and jurisdictions necessitate direct political intervention. Tis very short-term perspective naturally interests those entrusted with operating the system— namely pension fund managers and the Ministry of Employment that supervises them. Te last pre-crisis attempt at reform (Law 3655/08) was clearly oriented towards the third concern, and left the other two unanswered. Te law could be seen as a reaction to the fallout of a 2006/7 scandal of exorbitant fees charged for investments in derivatives, during which the minister of finance famously bemoaned ‘clueless management teams’ in funds.19 Even during the October 2009 election campaign, no political actor dared mention factors other than day-to-day management issues. 20 Te matters of public finance and intergenerational equity remained to be discovered in 2010 as a result of external pressures. In this reading, a sufficient explanation of the governance failure could simply answer will be provided toabsence questions that nodiscussion one ever raises’.21beIt that is this‘no failure of introspection—the of public and debate—that allowed the pendulum of ostrich-interventionism to persist. Actors in pension reform did not need to ask questions, because they believed that they were halfway along a major project: the completion of the srcinal IKA blueprint. It is thus appropriate to return to a long-term view, so often dodged by commentators: how far along are we with the implementation of the srcinal IKA vision? 123

FROM SAGNAION O FORCED ADJUSMEN

Given the preceding discussion, it will come as no surprise to claim that the 1930s project is, in major respects, still pending: •

•

•

•

Te srcinal intention was that the statement ‘We are being folded into IKA’ would have the meaning of relief. Instead, in 2009 it was most often used as a call to arms—as in the 2008 strikes or in the banking pension reforms of 2005. In many ways the system is more fragmented than the situation at the outset. Fragmentation within organizational entities—fragmentation in insurance terms—can be more damaging to economic efficiency than fragmentation in bureaucracy. Some of the second best solutions over the decades compromised the srcinal design in salient ways. For example, the srcinal intention was clearly to deal with old age poverty by encouraging long contribution periods. Indeed, a full career (e.g. thirty-five years of contributions) will lead to replacement rates comparable with those in the EU. Sharply raising minimum pensions (as was done between 1978 and 1985) dealt with the immediate problem but undermined the central philosophy of the srcinal legislation. 22 Te system is increasingly moving away from self-financing. Te state provides any shortfall between revenue and expenditure and has become the ultimate provider of all benefits. Te courts judge a variety of cases independently of economic logic or budget constraints (Pelagidis and Mitsopoulos, 2006)

Looking at the content of pension reform discussions, political actors proceeded as if pension reform is a basket, the contents of which are fixed and unalterable. Reform was treated as an amorphous whole, as if there could be no argument of what it was to comprise and no strategic choices to be made. Everyone appeared to know what needed to be done, so that

concrete never usually discussed, and out nortowere any alternatives weighed. changes Concretewere proposals turned be simple parametric changes around a given system. Many amounted to demands for a free lunch: curbing contribution evasion, or reimbursement for foregone earnings due to the historical misappropriation of social security surpluses. Tose who dared to propose something drew from a fixed set of measures (a given toolbox): consolidation into fewer funds, raising of retirement ages, abolition of the most glaring privileges (e.g. those for heavy and hazardous occupations). Changes were always enumerated and never evaluated. It is 124

HE PENSIONS MERRY-GO-ROUND: HE END OF A CYCLE?

hard to avoid the conclusion that the proposals, at their most daring, amounted simply to the completion of the 1930s project, which, apparently, was the maximum of their ambition. A crucial element of this style of discussion was that the rhetoric of reform was divorced from the content of the reform. Demographic changes were brought along to motivate the discussion but their role ended there: to justify the passage of the same package of measures irrespective of the size of the challenge. For example, in 2001/2 the UK Government Actuary Department’s (Ministry of Employment, 2001) projections 23 of the demographic implications of Greek pension expenditure were released, but were totally ignored afterwards; the measures proposed and implemented by the then government were not measured against the size of the challenge. 24 Even more tellingly, in 2007 the government ordered new projections from the International Labour Organization (ILO), yet completed its own reform before it had even received them.25 Tus, the 2007 government, faced with the imminent retirement of the baby boomers, had failed to promote the same reform package as its predecessors in the late 1980s (faced with a far more demographic outlook) had the similarly failed to promote. benign No oneimmediate noticed that in the intervening period facts on the ground had changed. Nevertheless, in early 2010 pension discussions and the definitive pension reform still had to make do with what quantification had been produced by the Commission in 2008 (CEC, 2009; inios, 2010a). Each government appeared to work via a ‘satisficing’ model. It proceeded along a given path, in the implicit knowledge that it would fall a long way short of where it needed to go. Overshooting or even meeting the target were not considered, as reformers felt they were doing less than what was needed anyway. Te questions of whether the direction itself was appropriate or whether it needed adjusting were never even posed. In the meantime, when faced with pension issues, the political class habitually exhibited a

preference not to think oraargue, inabilitythat to explain and to answer for choices, almost guilty an prescience the samemotives mistakes were about to be repeated. If, by some miracle, the full programme of pension reform as formulated in the most daring vision of reform proponents could be implemented immediately, the outcome would still have been a pension system designed on the basis of know-how that was already three-quarters of a century old. Would such a model still be appropriate for 2050 and beyond? Tis question can be broken into two components: 125

FROM SAGNAION O FORCED ADJUSMEN

(a) Would the full 1930s system be viable? Tough it would certainly be a vast improvement on current arrangements, the answer is probably that it would not be viable (although it is not possible to answer this question conclusively). Sample calculations commissioned after tender to the UK Government Actuary’s Department (Ministry of Employment, 2001; inios, 2003) indicated that the sheer size of the parametric changes to equilibrate the current system defied belief. (b) Would the full-1930s system be appropriate? Te 1930s model is exclusively a social insurance system,26 where rights-based benefits fit uncomfortably. At a time when social welfare acquires more significance, it may not be easily integrated into the overall structure. In the 1930s it was reasonable to assume that firms would outlive individuals, who could thus plan their careers around a single job, and that passive assistance for the unemployed was sufficient. Very little attention was paid to gender issues. Finally, in the context of the 1930s there was very little alternative to monolithic state provision. PAYG finance allocates all risk to the working generation and eschews any benefits of diversification. Parametric reform fails because has many opponentsofand few supporters. Atpension best, what it can offer is the itorderly management decline by instituting a process whose destination, however, is already devalued in the mind of contributors. Tus, a simple revamping of the traditional 1930s-style state was always unlikely to provide a sufficient answer to twenty-first century concerns. Indeed, in countries where pension reform was seriously discussed, some variant of a multi-pillar system was presented as some kind of ‘fresh start’. Similarly, in the context of Greece, rebasing pension discussion could hold the promise of breaking out of the logjam of syncopated ostrich-interventionism.27

Pension reform and the crisis of 2010 In the event, the reform instalments were forcibly interrupted in midstride.28 Te bankruptcy of the Greek state was only prevented by the largest loan ever disbursed by the IMF (IMF 2010), accompanied by stringent and detailed structural measures. Pension reform figured prominently among these.29 Indeed, closely observed by the troika, a pension law was passed in July (Law 3863/10), the preamble of which stated boldly that ‘our objective is to change the system radically’. Is this law the conclusive catharsis that was awaited since at least 1990, or simply another twist in the long running play? 126

HE PENSIONS MERRY-GO-ROUND: HE END OF A CYCLE?

o begin answering the question, we must understand the dynamics of pension reform in the post-crisis situation. Te crisis itself was partly caused by the process of shifting pension deficits upwards: the intervention came largely because Greece’s membership in the eurozone meant that its public finance crisis could not have been ignored as had happened in the past.30 Intervention meant that bodies such as the EU Commission or the IMF were transformed from interested observers to direct players in the domestic scene. Given that they are not subject to internal political constraints, the ground rules of the system would alter; ‘top-down’ reforms or externally imposed rationality should have better chances than previously. Similarly, quantification and quantitative objectives should play an important and explicit role.31 On the other hand, the entry of a new player in one corner can serve to rally others in the other. Te government presented some of the more controversial features of the pension law as having been imposed by the troika, and only under protest.32 Tis betrayed a tendency to employ the crisis as a lever, in order to rapidly close accounts with pension reform. Tis strategy could, in time-honoured fashion,33 have short-circuited opposition, and allowed the swift passage of reforms—provided that these were known and ready. At this point we may sense the revenge of ‘ostrich-interventionism’, as adequate preparations for reform were clearly lacking. In the late spring of 2010, in a reversal of roles, it was the government that was showing signs of impatience, while the troika was more circumspect—by asking for documentation, quantification and scheduling many aspects for 2011. 34 Tese tensions and compromises are evident in the length and complexity of the law (ninety-nine articles in fifty-five pages, some vague, some mutually contradictory, some allegedly comprising a legal minefield, others comically in conflict with reality).35 Public discussion of the law was limited to debates in parliament, which did little to enlighten public opinion. Tere is general agreement that the law is far more drastic than its predecessors. However, opinions differ on whether this law (a) describes fully the new pension situation for the long-term and no major additions will be needed, or (b) it is a decisive first step in a more thorough-going reform that is still to come. Te first view—that no more change is called for—is often voiced by the Ministry of Employment. Evidence for this view can be sought in the following: •

Te law drastically increases retirement ages in a step-by-step process by rapidly equalizing all retirement ages to the ‘general retirement age’ for 127

FROM SAGNAION O FORCED ADJUSMEN

•

•

men (sixty-five). Tis primarily affects women (with an increase in the retirement age by five years), mothers (by up to fifteen years) and civil servants and other privileged groups. Even accepting that the majority of those over fifty years old are exempt, and depending on reactions, this could have a major financial effect in the medium to long-term. A new two-tier system has been introduced that will begin operating after 2015, and which is composed of a fixed ‘basic’ pension of €360 per month and a further ‘proportional pension’ with a replacement rate varying with length of tenure but equal for all occupations. Pensions will replace career average earnings rather than a five-year final salary average. A number of measures have been preannounced: new civil servants and sailors will be incorporated into IKA after 2012. A new list of ‘heavy occupations’ should be prepared by 2011, while improvements in data handling should point out cases of system abuse (e.g. survivors’ pensions not being discontinued after the beneficiary’s demise etc).

Te second view interprets the 2010 package as implementing measures that would have been part of any reform—essentially reducing inequalities and curtailing privileges without affecting what can be considered the norm. Fine-tuning the latter would involve following actuarial and other reviews, waiting for better data and it would presuppose some kind of evaluation of alternatives.36 Evidence for this view (or at least that it remains a valid option) may be sought in the following: •

•

•

•

Te post-law situation is essentially a (in certain cases drastic) parametric adjustment of the existing system. Indeed, if seen in the context of generational equity, the law’s generous grandfathering provision 37 may be interpreted as largely exempting the baby boom generation, whilst offering few enticements to younger contributors. Reform of supplementary pensions (preannounced for 2011), possibly combined with that of Separation Funds could serve as a springboard for a multi-pillar system. Whilst rationalizing the expenditure side, the revenue side (contribution rates, other regulations) is largely unaffected. Finally, even if the system meets the troika’s long term viability requirements, the question raised in this chapter of how appropriate the system is to the needs of the twenty-first century remains.

Which view will ultimately prevail is unclear. In the hiatus between the summers of 2010 and 2011, the government’s (and society’s) preference to ‘let sleeping dogs lie’ in the field of pensions 128

HE PENSIONS MERRY-GO-ROUND: HE END OF A CYCLE?

was more than apparent.38 Te line of least resistance is to avoid further change, and, if possible, to try to go back. Viability calculations were never released nor discussed in any detail; the competent minister was at pains to assure the public that the measures already taken were sufficient. Outstanding decisions were treated as technical matters to be decided behind closed doors. Te flow of data regarding the pension system has all but dried up: in the summer of 2011 the last Social Budget available is that of 2009, (prepared in 2008), while the latest IKA Statistical Bulletin is that of 2006. On the other hand, maintaining the same microeconomic incentives during the crisis that led to the derailment in the first place will prove increasingly onerous. Budget overruns in 2011 are witnesses to that truth. A different post-crisis environment may demand different structures. Should the country as a whole draw a lesson from the crisis, and open a real debate about what kind of pension and social policy is best suited for the decades to come, then the chances of a fresh start would become much greater. Should the two scenarios ever be publicly discussed, there is little doubt (at least in the mind of this author) which would be the better one for the economy for social public policy.debate, o tapthe these hidden benefits, rediscover or meaningful absence of which wasGreeks seen tomust lie behind the current pension crisis. Will they even realize that ‘If we want things to stay as they are, things will have to change’?39 Only time can tell.

129

8

PREREQUISIES O HE REVIVAL OF PUBLIC HEALH CARE IN GREECE

Manos Matsaganis

Introduction Te recent history of health care in Greece constitutes a puzzle. Over the last quarter of a century or so we witnessed how the high hopes of the early 1980s gave way to today’s grim realities. Solving the puzzle (that is, making sense of the decline of publicly-provided health care) is essential to a proper understanding of what has happened to Greece’s National Health Service and why. Moreover, it is the key to a fuller appreciation of the obstacles to public sector reform under present conditions. First, the high hopes. Te creation of a National Health Service (ESY) in 1983 was arguably the then socialist government’s most ambitious reform. Te preface to the ESY bill declared the aim of the reform to be no less than ‘the decommodification of health care’. Te reform enjoyed very wide support. It was energetically promoted by the socialist party, still at the peak of its influence following a landslide electoral victory less than two years Earlier versions of this work were presented in two conferences, in December 2006 and March 2009, both held in Athens. I am grateful for comments and suggestions to Vassilis Aletras, Alexander Diamantopoulos, Dimitris Niakas, George Pagoulatos and Dimitri Sotiropoulos. I alone am obviously responsible for the interpretation of available evidence.

131

FROM SAGNAION O FORCED ADJUSMEN

before. It was favoured by the political left, whose policy-seeking goals of an unambiguously egalitarian reform temporarily trumped vote-seeking considerations (in other words, the urge to oppose the new government, or at least mark itself out). Less predictably, the ESY bill was supported, albeit cautiously, by less partisan sectors of conservative opinion, including Spyros Doxiades (minister of health 1977–81). Furthermore, the prospect of secure employment and career advancement within a national health service was eagerly anticipated by young junior doctors, to whom a future in the increasingly crowded market for private practice looked less appealing. Finally, the reform was enthusiastically greeted by public opinion, a large part of which found the idea of universal access to health care in harmony with its self-proclaimed egalitarian beliefs. A quarter of century later, the hopes and aspirations of the early 1980s have been replaced by today’s grim realities. Health care in Greece appears to be more commodified than ever. Te creation of ESY has set the stage for an unprecedented expansion in resources. otal health spending is high, and continues to rise faster than the economy. Te number of doctors is higher

than ever.steadily. Te supply of hospital beds, especially in thewidely periphery, has improved Expensive medical technology is more used than in much richer economies with longer-established national health services. And yet, public confidence in ESY is low, health care remains costly to patients even when it is publicly provided, while commercial medicine—far from being squeezed out—is thriving as never before. Te aim of this chapter is not to provide a detailed account of health policy reform in Greece since 1983. Several such accounts, focusing on one or more instances of reform, have recently become available (Carpenter, 2003; Davaki & Mossialos, 2005; Mossialos et al.,2005a; Mossialos & Allin, 2005; Nikolentzos & Mays, 2008; ountas et al., 2002). o provide another account here would be an unnecessary duplication of these prior efforts. What some of firm this attachment research highlights, on institutionalist approaches, is the of diversedrawing interest groups to the status quo and their resolve to defeat policy reform. Existing research offers convincing accounts of why reform, aiming (by definition) to modify existing arrangements, has been perceived by these groups as threatening their interests, and of how they have been able to mobilize political resources to frustrate it. What seems to be missing is a deeper understanding of the role of values in public policy, a closer examination of the motivations underpinning 132

PREREQUISIES O HE REVIVAL OF PUBLIC HEALH CARE

interest groups’ opposition to reform, as well as an appreciation that rampant individualism is simply incompatible with the ethos of public service.1 Te history of welfare state building demonstrates that without such an ethos no collective enterprise can prosper—least of all, a national health service. In this light, what this chapter attempts to provide is a complementary perspective, emphasizing how the triumph of individualism and the decline of the ethos of public service undermine health reform. Even though this may sound rather pessimistic, I would argue that a more disillusioned view of the policy arena and a more realistic appraisal of prospects for reform are essential assets for reform-minded politicians. Te chapter is structured as follows. Tis short introduction has set out the main issues the chapter aims to address. Te next section supplies some stylized facts revealing the extent of the current crisis and making the case for reform. Section three briefly reviews existing explanations of the state we are in. Section four offers some thoughts on a complementary valuesbased perspective. Te final section concludes with a discussion of the prerequisites to a potential revival of publicly-provided health in contemporary Greece.

Stylized facts ESY was created at about the same time as the national health services of Italy (1978) and Spain (1986), all three explicitly inspired by, and modelled on, the British NHS (Guillén, 2002). Because of this, developments in health policy in Italy and Spain provide a useful context in which parallel developments in Greece can be placed, with the UK as a general point of reference in the background. Whatever else might have happened in the past, under-provision is no longer an issue for health care in Greece. If anything, the opposite may be true. As able 8.1 shows, the availability of doctors, hospital beds and diagnostic technology is roughly similar to that in Italy, and much greater than in Spain and the UK. Even the fact that Greece lags behind other countries in terms of nurses is indicative not of ‘underdevelopment’ as usually understood, but rather of ‘largesse’—or a general tendency to substitute expensive inputs into less expensive ones, causing what economists call allocative inefficiency. As able 8.1 implies, the ratio of nurses to doctors is about 2:0 in Italy and Spain, 4:3 in the UK, but only 0:6 in Greece. It is remarkable that no other OECD country has more doctors than nurses, not even Mexico or urkey. 133

FROM SAGNAION O FORCED ADJUSMEN able 8.1: Health inputs.

Greece

Italy

Spain

Practisingphysicians Practisingnurses otalhospitalbeds

5.4 3.2 4.8

3.7 7.1 4.0

3.6 7.3 3.3

Acute care beds C scanners MRI scanners

25.83.9 13.2

27.73.3 15.0

13.52.5 8.1

UK 2.4 10.3 3.6 7.52.8 5.4

Notes: Practising physicians and practising nurses, total hospital beds and acute care beds per 1,000 population in 2006. Computed tomography (C) and magnetic resonance imaging (MRI) scanners per 1,000,000 population in 2005. Source: OECD Health Data 2009.

Graph 8.1: otal expenditure on health as percentage of gross domestic product Total Health Spending 10 P D G % as

9 8 7 6 5 1982

1987 Greece

1992 Italy

1 997

2 001

Spain

2 207 UK

Notes: Greece: 1980 instead of 1982. Italy: 1988 instead of 1987. Source: OECD Health Data 2009.

Te large number of highly-trained professionals and the wide diffusion of expensive machinery in the ESY need to be paid for somehow. Indeed, health care is a thriving sector of the Greek economy. Since the early 1980s health spending has risen fast, from less than 6% to nearly 10% of GDP. As Graph 8.1 shows, the growth of the health sector relative to the rest of the economy was faster in Greece than in Italy, Spain or the UK, where total health spending currently stands at around 8.5% of GDP. Nevertheless, much of the growth of health services in Greece has taken place in the private sector and/or has been privately financed. As Graph 8.2 reveals, public spending on health as a share of total health spending has 134

PREREQUISIES O HE REVIVAL OF PUBLIC HEALH CARE

fluctuated roughly between the 50% and the 60% marks, 2 compared to between 70% and 80% in Italy and Spain (80% to 90% in the UK). Even though similar trends can be observed elsewhere, the relative size of the private health sector in Greece stands out, clearly exceeding that of every other country in the EU (OECD, 2009). Graph 8.2: Public expenditure as percentage of total expenditure on health g n i d n e p s h tl ea h l ta o t

Share of public spending 90 80 70 60 50

% 40 s A

1982

1987 Greece

1992

1997

Italy

2002

2207

Spain UK

Notes: instead 1982. Italy: 1988 instead of 1987. Source:Greece: OECD1980 Health Data of 2009.

able 8.2: Affordability of doctors.

Greece Not at all affordable Not very affordable Fairly affordable Very affordable Nothing to pay, free

34

Italy 13

37 20 4 5

Spain 6

36 41 5 2

UK 3

16 31 12 32

10 13 8 50

Notes: Responses to question QA5.3 ‘Tinking now about the affordability of health care services in [country], please if for youfairly personally, or fornot your close ones, medical or surgical specialists are tell veryme affordable, affordable, very affordable or not at all affordable’. Te response ‘nothing to pay, free’ was recorded as spontaneous (i.e. not in the questionnaire). All figures are percentages. Source: Eurobarometer (2007).

Given that most private spending is out of pocket, the cost of health care at the point of use is high. Opinion surveys provide ample evidence for this. As able 8.2 implies, in Greece only 24% of respondents to a recent 135

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Eurobarometer survey thought doctors (defined as medical or surgical specialists) were affordable, and a mere 5% spontaneously offered the answer ‘nothing to pay’ or ‘free’. Te corresponding proportions in Italy were 46% and 2%, in Spain 43% and 32%, while in the UK 50% of respondents said doctors were ‘free’ and another 21% said that they were ‘very’ or ‘fairly affordable’. able 8.3: Affordability of hospitals

Greece Not all at affordable Not very affordable Fairly affordable Very affordable Nothing to pay, free

18 27 30 10 15

Italy

Spain

UK

4

3

2

19 48 14 13

7 33 18 36

6 14 12 63

Notes: Responses to question QA5.1 ‘Tinking now about the affordability of health care services in [country], please tell me if for you personally, or for your close ones, hospitals are very affordable, fairly affordable, not very affordable or not at all affordable’. Te response ‘nothing to pay, free’ was recorded as spontaneous (i.e. not in the questionnaire). All figures are percentages. Source: Eurobarometer (2007).

Responses to a similar question about the affordability of hospitals elicited roughly similar answers, taking into account that in most countries user charges are generally lower in hospital care than in primary care. As able 8.3 implies, 40% of respondents in Greece said hospitals were affordable and 15% responded ‘nothing to pay’ or ‘free’, compared to 62% and 13% in Italy, 51% and 36% in Spain, and 26% and 63% in the UK respectively. From a welfare economics perspective, paying for health out of pocket is inferior to paying through private insurance, as the latter, for all its riskrelated andout-of-pocket resulting coverage gaps,on does at leastwhen deal with uncertainty. premiums In contrast, spending health, significant, breeds anxiety, can lead to so-called catastrophic expenditure and may be more regressive. Tis is shown clearly in Graph 8.3. In a large sample of persons aged over fifty, the income share of out-of-pocket spending on health in Greece was 7.4%, higher than in all other countries in the survey.3 What is more, those in the lowest income quintile spent around 14% of their income on health, compared to just over 3% for those in the highest income quintile. 136

PREREQUISIES O HE REVIVAL OF PUBLIC HEALH CARE Graph 8.3: Out-of-pocket expenditure on health as percentage of household income e Out-of-pocket spending on health m o c 20% in ld 15% o h se 10% u o h 5% f o % 0% s Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5 A

(poorest)

(richest)

Greece

Italy

Spain

Notes: Out-of pocket spending on health care as reported by persons aged over fifty in 2004. Household income equivalized using the OECD modified scale. Data collected under the Survey of Health, Ageing and Retirement in Europe (www. share-project.org). Source: Lambrelli & O’Donnell (2009).

Te regressive pattern of private health spending was confirmed by Matsaganis et al. (2009), who analysed data for the entire population from the 2004/05 Household Budget Survey (HBS). Tey found that the burden of household expenditure on health relative to income was highest for elderly couples and families with very small children, as well as for persons insured in the sickness fund for farmers (OGA). Te recent European Union Survey of Income and Living Conditions (EU-SILC) provides further evidence of ‘unmet need’, defined as need for medical care which is not satisfied because respondents had to wait, or because providers were too far away, or because care was too expensive. Te latest results for 2006 the proportion of those reporting unmet need for medical care confirm is higherthat in Greece (5.8%) and Italy (4.7%) than it is in Spain (0.9%) and the UK (1.6%). Moreover, as shown in Graph 8.4, unmet need is in general inversely related to income. With respect to the quality of health care services as perceived by the general public, evidence from the Eurobarometer survey mentioned earlier reveals that, in Greece, 29% of respondents thought the quality of doctors was ‘very’ or ‘fairly bad’, compared to 22% in Italy, 13% in Spain and just 8% in the UK. Tis is shown in able 8.4. 137

FROM SAGNAION O FORCED ADJUSMEN Graph 8.4: otal self-reported unmet need for medical care Self-reported unmet need for medical care st en d n o p se fro

10% 8% 6% 4%

% 2% s A 0%

Quitile 1 (poorest)

Quitile 2

Quitile 3

Greece

Italy

Quitile 4 Spain

Quitile 5 (richest)

UK

Notes: otal self-reported unmet need for medical care in 2006 in terms of number of people who reported that at least once in the previous twelve months they felt they needed medical care and did not receive it because they had to wait, or it was too expensive, or it was too far away. Data collected under the European Union Survey of Income and Living Conditions. Source: European Commission (2008).

able 8.4: Satisfaction with quality of doctors.

Greece Very good Fairly good Fairly bad bad Very

14 56 21 8

Italy 5 70 20 2

Spain 18 63 11 2

UK 32 39 5 3

Notes: Responses to question QA3.3 ‘Tinking now about your own experiences of health care services in [country] and those of people close to you, please tell me if you think that the quality of medical or surgical specialists is very good, fairly good, fairly bad or very bad’. All figures are percentages. Source: Eurobarometer (2007).

Even more striking is the corresponding finding as regards the quality of hospitals, presented in able 8.5. As many as 33% of respondents in Greece thought that the quality of hospitals was ‘fairly bad’ and another 19% ‘very bad’. In Italy the equivalent figures were 29% and 6%, in Spain 13% and 2%, while in the UK they were 12% and 6% respectively. o summarize: health services in Greece are emphatically not underresourced; there is no shortage of qualified doctors, of hospital beds, or of 138

PREREQUISIES O HE REVIVAL OF PUBLIC HEALH CARE able 8.5: Satisfaction with quality of hospitals.

Greece Very good Fairly good Fairly bad

6 42 33

Italy 5 58 29

Spain 17 65 13

UK 24 53 12

bad Very 19 6 2 6 Notes: Responses to question QA3.1 ‘Tinking now about your own experiences of health care services in [country] and those of people close to you, please tell me if you think that the quality of hospitals is very good, fairly good, fairly bad or very bad’. All figures are percentages. Source: Eurobarometer (2007).

expensive biomedical technology; and yet, the reputation of hospitals remains poor, many people hold doctors in low esteem, services remain costly to users, while the burden of private health spending falls more heavily on lower income groups.4

Some causes of systemic failure Te above diagnosis, if correct, leaves little room for complacency: health care in Greece, rather alarmingly, appears to be in a state of systemic failure. Understanding how that came about is vital. As mentioned earlier, several explanatory factors have been identified in the literature, and are closely related to each other. Some of the possible causes of systemic failure are briefly reviewed below. Design faults

Instead of abolishing sickness funds overnight, as in Italy, or gradually, as in Spain (Guillén, 2002), Greek legislators allowedHow sickness with the newly created national health service. this funds came to to coexist be is a well-known piece of parliamentary history (Davaki & Mossialos, 2005). Te srcinal draft of the ESY bill provided for the unification of sickness funds into a single purchaser, intended to act as the natural counterpart on the demand side of the about-to-be-created national health service on the supply side. Clearly, unification implied loss of autonomy and the fear of levelling down for the so-called ‘noble’ sickness funds. Tese covered the ‘labour aristocracy’ of banking employees, workers in public utilities, and 139

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civil servants on the one hand, and the ‘liberal professions’ of lawyers, engineers and medical doctors on the other hand. Te, needless to add, plainly inegalitarian, aversion of these well-organized and well-connected groups to anything that smacked of universalism reached a paroxysm during the first hearing of the bill in parliament. Breaking with parliamentary convention, the Speaker Ioannis Alevras took the floor and addressed the house as a common MP. Not only did he voice the concerns of the privileged groups and lend his support to their discontent, but he actually threatened to rally the banking employees’ federal union (of which he had been the leader until a few years earlier) against the government. In spite of the protestations of his principled Minister of Health Paraskevas Avgerinos, the Prime Minister Andreas Papandreou decided that the issue was too trivial to risk splitting the government. Avgerinos wanted to create a national health service, Alevras wanted to keep social insurance fragmented—well, why not have both? And both is exactly what Greece got. Te uneasy ‘marriage’ of Beveridge to Bismarck (a world first!) preserved the old inequalities in access between individuals insured in different sickness funds, while it also introduced new sources of equity inefficiency. On the front, Greek social health insurance lacks a mechanism to redistribute resources from sickness funds insuring younger, healthier and more affluent workers to those insuring older, less healthy and lower-earning ones. As a result of this, organizational fragmentation translates into a kind of systemic apartheid, with ‘noble’ funds opting out of social solidarity and a single insurance pool (supposedly, the founding principles of social insurance), and being allowed to create a separate, more elevated, health insurance regime all of their own. Tat this regime was often subsidized by the general public, either through direct government grants or through the concession of receipts from earmarked taxes (rather euphemistically known as ‘social resources’), simply added insult to injury.

On the efficiency fiction of sickness services from public front, (and, maintaining increasingly, the private) providers on funds behalf‘buying’ of their members proved very expensive. All aspects of the ‘purchaser-provider split’ were strictly regulated. Crucially, the public funding of ESY hospitals meant the per diem reimbursement rate charged to sickness funds fell short of real average costs and accounted for a small share of hospital revenues—even though it kept lots of administrative staff busy at both ends and increased delays and red tape. High transaction costs were compounded by efficiency losses: having rejected the option of a single purchaser, sickness funds relin140

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quished the possibility of countering the collective monopoly of private providers in the marketplace, especially outside hospitals. In effect, by allowing sickness funds to coexist with the national health service that was being created, legislators ensured that Greece ended up with the worst of both worlds. Blurred lines of responsibility Public policy, to be effective, requires a sensible administrative structure, well-defined roles, firm budget constraints, clear lines of accountability. In contrast, the simple question ‘who is responsible for health policy in Greece?’ has no simple answer. In theory, the Ministry of Health is responsible for negotiating terms and conditions of employment in state hospitals, for allocating resources to public health care providers, for appointing hospital managers, and for approving and pricing new pharmaceutical products, among many other things. For its part, the Ministry of Employment and Social Protection (sometimes under a different name) is responsible for supervising sickness funds and for defining the content of the social health insurance package (i.e. for setting prices and reimbursement rates, for drawing up the list of pharmaceuticals eligible for reimbursement etc.). It goes without saying that the Ministry of Education is responsible for medical training, while the Ministry of Finance is responsible for ensuring the general solvency of ESY and the sickness funds. In practice, chains of command are unclear. Effective power is diffused, but certain actors seem to be accountable to no-one. Hospital consultants run their clinics more or less as they see fit. Hospital managers have the status of accountants, and are treated as such by doctors. Budget constraints are not taken seriously, as a result of which hospital debt keeps piling up, and is periodically paid off by injections of fresh cash by the treasury. For their part, sickness funds, even relatively well-organized ones such as ESY, are restricted to a passive role as third-party payers. Some are incapable of accomplishing even the most elementary administrative tasks, like tracking contributions or drawing annual balances. No sickness fund does more than watch impotently as private providers induce demand for unnecessary services, or overprescribe, or overcharge for services provided, or claim reimbursement for services never provided.

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Poor administrative capacity Public administration in Greece, as (to some extent) the rest of Southern Europe, is known to exhibit certain rather unfortunate characteristics: ‘extended politicisation of the top administrative ranks; enduring patronage patterns in recruitment; uneven distribution of human resources; formalism and legalism; and, with the exception of Spain, absence of a typical European administrative elite’. (Sotiropoulos, 2004: 405). Tese are particularly unhelpful in the case of health policy, which requires specialist knowledge but is beset by limited expertise at all levels. Senior civil servants lack both the power and the competence to run the system from the centre. Sickness funds lack the skills to act as purchasers of care on behalf of their members, let alone regulate the market for publiclyfunded privately-provided services. Moreover, as the experience of health reform in 2000–02 demonstrated (Davaki & Mossialos, 2005), the selection of hospital managers is highly problematic. Old ways, that is, appointments based on political connections and/or clientelism, die hard. Te very idea of professional managers selected on merit is politically contested, opposed by unions and doctors alike, nominally protesting at ‘privatization’ but in reality averse to accountability as such. Furthermore, there seems to be a genuine lack of qualified candidates who can tell the difference between running a hospital and running a hotel. Lower level administration is mindnumbingly bureaucratic. Under such conditions, a pass-the-buck mentality dominates, and resources are used wastefully. All of the above is undeniably true. Tese and other factors—such as the continuous growth of the medical profession, the surrender of primary care to sickness funds and the private sector, the extreme centralization and weakness of a regional dimension to ESY, the power of entrenched interests etc.—have all contributed to systemic failure. Nevertheless, it seems to me that another factor is at work, which compounds other causes of systemic failure, reinforces their effects, and yet has not so far received the attention it deserves. Let us call it ‘a moral crisis’.

A moral crisis? Over the last quarter of a century, the dominant culture of health care provision in Greece and the values of the medical profession and other key actors have remained inimical to the norms of a national health service. 142

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Indeed, it may be that the prevailing values have moved further away from the ethos of public service and towards the aim of personal enrichment— fast and at almost any cost. In Le Grand’s terminology (2003), this would be a shift away from ‘knightly’ towards ‘knavely’ behaviour. Obviously, since social values cannot be easily quantified, it will always be difficult to gauge—let alone establish—changes in norms over time. Nevertheless, the evidence for ‘unethical practices’5 in Greek health care is plentiful, even if necessarily fragmented and often anecdotal. Let us start from what Petros Markaris, one of Greece’s most widely translated writers in recent years, has defined as le nouveau roman social: crime fiction. Inspector Haritos (the narrator) chats over dinner with his daughter Katerina and Dr Ouzounides (his doctor and future son-in-law): Ten [Ouzounides] turned to me. ‘You know, when I was appointed to the hospital, all my colleagues couldn’t do enough to help me, to explain things to me, and I was overjoyed. After about six months, they began distancing themselves. Tey avoided me, talked in low voices to each other and gave me sideway looks. I did all I could to find the cause, until one day the director called me to his office and asked me whether I took bribes from the patients. “Who ever said I take bribes is a liar”, I told him angrily. “You’re right not to” was his reply, “but don’t let it be known. Make out that you do”.’ ‘You mean he wanted you not to take bribes, but to lie and say that you did?’ I asked, astounded. ‘I was equally astonished. Do you know what he said to me? “I’m telling you for your own good. Otherwise [your colleagues] will make your life hell and your patients will end up by paying for it”’. ‘And what did you do?’ Katerina said. ‘A variation on a theme’, he replied, laughing. ‘I still don’t take bribes, and I don’t say that I do. I only let it be assumed’.6

In real life, as empirical research has established, few doctors are likely to take such a principled standinagainst In ainrecent of 336 etindividuals reporting treatment publicbribes. hospitals 2005 survey (Liaropoulos al., 2008), 36% reported at least one informal payment to a doctor. In a further 4% of cases the patient refused to pay when asked, while in another 4% the doctor refused to accept a payment when offered. Te sums involved varied from small tips of €20 to hefty fees of €8,000 (the mean payment was €418). Doctors did not discriminate between patients, whose income and education were not found to be related either to the probability or to the level of informal payments. 143

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Te practice of doctors accepting, and sometimes demanding, bribes from patients was already widespread when ESY was created. In 1985, in an explicit attempt to reduce informal payments and attract doctors to state hospitals, the government raised salaries by up to 250% (Davaki & Mossialos, 2005). Te ploy had a long pedigree, and one illustrious precedent. In order to overcome the opposition of British doctors and secure the approval of his 1946 National Health Service Act, Aneurin Bevan, the then minister of health, famously ‘stuffed their mouths with gold’ (immins, 1995: 115; see also Glennerster, 2006). In the Greek case, this apparently did not work. Outside ESY, among medical practitioners selling their services to commercial health care providers, or to sickness funds under contract, or to private patients at their surgery (or, as is often the case, to a combination of all three), standards of conduct are just as low. Many if not most doctors seem to find nothing wrong in accepting ‘gifts’ from patients, or a ‘cut’ on the nominal price of new equipment from suppliers, or all-expenses-paid holidays in exotic locations from pharmaceutical companies. 7 In such a climate anything can (and, invariably, does) happen: doctors 8 10 overcharge for services provided, claimofreimbursement for services never provided,9 induce demand for services questionnable appropriateness. 11 Needless to add, tax evasion is also rife. Not incidentally, 82% of Greeks thought corruption in the public health sector was widespread, compared to 32% of all Europeans (Eurobarometer, 2009). Corruption can occasionally be lethal. Most emblematic of this was the case of Amalia Kalyvinou, a young woman who lost her fight against cancer in May 2007, having suffered an incredible series of misdiagnoses, and interminable demands for bribes, while a patient of the national health service. 12 My personal ‘road to Damascus’ happened in 2001. Te Minister of Health, Alekos Papadopoulos, had just presented a controversial—and ulti-

mately unsuccesful—reform. Onehospitals, of its provisions was theboth introduction of afternoon surgeries inside ESY in an attempt to expand opening hours and to regulate informal payments. Out-of-hours sessions cost patients €60 each. Te fee was shared between the hospital and the doctors involved. Doctors’ earnings from afternoon surgeries were obviously taxed as income. At about that time, a nice, young and vaguely progressive doctor explained to me in a private discussion that, on such terms, offering afternoon surgeries at the hospital which employed him ‘was not worth his while’. 144

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It then dawned on me that no national health service, anywhere in the world (let alone in deficit- and debt-ridden Greece), can pay the doctors it employs the sort of money they have become accustomed to earning, taxfree, from their current range of ‘informal’, lucrative activities.

Conclusion What the preceding discussion has sought to demonstrate is that even though the current system is costly and unsatisfactory to patients, as well as inefficient and inequitable to society as a whole, it does serve one important purpose: it provides secure employment and excellent rewards to many of those who work or do business with it—mainly, but not exclusively, doctors. Tis is the main reason why health reform in Greece has time and again ground to a halt: not just because reform plans were poorly designed and haphazardly implemented, nor because entrenched interests reacted violently, though often this was also the case. Te malaise goes much deeper: as stated earlier, the rampant individualism and loose ethical standards of many keyTe actors are simplyproblem incompatible norms public fundamental seemswith to bethe what, for of want of aservice. better term, I have described as a moral crisis: the rise and rise of ‘knavely’ behaviour, and the parallel decline in the standards of conduct that are essential for a national health service to function. Te retreat of one minister of health after another into a more timid version of last time’s failed reform, and the capitulation of one government after another to private interests of all sorts, have failed to placate ‘knaves’ while they have certainly demoralized ‘knights’. By implication, the challenge for a reformist government, now or in the future, is not just how to defeat or buy out powerful opponents: under present conditions, this may not even be possible in a technical sense. Te real challenge is how to build from scratch a critical mass of support for

public how to to identify and then support doctors and other for workers whoprovision; are still willing offer their services to ESY, in exchange no more than a decent salary, the respect of their peers, and the gratitude of their patients. It is a long shot, but there may well be no other hope for the revival of publicly-provided health care in Greece. In this sense, recent legislation on ‘structural changes in the health service’ (February 2011) can be best described as a well-meant but ultimately misguided attempt to tackle some of the causes of inefficiency. Te new law introduces a streamlined system of public procurment of medical goods and 145

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technology in place of the notoriously wasteful current precedures, sets in place a similar system for pharmaceuticals, and merges the four largest sickness funds into a ‘National Organization of Health Service Provision’. Even though the minister in charge promises significant savings as a result of the new law, it is hard to see how these will be brought about in the current climate of bitter distributional struggle and a scramble for shrinking resources on the part of those who make their living working for or with the national health service. While the provisions of the law may be thought of as unremarkable, and most probably excessively cautious by international standards, the typically extreme reactions they provoked (including the occupation for several days of the Ministry of Health by medical activists) may be seen as yet another manifestation of the malaise described earlier. One final reflection. Te trajectory of ESY from the high hopes of 1983 to today’s grim realities raises painful questions not just for the future of egalitarian health policy but for the very prospects of centre-left reformism in Greece more generally. Specifically, European social democrats have always taken for granted the existence of a strong state,13 including a civil

service Weberian lines and a public personnel distinguishedoperating by high along standards of professionalism andsector personal integrity. Te relation of reformist politicians to mandarins and ‘public servants’ (such as teachers and doctors) has often been complex, sometimes problematic. Nevertheless, eventually, once policy was decided, governments could rely on the honesty and competence of those who worked in public services. On the contrary, the weakness of state institutions 14 is a handicap for social reformers in Southern Europe. Te inefficiency and corruption of the public sector act as a powerful brake on the aspiration of centre-left governments to use the power of the state to achieve policy goals. Inspiring a new professional ethos in public service is difficult, and takes time, but failing to do so is bound to undermine the policy agenda of any reformist govern-

ment; thereformers abandonment of reforms will reinforce the temptation on theand partsoon, of (ex-) to appease sectional interests and accommodate clientelistic pressures—whether reluctantly or enthusiastically. Tis sequence of events seems to have played out in the case examined here. Te coalition that supported the introduction of a national health service in the early 1980s was broad and seemingly powerful, but proved too weak to resist the attractions of ‘a good life’, obviously defined in the shallowest possible terms. Te failure to adhere to the ethical standards required for the new institution to thrive certainly eroded support for 146

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publicly-provided health care in Greece. More generally, the inability to create and defend a non-market sphere of public service undermined social trust and faith in collective endeavours, reinforced ancient beliefs as to the unreliability of others, and contributed to shaping the current landscape of ‘private affluence, public squalor’ (Galbraith, 1958). In light of this, the revival of public health care (as of public education, and so on) will have to rest on a new coalition inspired by a very different set of values, or will never happen. As I write these lines, the limits and the costs of what J.K. Galbraith first described half a century ago are more than plainly evident in today’s Greece. Te government is engaged in a desperate fight to avert bankruptcy, while society smarts from the impact with reality, and braces itself for the outfall of the crisis. Te new coalition for reform mentioned above is barely visible today, but might emerge if enforced austerity leads to the emergence of a new social concience, valuing material rewards less than a dignified existence.

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9

EDUCAION REFORM IN GREECE ASPECS OF POWER AND POLIICS

Apostolis Dimitropoulos

Tis chapter provides an analytical overview of the education policy of the Greek state. Starting with the transition to democracy, after the fall of the dictatorship (1967–1974), the overview extends over policy changes and reforms introduced within the context of the current global economic crisis. It takes as departure points changes in governments, which are used to distinguish between different sub-periods. Focusing on the main policy reforms and attempted reforms, the overview emphasizes stability and change in the power relations shaping education policy, and highlights the continuities and discontinuities therein. Public policy in education is distinguished into two types with distinct participants, power relations, processes and of outcomes. Whereas ‘distributive policies’ primarily expansion the education system and its structures—i.e. the involve numberthe of educational institutions, student and staff numbers—‘regulatory policies’ involve the organizational characteristics of the education system, its mode of management, administration, regulation as well as its functional orientation. Tis distinction between distributive and regulatory educational policies allows for a better understanding of public educational policy. Studying their evolution and comparing the two allows for a better highlighting of the power relations, the role of the state and non-state actors in the develop149

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ment of educational policy, and the evolution of the Greek educational system since the democratic transition.

1974–1981: Te Karamanlis ‘turn’ under claims for democratization Te fall of the dictatorship and the transition to democracy generated new and extended conditions of political liberalism in Greece. Te administrations of the teachers’ unions of primary and secondary education, appointed by the junta, were abolished. Te election of new administrations was accompanied by the formation of new collective bodies representing interests in the field of education. Te actions of the students and their organizations, strengthened by their role in the fall of the dictatorship, stood out. Te increased ‘expectations of a politically liberated society’ (Voulgaris, 2001) shaped the new framework of political mobilization, action and the expression of societal claims and demands in the field of education. A new framework that changed the relations of power and influence between the state, political parties and non-governmental organizations was formed.

Once democracy restored, a new series ofsystem. reformsTe andadoption plans was initiated that affectedwas all levels of the educational of the new democratic constitution (1975) was undoubtedly a development of critical significance, signifying the political changeover and the transition to the new democratic regime. Te specific provisions for education (article 16) laid down the basic institutional coordinates and characteristics of the educational system. Te state-centralized character of the educational system was preserved and the duration of compulsory education was extended as a ‘mission of the state’. Te upper levels of the education system were divided into ‘higher’ and ‘highest’ education; free of charge, public education was established, and the operation of private foundations at the highest level was banned. Tese constitutional provisions defined, to a large extent,

the policy educational changes the post-1974 period. Teyeducational formed the basisand for the demands, structured theofaims and strategies of political actors, became fields of conflict, and placed limitations on the educational changes and reforms throughout the latter period. During the first period of the political changeover (1974–1981), the governments of the conservative bloc of New Democracy, under the leadership of Constantine Karamanlis, attempted to introduce educational reforms that had been pending for decades. Te changes that they pursued had constituted fields of intense ideological and political clashes during a 150

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whole century. Te introduction of demotic Greek language across the educational system resolved definitively the issue of linguistic dualism. Te ‘language question’ had in the past been the cause of ideological as well as political divisions, and the intensity of the conflicts over this issue had led the language question to acquire substantial symbolic significance in Greek politics. Some of the most significant changes of this period also include the extension of compulsory education (from six to nine years), and the reorganization of technical education as an alternative option to general education at the secondary education level (1976). Te division of secondary education into two cycles (Gymnasium—Lyceum) was accompanied by the organization of the school network of technical-professional education. Te restructuring of secondary education and the introduction of selective procedures (exams) for entry into secondary general education aimed at the functional reorientation of the educational system. From the fulfilment of ideological needs, mainly associated with national identity building, and the development of academic knowledge, the system of education was now geared towards meeting the needs of the economy for technical

knowledge competencies. Te new orientation andaccess organization of the educationaland system aimed to limit social demand for to university 1 education and the increasing trend of students studying abroad. Tese reforms were complemented (1977) by the changes in higher technical education. Te setting up of the Centres of Higher echnical Education (KAE) during the dictatorship echoed similar developments in other industrially developed European states (UK, Germany and France). Teir renaming (from KAE to KAEE) and their internal reorganization contributed to their legitimization by the democratic government. Tese organizational, regulatory educational changes were accompanied by the gradual quantitative expansion of the schools of higher technical education, an expansion that had a distributive character. Te new technical schools were allocated to different regions of theregions. country, 2 with the aim of supporting the economic development of these Te consolidation of the demotic Greek language and the development of technical education had been attempted in the past (1964) by the centreleft. However, the conservatives had fought against these efforts and, ultimately, their implementation was suspended by the dictatorship. 3 A crucial factor for the promotion of the educational changes during the first period of the political changeover was the so-called Karamanlis ‘turn’. Tis ‘turn’ should be interpreted in the context of the broader political and economic 151

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strategy of Karamanlis. As has been stressed, Karamanlis’s strategy in this period consisted of an attempt to ‘shake off the identification of his government with the “old Right” and to move towards the centrist space’ (Voulgaris, 2001: 78). Apart, however, from the dynamics of party competition and political expediencies, these educational changes constituted part of the broader, intense state activism and interventionism of the economic policy of the Karamanlis governments (Ibid: 136). Besides, similar efforts for the organization of technical education had been attempted by Karamanlis during the previous period of his governance (1958) in the context of the modernization policy of the Greek economy, with meagre results (Dimaras, 2003a). On the one hand, the changes of the first post-1974 period served the need for legitimization of the fragile Republic, strengthening political stabilization and social cohesion. On the other hand, they signalled the new orientation of the educational system in the service of the needs of the economy, in which new conditions of international competition were in turn being shaped by the prospect of the country’s accession to the EEC. Te acceptance of these reforms was defined by the essential consensus of 4

the larger opposition parties. a consensus issues of several educational policy had rarely beenSuch achieved in theconcerning past, discrediting reform efforts. Te influence of the teachers’ unions of primary (DOE) and secondary (OLME) education in the formulation of the educational reforms of the first post-1974 period was minor. It was limited to the fulfilment of certain, primarily economic demands, rather than of their demand for a decrease in their working hours. Te main demand of teachers’ unions for the abolition of individual teacher evaluation was not satisfied. Shortly after the transition to democracy, university education became part of the reform agenda. Te planned changes primarily concerned the internal organization and administration of universities. Tese developments reflected a combination of domestic conditions and international trends. Te demand forchanges the participation of students in universities the university administration reflected in the governance of the that 5 had taken place in most Western countries. In Greece, the active role of students and student organizations in the fall of the dictatorship, as well as a climate favouring increased expectations for change, legitimized the demand for student participation in the university administration and for organizational democratization. Te demand for the abolition of the ‘chair’—an institution of German srcin—and its substitution by the ‘department’—an institution of Anglo-American srcin—reflected, moreo152

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ver, the shift in the global cultural hegemony that took place during the 20th century with respect to the organization and administration of universities and their relationship with the state. Plans for reforms in the organization and redistribution of power within universities mobilized the creation of associations, between groups of personnel with different institutional positions, interests and orientations. Tese collective groups of university personnel were associated with the political parties and their activity in the field of education. During the first post-transition period, government attempts for the reorganization of universities did not secure the necessary consensus and did not lead to major changes. Te simultaneous effort to alter the organization of learning and of university exams fuelled the reaction of student groups, leading to the mobilization of students and the occupations of faculties. Te reform plans were withdrawn. At the same time, a new distributive policy was introduced, which aimed to establish new universities on a regional basis. Under the pressures and demands of local societies, the new universities that were founded in this period were disseminated in dif6

ferent citiesof ofstudent the same region (Cretetechnical and Trace). Te initially policy goal for thea redirection flows towards education involved reduction of the entry places—controlled by the state—at the universities. Under the pressures of the political cycle of electoral contests (1977 and 1981) the entry places at the universities increased again (Karamesini, 2003), which highlights the role of politics in the expansion of the Greek higher education system during this period. In sum, during the first post-1974 period (1974–1981), public educational policy attempted to achieve the functional reorientation of the education system, and to direct the high and rising social demand for university education towards higher technical education. Te educational reforms, despite their results, did not radically alter the basic characteristics of the educational system and its functional orientation. general track continued to constitute the first choice amongTe students of education secondary education level. University education remained a steady first choice for its graduates, compared to the higher technical schools. Te number of graduates of general education and of the candidates for entry in the universities continued to increase during the same period. Te comparative advantages of employment in the public sector that the university qualifications secured, the lower social status of higher technical schools as opposed to the university schools, and the ambiguity of the professional prospects of their 153

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graduates did not correspond to the high expectations of the politically liberated society for upward social mobility. International economic developments during that period and their impact on the Greek economy and labour market seem to have decisively shaped the outcome of educational reforms in the first post-1974 period. Furthermore, the hierarchical differentiation at the top of the educational system (between universities and higher technical schools) formed the basis for the development of new claims. Te demand for a ‘unified’ tertiary education was gradually adopted by the student organizations of the technical schools as well as by their educational personnel, who were holders of high-level qualifications. Te strengthening of the academic characteristics of the technical schools and their organization according to the university model constituted demands that were shaped during the first period of the 1974 political changeover, and which unfolded during the subsequent periods that followed. Te formulation of the educational policy and the reform plans of 1974–1981 were carried out primarily through advisory committees comprising oftentheir came fromthe all influence parts of the politicalspecialists spectrum and and intellectuals, from abroad.who Despite efforts, of teachers’ associations on public educational policy during this period was rather limited. Te exception to the rule was found in the student organizations of the universities, since the mass participation and mobilization of the students prevented changes at the universities. Te dissatisfaction of teachers’ unions and the gradual adoption of their demands by PASOK, embedded in the vague but comprehensive promise for ‘change’, had profound effects on the policy developments that followed. Tey contributed to the rapid strengthening of PASOK during the first period of the political changeover, shifted the power relations within the teachers’ unions in favour of groupings supported by PASOK, and reinforced the presence and power

of teachers’ unions andpolitics other educational associations inside the party. Tese changes in power were expressed in the educational policy of the second period of the political changeover.

1981–89: Democratization under the influence of educational associations Te rise of PASOK to power constitutes a primary element that defines the second period of the political changeover (1981–89). Tis period was 154

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accompanied by important changes in education policy. Te period of PASOK is divided into two sub-periods that broadly coincide with the change of its economic policy, after the failure of the policy choices of the first period.7 Te two sub-periods are also distinguished by the gradual demise of popular expectations concerning the governance of PASOK, the gradual de-massification of social organizations and political parties that occurred during the 1980s, as well as the effects of party competition. New Democracy, the largest opposition party, organized its party forces and activity across sectors. Simultaneously, under a new leadership, it attempted to reshape and strengthen its ideological characteristics by embracing a more liberal profile (e.g. by supporting the establishment of private universities). Education policy development and reforms under PASOK follow the broader pattern. Between the two sub-periods, the choices and directions of educational policy as well as the relations between the state, the party and educational associations changed. Te first sub-period (1981–85) is characterized by the strong influence of teachers’ unions and educational associations over educational policy choices. In the second sub-period

(1986–89), conflict replaced consensus, while the introduction and success of reforms were limited. With the rise of PASOK to power, the party’s control of the state apparatus and the powerful presence of teachers’ associations inside the party rendered the notions of state, party and educational personnel barely distinguishable. Te centre of gravity in education decision-making shifted, becoming largely an intra-party issue. Te educational changes pursued during the first period of PASOK (1981–1985) echo, to a great degree, the demands of teachers’ associations that had been formed during the previous period. Tey reflect the associations’ power within the party and its public educational policy. In universities, the changes that stand out concern their organization and administration. Te chair and was abolished andTe replaced by the organizational units of the department the faculty. collective governance and operation of university institutions was expanded. Te composition of collective bodies differed significantly, however, from the respective deliberations of the previous period. Te redistribution of power in the internal university organization from chairs to departments was accompanied by the increased participation of student representatives in the organization of universities. Student organizations, operating as extensions of the political parties, gained power in university governance, the collective administrative 155

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organs and the election of the governing bodies. Te size of student participation almost equated their power with that of the teaching personnel. Teir mode of participation, as representatives of the party-controlled groups, allowed political parties to control the election of university administrations. It has been noted that the breadth of student participation was deemed necessary as a temporary measure, in order to secure implementation of reforms in the internal organization and redistribution of power inside the universities (Papadakis, 2004; Kremastinos, 2006). Te power of student organizations would offset the reactions amongst the teaching personnel, and primarily the holders of chairs that were to be abolished. Te political calculation was based on the large size and politicization of student associations, which were clearly dominated by the student groups of PASOK and the left that supported the changes. Te gradual disappointment of social expectations by PASOK during the 1980s and the ascendance of the New Democracy opposition were accompanied by a recasting of balances in student politics. Te New Democracy student organization strengthened its presence in the universities. Te party-centric of the universities expanded horizontally andfrom was consolidated control in the political system. Te party political benefits increased student participation and its impact on university governance transformed the instituted regulatory framework from a temporary arrangement into a long-lasting institutional structure.8 Te power relations and dependence of university administrations on student groups often defined the mode of governance and the decisions of university authorities. University administrations were frequently turned into a ventriloquist institutional authority, their attitudes and positions reflecting the power of student politics in the university governance system. Moreover, the internal dependencies of university administrations generated unfavourable power relations for the state authority. Reaching consensus between the state and university administrations the promotion implementation of educational 9 reforms became afor matter of increasedand difficulty. Te interpenetration of the state, political parties and universities constitutes a peculiar pact. Tis pact was accomplished and strengthened by the centralized bureaucratic state control of universities, their limited administrative autonomy and the weak institutions for external accountability. Tis pact structured and governed relations between higher education institutions and the state, the parties and wider society. It favoured the development of clientelistic relations between the state, universities and local 156

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groups. It also appears to have determined policy decisions of a distributive character, particularly including decisions that expanded higher education institutions (foundation of new universities, schools, and departments), especially from 1990 onwards. Te policy goal for the functional reorientation of the educational system, pursued in the 1970s, was maintained during the period in which PASOK was in government. However, the limits, the content and the outcomes of these reforms were largely defined by the power constellation following PASOK’s rise to power. Higher technical education was reorganized (1983) through the re-launch of echnical Educational Institutions (EIs) in the place of KAEE. Te higher EIs gained organizational elements and institutional procedures akin to those of universities (self-government, internal organization and governance, procedures for hiring personnel, qualifications, etc.). Tese changes satisfied the demands for an ‘integrated tertiary education’ expressed by groups (institutional administrations, personnel, students) that ascended during the previous period. At the same time, nevertheless, these reforms aimed at rendering higher technical education attractive, divertingalso the involved high demand for university education.10 Temore system’s reorientation the further expansion of higher technical education, with the foundation of new institutions, specializations, and an increase in the number of entry places in the EIs. 11 Reaching consensus over the functional reorientation of secondary education proved to be more difficult. Te double network of schools (general and technical-professional education) that had developed in the previous period was maintained. However, a new type of school was also added to this network: the Polykladiko Lykeion. Tis policy choice constituted a transposition of the comprehensive school model promoted in other European countries, combining the development of general and technical knowledge and competencies into a single type of school at upper secondary level. Te model’s selection and transfer the that Greek system constitute compromise between the stateinto policy sought to appears supportto technical anda professional education and the powerful association of the teachers of secondary education (OLME).12 Te new school model was accompanied by pledges for its further expansion as the sole type of school in upper secondary education.13 Selective procedures for entry to general upper secondary education were abolished. Graduates of compulsory education were thus encouraged to choose the general education track leading to higher education, as opposed to technical and professional education, leading to employ157

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ment. Furthermore, public experimental and model selective schools (protypa) were abolished. Te egalitarian effects of these policy choices served OLME’s demands for a single type of school for all students at upper secondary level (Pigiaki, 1999), reflecting its influence within PASOK and on state policy. Te changes by the first PASOK government contributed to a substantial increase in student participation rates in upper secondary education and the number of its graduates.14 A significant rise in the educational level of the population, and especially of young women, occurred. However, the proportion of students who opted for secondary technical and professional education did not exceed one-third of the total. Te functional orientation of secondary education towards general education, oriented towards higher education, was essentially maintained. Te constant and high rate of increase in the number of graduates of secondary education continued to steadily exceed the supply of entry places in higher education. As a result, the competitiveness of higher—and particularly—university education access was strengthened. Te private costs for extra education (private tui-

tion, increased, androse thesignificantly number of students continuing highercramming educationschools) in other countries (Dimitropoulos, 2004). Te increase in the number of higher education graduates, however, was not followed by a respective rise in the demand for higher skills in the labour market. University graduates were organized in associations of ‘unappointed’ graduates, demanding their appointment in the public sector, and particularly as teachers in primary and secondary education. Te occasional fulfilment of these demands by governments, especially in periods preceding national elections, constituted one of the characteristics of state policy during the post-1974 period.15 Te power of teachers’ associations and their influence on public educational policy is also reflected in the reforms of the administration and management of lasting the educational system and associations schools. With rise of to power, the demand of teachers’ forPASOK’s the abolition school inspections and teachers’ evaluation was satisfied. Te control over the administrative duties of the educational personnel was handed over to school directors. eacher’s inspection of pedagogical and teaching practices was replaced by advice offered by school advisors. Yet attempts to entrust school advisors with the responsibility for individual evaluation of teachers were not realized, owing to the powerful opposition of teachers’ associations (Mavrogiorgos, 1987). As a result, the teaching and pedagogical practices 158

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in the Greek educational system have been governed by a regime of presumed trust,16 without administrative control or any other accountability procedures. Te influence of teacher associations is also reflected in the reforms of the management and administration of the education system. Te interpenetration of state, party and educational associations was strengthened with reforms in the selection procedures of the management executives. Te party and teacher associations’ control of the system’s administration established a power ethos with significant effects. It strengthened the lack of trust of the teaching force towards the choices of state power; it fuelled teachers’ opposition to the introduction of evaluation and accountability procedures; it contributed to legitimizing the leadership of teachers’ associations among their membership (despite the gradual de-massification of educational organizations); and it contributed to intra-associational change and the gradual rise of the New Democracy bloc in teachers’ associations. Te strengthening of teachers’ associations within the ND party increased their influence within the party, and over state policy during the periods of ND government. During the 1970s PASOK had advocated state decentralization, ‘public participation’ and ‘democratic planning’. Te centralized control of the education system was maintained, largely as a result of the pressure exerted by teachers’ associations. Local government was only assigned the management of school buildings and the delivery of public financing to schools. Public participation committees that were created at local government level (1985), without important decision-making powers and resources, fell into disuse (Zambetas, 1994, Noutsos, 1986). Te retreat of PASOK from its initial positions favouring decentralization of the education system reflect the influence of teachers’ associations (Hontolidou, 1987: 68). Te preservation of the centralized bureaucratic control of the educational system

protected the bargaining privileged influence of teachers vis-à-vis central government. Te power lack ofand power resources at the local level was unfavourable for the organization and participation of other communal organizations (parents, local communities), thereby limiting their influence in the choices of centralized educational policy. Finally, the influence of teachers’ associations on state policy during the first PASOK government is reflected in the policy decisions concerning the initial education of primary education teachers (nursery and elementary school teachers). Teir lasting demand for integration of their initial training 159

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within the university system was satisfied. Te Pedagogical Academies were abolished and primary school teacher wage levels and civil service ranks were equated with university level graduates (see Mavrogiorgos, 1990). Te second PASOK government (1985–89) coincides with the implementation of the economic stabilization programme (1986–87). In this period, the relations between the state and the teachers’ associations changed. Conflict replaced the compromise and consensus of the previous period, limiting reform capacity. Te pending implementation of teacher evaluation procedures and the intensifying wage demands of the teachers’ associations became prime areas of conflict, culminating in a forty-five day long strike by OLME, which obstructed the higher education entry exams. Government efforts to free state policy from the influence of teachers’ associations through inaugurating a national dialogue brought no results. Te limited reform capacity during the 1985–89 PASOK government term coincides with the acceleration of European integration and the development of new European policies. Te implementation of the EU policies at the national level has, since then, formed a new, exogenous factor for

educational change. Te Europeanization includesand theCOMimplementation ofpolicy European educational programmesprocess (ERASMUS E) supporting cross-border mobility of higher education students and teaching personnel. Te national implementation of European programmes, despite opposition by some student organizations, bolstered the internationalization of higher education institutions. Te latter’s participation in European funding programmes for research had significant effects, transforming relations between universities and the Greek state. With the growing participation of Greek universities in European policy programmes, a new tier was added governing their educational and research activities, based on inter-institutional competition at the European level. Apart from additional resources, this contributed to the familiarization of Greek institutions withthe procedures of competitive funding included (see Kourtesis, 2003). of Further, EU internal market programme the regulation the recognition of professional rights of university graduates (EC Directive 48/89). Te regulation sought to secure the freedom of movement of individuals within the European Union. Te EU level policy developments at the end of the 1980s coincided with domestic and international developments. At the domestic level, the mismatch between supply and demand for entry to higher education had expanded. In other European countries, and especially in the UK, higher education funding reforms provided British 160

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higher education institutions with powerful incentives to increase the number of their students. British universities actively sought additional resources by commercializing their educational activities abroad, primarily in countries with an excess demand for higher educational programmes (Williams, 2003). Active marketing and franchise agreements with local educational providers fuelled reactions from Greek universities, associations of regulated professions, student organizations and political parties seeking state protection. Faced with such pressures, the Greek government only partially implemented the Community Directive. Condemnatory decisions by the European Court of Justice and the revision of the Community Directive (36/2005) clarified the obligation of the Greek state to recognize the professional rights of the degrees issued by higher education institutions of EU member-states with franchise agreements. Tese developments have undermined de facto the constitutional prohibition of the operation of private higher education in Greece, highlighting the exogenous role of Europeanization as a powerful source for domestic educational policy change. Significant effects on Greek educational policy also srcinated from EU regional development policies. EU structural funds the Greek state with additional financial resources allocated to provided education. Prominent among these Europeanization effects was the state capacity for distributive educational policies. Part of EU funding, from the late 1980s onwards— and particularly in the 1990s—contributed to the expansion of higher education, increasing numbers of institutions, undergraduate and postgraduate programmes, and the overall student population.

1990–2007: From democratization to effectiveness and efficiency—the suspended adaptation From the early 1990s onwards, the acceleration and deepening of European integration became graduallyeducational more visible in Greek policy. Efforts to adapt the national system to the educational new changing context were reinforced and dominated the agenda of educational policy and reforms. Te short-lived New Democracy government of 1990–93 is associated with the ideological shift of Greek educational policy. Echoing global trends in educational policy, the education system’s effectiveness, quality improvements, and evaluation procedures at all levels replaced the earlier goals of democratization. Te fierce opposition of educational associations to the new policy agenda created conditions of conflict, and limited reform 161

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capacity. Among the most significant reforms attempted by the ND government was the introduction of evaluation procedures, including—for the first time—the evaluation of higher education institutions. Reform proposals also included more competitive procedures for the promotion of academic personnel, and reforms decreasing the role of student organizations in the administration of higher education institutions. Yet the premature fall of the ND government left these reforms incomplete. After a period where entry places to higher education had increased continuously, their number froze, while the capacity to organize and operate postgraduate programmes in Greek universities was instituted. A part of EU funding was directed to post-secondary technical and professional training aimed at preparing secondary education graduates for their transition to the labour market. In the arena of distributive policy, under the political mobilization of local societies, the expansion of higher education continued with the establishment of new units, dispersed in different cities. After PASOK’s 1993 return to power, the attempted educational reforms formed part of the wider modernization agenda associated with the strategy 17 of accession to the EMU. (1994–96), Following an early initiatives period of policy reversalsGreece’s (1993–94) and deliberations reform after 1996 were associated with the party’s domination by the ‘modernizers’ under Kostas Simitis. In the context of the modernization project of this period, the reforms introduced by Education Minister Gerasimos Arsenis constituted a break compared to the policy choices that had been made during the first PASOK term in the 1980s. In contrast to the latter period, the reforms included more elements of continuity with the choices of the first and second ND governments. Te reforms (1997–98) aimed at functionally re-orientating the education system and alleviating the competition for higher education. Te prime policy instruments selected towards this goal were the restructuring of upper secondary education. Te Polykladiko Lykeio

was schools for and professional wereabolished instituted.and Tisnew restructuring wastechnical accompanied by significanteducation increases in the number of exams in general education Lyceums. Te changes sought to discourage students from general education and higher education by strengthening technical and professional education. In parallel, entry places were increased, expanding the supply of higher education. Moreover, the ‘Arsenis reform’ attempted once again to introduce evaluation procedures in education and selective exams to replace the pre-existing seniority system of graduation time as the sole criterion for teacher appoint162

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ment. It also provided for the extension of the operating time of elementary education. Such a change aimed to correspond to the new social needs shaped by the extended entry of women into employment and changes in the traditional structure of the family. Te introduction of the day-long school was combined with an effort to decentralize the educational system to lower levels of government. Te increase of exams generated fierce reactions among school students; their protests spread around the schools of the whole country. eachers’ unions opposed the entire set of the attempted reforms, which also fuelled clashes within the ruling party. Te societal consensus reached over other policy reforms during the same period, paving the way for Greece’s EMU accession, was not achieved in the area of education. Te effects of the clash within PASOK were reflected in its policy choices during the remainder of its term in power prior to the 2004 elections. Te quest for intra-party consensus led to concessions and the reversal of some previous choices. Exams in the Lyceum decreased, despite the success reflected in increases of students who chose technical-professional education. 18 Te implementation of evaluation procedures in education was suspended. New were instituted, eversystem being implemented. Teevaluation project forprocedures the decentralization of the without educational was interrupted, despite the bipartisan consensus after the adoption of this policy by New Democracy.19 Instead of decentralization through a transfer of competencies to the local government, new regional structures under the Education Ministry were founded. Te system of hiring educational personnel through exams was partially undermined. Te demand of EIs for their integration into higher education was fulfilled. Te expansion of higher education continued through the establishment of four new regional higher education institutions. Under the pressure of local societies, new institutions were dispersed in different cities. Te decline of PASOK and the 2004 rise to government of New Democracy coincided developments Bologna at EU level. Te (1999) EU Lisbon process (2000) with and important the inter-governmental process form part of the EU’s strategy in the changing global context and in increasing global competition. Since 2000, their influence on national educational policy has grown. Te Europeanization of national education policy contributed to increasing policy convergence of the two main political parties and the decreasing role of party competition, and strengthened continuity in public educational policy. However, the national-level implementation of EU policies was largely defined by the power relations within the state 163

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and the political system. Te introduction of quality assurance processes in higher education, a part of the Bologna process agreements, was designed by the PASOK government. Following reactions by higher education institutions and student organizations, quality assurance in higher education was not instituted during the PASOK government. Tis reform was promoted by the new government of ND after 2004. Te establishment of an International University, aiming at attracting students from other countries and the internationalization of higher education, was designed by the PASOK government, but implemented by ND. Convergence among political parties was also reflected in the attempt for constitutional reform, lifting the prohibition on the operation of private universities. Fierce reactions by academics, students and other educational associations and pressures within PASOK led to the suspension of the constitutional reform process. Consensus between the two political parties was observed in the reform of legislation governing higher education institutions proposed by the ND government (2007), including the attempt to limit the role of student organizations in the administration of institutions. Tis reform, however, remained incomplete a result of pressure within the ND party and government from studentasorganizations. In sum, since the late 1980s, distributive educational policies, facilitated by additional EU funding, effecting state expansion, were adopted without significant opposition. Te outcomes of such distributive policies include key features of the Greek educational system, which compares well with most developed countries and ranks high in the European Union context. Such features include, for example, the low drop-out rates from compulsory education, the high student participation rates in secondary education, the regional accessibility of higher education and the high participation rates, the number of teaching staff and the overall student-teacher ratio in all levels of education.

With respectover to regulatory policies,bi-partisan however, aconvergence different pic-of ture emerges the same educational period. A gradual policy goals and directions can be observed between the two main political parties. A crucial factor for such development appears to have been the changing international and European context and the gradual strengthening of external pressures. Europeanization effects on national education policy are increasingly visible despite national control of the educational system. However, such convergence has not proven sufficient for the acceptance and success of educational reforms. Te opposition and power of teacher and 164

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student unions has remained strong and effective in resisting regulatory policies and reforms. Bi-partisan policy convergence further highlights the constrained autonomy of the Greek state policy vis-à-vis the organized activities of educational associations, with their bargaining power reinforced by the state-centralized structure of the educational system. As a result, key features of the education system, and particularly its centralized administration, bureaucratic organization and management have remained unchanged, with weak accountability and quality control mechanisms. Te effectiveness and efficiency education policy paradigm, associated in other countries with the need for adjustment to the intensification of global competition, was suspended in the case of Greece.

Economic crisis and education policy in the 2011 University reform: owards a new paradigm? Since 2009, education policy has been shaped within the context of the global economic crisis and Greece’s financial and debt crisis. Education

reform is not of the‘troika’ economic agreedthe by the Greek Central government and thepart so-called (the programme European Union, European Bank and the International Monetary Fund) on May 2010 or its subsequent amendments. Reducing, however, public expenditure across the public sector has created strong pressures for improving the efficiency and effectiveness of public financing of educational institutions. Responding to such pressures, the George A. Papandreou government that took office in October 2009 has focused on managing education budget cuts, mainly by salary cuts, school mergers, reducing the overall number of teaching staff, improving their management and the recruitment process, and reducing higher education study places. In this context, however, the most important education policy develop-

ment has2011. been the of a new law for the higheron education in August Tisadoption major regulatory reform focused both thesector higher education system and institutional levels and, by employing New Public Management principles, sought to transform and modernize system governance and the institutional management of higher education institutions. At the system governance level, the reform increased institutional autonomy, enhancing self-governance of higher education institutions, and introduced institutional management by objectives as well as new rules for allocating public financing, based on the performance of institutions. Balancing 165

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increased autonomy and increasing institutional accountability, the reform also enhanced the responsibilities of higher education institutions over their internal quality assurance systems and introduced accreditation of such systems as well as study programmes offered by an independent accreditation agency. Procedures for competitive selection of centres of excellence in education have also been provided that seek to increase institutional incentives for excellence in teaching and learning environments. Tese system level governance reforms, modernizing the relationship between the Greek state and higher education institutions, are associated with pressures for improved efficiency, effectiveness and quality of higher education institutions. It may therefore be argued that these system level changes constitute a break with the tradition of state-centralized administrative control and regulation of higher education. Certain aspects of such a tradition transcend the fundamental institutional coordinates laid down at the beginning of the period examined here—the 1974 democratic transition—and date back to the 19th century. At the institutional level, reversing reforms of the early 1980s, the 2011 higher sought tothe modernize institutional and staff management. Iteducation therefore law transformed management of individual higher education institutions by introducing a new central administrative body, the Council. Te Council is composed of internal elected and external co-opted members, appoints middle level administrators (deans) and pre-selects rectors and presidents that are elected by academic staff members only. Replacing the direct election of institutional administrators by staff, students and administrative staff, and minimizing the role of student organizations in institutional governance, the reform seeks to enhance leadership and improve the management of higher education institutions. Te reform also transformed the internal organization of higher education institutions and their management, redistributing decision-making powers from depart-

ments to faculties, of study programmes andskills facilitating their renewal and increasing adjustmentflexibility to external demands for higher and competencies. Te reform additionally introduced the periodic individual evaluation of staff and academic awards, and changed the composition of selection and promotion panels of academic staff, encouraging the participation of academics from other countries seeking to raise academic standards at international level. Furthermore, the reform provided for the implementation of the Bologna process reforms at the national level by seeking to enhance the integration of Greek institutions into the European higher 166

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education space. o this end, it introduced a higher education qualifications framework, as part of the national qualifications framework, to be aligned with the European Union and the Bologna qualification frameworks, which have made it possible for higher education institutions to introduce threeyear first cycle degrees. It also further enhanced the implementation of the European Credit ransfer System to facilitate the mobility of students. Tese Europeanization effects complement the ratification in 2010 of the EU directive that recognizes for professional purposes degrees offered by other European universities through franchise agreements with local education providers, despite the opposition of teacher and student unions. Te higher education reform, despite its radical aspects, was also supported by three opposition parties in parliament, including the main opposition party of New Democracy. It was only rejected by the parties of the left. Te reform met the opposition of student organizations, active in the main political parties, as well as the university rectors and groups of academics. Such consensus among the main political parties was unprecedented in the recent history of Greek higher education policy. Many reasons account for this development, whichofincreases the possibilities a successful multi-annual implementation such complex reforms. for Prominent among these are the favourable broader public opinion for changes in higher education institutions and the gradual convergence of the main political parties on certain policy goals and directions, within a growing role of European level policy developments and their influence on domestic educational policy directions. Yet whether such consensus over education policy proves to be an exceptional moment of the political system or not will be seen with reform at other levels of the education system.

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HE QUANDARY OF ADMINISRAIVE REFORM INSIUIONAL AND PERFORMANCE MODERNIZAION

Calliope Spanou

Introduction: Administrative reform and modernization Greek public administration has frequently been ‘reformed’ during the past thirty-five years. Yet it still exhibits traditional patterns of operation and time-lags in terms of the service it provides. Inefficiencies have been exposed because Greek public administration meets neither domestic expectations nor EU membership requirements. Te profusion of reformist rhetoric exceeds visible reform results. Te resolution of the ‘Greek administrative problem’ seems to require more than a re-arrangement of political-administrative structures and procedures. Te heart of the matter is the operation of the political-administrative system and its effects on the institutional capacity of the state. Inversely, institutional deficiencies prevent efficient state operation. Featherstone (2005: 225) rightly relates this to a problem of domestic governance. Te term ‘reform’ is a neutral way to describe changes in public administration. It may refer to more or less far-reaching interventions that are presented in a way that usually raises expectations about their outcomes. Tis ambivalence provides the conditions for its abundant use in political rhetoric in order to correspondingly stage political action. Other terms competing in this arena are ‘rationalization’, and ‘modernization’, some169

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times accompanied by ‘democratization’ and ‘Europeanization’. In Greece, ‘Europeanization’ connects with administrative modernization, since EC/ EU membership has been, and still is, considered as the external stimulus par excellence for domestic reform. Tese terms are supposed to reveal more about the substance of changes (e.g. a more general normative framework (Jobert, 1989; Surel, 2000)) guiding reform. Tey also identify phases, dominant perceptions and legitimizing values of administrative policies. Tis mix of values, symbolic politics, decisions and actions is often difficult to unbundle. In the discussion that follows these terms are taken at face value, together with their baggage of symbols and realities. Te content of ‘administrative modernization’ is elusive in terms of time and space. However, in the Greek context it can be defined in negative terms. Tus, administrative modernization in Greece would involve the abandonment of methods and practices of state administration that undermine institutional credibility and the capacity to respond to modern challenges in various policy areas (unemployment, poverty, economic development and regulation the markets, citizen’s Tis definition offers of a contrario enough hintsrights for a etc.). positive formulation of end-goals. As a minimum, administrative modernization comprises the respect for the rule of law and for democratic accountability. Te stakes are considerable, since reform involves every government sector and level, and touches upon the relations between state and social groups as well as their relations to the wider economic and political environment. In the analysis that follows, the starting point is that no administrative modernization can be thought of in the absence of a Weberian-type administration (Spanou, 1995) and respect for the rule of law (Eleftheriadis, 2005: 319–20). Further, administrative modernization may be understood in two ways: as institutional modernization and as performance modernization. Te first

refers to building and while strengthening Weberian-type and shaping the rules of the game, the second touches uponinstitutions the operational level, and refers to the rationalization of administrative procedures and the improvement of results. Tis analytical distinction may be useful in understanding different reform efforts and their varying outcomes in Greece. Tese elements should not be seen as independent from each other. If institutional modernization refers to certain basic institutions, such as the rule of law and the respect for democracy, it cannot be separated from administrative performance, though sometimes the latter is presented as antagoniz170

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ing or contradicting them. Within the New Public Management approach, for instance, the focus on ‘results’ is opposed to the focus on procedures and ‘means’, which are linked to legal values, but are in reality highly political. Te latter are, however, particularly important for Greece, where dissatisfaction with the political-administrative system stems first and foremost from the lack of transparency and accountability of public decisions, even when complaints focus on delays, complicated procedures and the cost of missed opportunities at the operational level. Lastly, performance in public administration cannot be understood merely as economic efficiency. It should rather refer more broadly to the creation of conditions enabling other (public or private) activities to develop. An example of such a comprehensive approach of administrative performance is the relation between a transparent and predictable legal and administrative environment and the development of economic and social activities. It is on such indicators that various international organizations rate the respective competitiveness of national economies.1 Tus, performance includes a credible operation of the political-administrative system, reliable and swift procedures, conflict resolution and accountability mechanisms, assisted by the use of appropriate expertise and planning for decision-making; in other words, ‘service quality’. Institutional and performance modernization may be pictured as concentric circles, the second embracing and building on the first. Tis picture emphasizes that the two aspects of administrative modernization are intrinsically linked, while the second relays the first in achieving desirable reform results. Tis chapter starts by reviewing reform patterns between 1974 and 2009 (section I). It then offers a brief overview of reforms and their deficits. Based on the above distinction between institutional and performance modernization, the chapter argues that reform initiatives taken during the past thirtyfive years have mainly attempted to achieve institutional modernization rather than performance modernization (section II). While reform outcomes can be assessed differently in each case, administrative reform as a whole produced limited results. Te reasons for this are discussed in the final section of the chapter (section III).

I. Reform patterns 1974–2009 Although administrative reform has constantly been on the agenda in Greece, critical junctures for the direction of reforms are mainly linked to 171

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politics and political choices. A usual way to approach understanding reform is to follow governmental changes, which in Greece have an undoubted impact on reform priorities and the continuity of change. Te thirty-five year period is, however, long enough to allow a different approach, based on the dominant ‘normative framework’ (Jobert, 1989; Surel, 2000). While the fall of the dictatorship in 1974 and the first major governmental change in 1981 represent critical junctures, they belong to the same wider period. Democratization has been the core challenge. However, a new normative framework emerged in the early 1990s: the ‘European priority’. 1974—Mid 1990s: Modernization as democratization Te post-dictatorial period was characterized by reforms aiming primarily at consolidating democratic rule, but also at reorganizing certain aspects of the administration and the civil service that had proved to be inadequately dealt with by the pre-existing legal framework. A number of changes within the civil service were part of the wider effort to eliminate the political control that the military regime had established over the state apparatus, while

new legislation returned to the pre-junta state of affairs. However, the changes were peripheral and no comprehensive view of administrative modernization was perceptible. Te government’s priorities were more focused on settling major political questions than on reforming the administration. No major reform was undertaken in the 1970s (Spanou, 1996; Sotiropoulos, 2006: 204–205). In the 1980s, after the (first) major alternation that brought the left-ofcentre PASOK to government, the main administrative reform objective was crystallized as ‘democratization’, which later turned to ‘democratic modernization’. Inhibited by the authoritarian character of political life, Greece had yet to experience the gradual opening of its administration to society with regard to citizens’ rights. Te PASOK government proved very active in administrative reform. Te changes it introduced were complementary to those that took place immediately after the return to the democratic regime. Te reforms corresponded to a normative framework described by values such as equality, equity and social assistance (Spanou, 1998), with the overall aim of achieving institutional modernization. In broader terms, the PASOK reforms were a mixed bag (Spourdalakis, 1998). In certain areas, they introduced important changes (state-citizens relations), laid the foundations for the formation of a (still nonexistent) administrative elite (e.g. the creation of the National School of Public 172

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Administration), tried to rationalize the structure and organization of the civil service (unified grade and pay system), and established objective and transparent procedures for personnel recruitment through a computerized system based on a number of criteria. In other areas PASOK exhibited a predominantly populist logic (Lyrintzis, 1993; Sotiropoulos, 1996) that countered the principles of bureaucratic administration. Such examples include the abolition of top civil servants (general directors) in the name of flatter administrative structures and their replacement by political appointees, and the use of ‘social criteria’ for recruitment. During the 1990s the priority of streamlining the economy, particularly within the EU context, drove numerous reform efforts. From 1990 to 1993, the New Democracy conservative government attempted to implement a ‘shock therapy’ approach to reform. In policy-making, but even more so in rhetoric, it followed the neo-liberal wave of the time. Democratization was no longer a guiding issue. Limited state intervention and the reduction of the size of the public sector as well as deregulation and privatization became the new orders of the day (Pagoulatos, 2005). However, the conservative government did1990–93 not avoidwitnessed sharp contradictions between words Teitself period further upheavals within the and civil deeds. service. As expected, appointments to top-management posts increased the presence of ND supporters at the senior levels, not only in order to dispose of a politically reliable apparatus but also to meet the corresponding expectations of its supporters. New Democracy tried, within a short amount of time, to change the structure of the civil service, erasing most of the PASOK reforms, including those that did not even have the opportunity to prove their merits or shortcomings. In 1993, PASOK returned to government. Within less than a year, apart from regaining political control of the apparatus, the new government entered the ritual of administrative reform by changing the recruitment system and

the system, the appraisal the composition the organizational service boards, andgrade the inter-service transfer system, procedures, by draftingofnew charts for the ministries and so on. Tis list is certainly not exhaustive. Te examples nevertheless show the extent to which public administration was affected by the reforms of the new government before even being able to absorb those introduced by the previous one. Among all of this, major institutional modernization initiatives included the institution of second tier local government and a body to monitor and control the selection procedures—the Supreme Council for the Selection of Personnel (ASEP). 173

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While democratic consolidation in terms of alternation in government was not in question, the acuteness of the party rivalry and polarization during this period undermined administrative modernization in Greece. 1996–2009: Modernization as Europeanization Tis second sub-period was characterized by rising awareness of the constraints imposed by EU membership, and the need to deliver as a member of the EU. Despite continuing party controversies, this perspective contributed to a relative convergence in the normative framework of reform undertakings around modernization and Europeanization. Tis period extended until 2009, though the process of Europeanization began to lose steam in the years prior to this. After the 1993 election, PASOK signalled a turn in its political orientation (Lyrintzis, 2005, Spourdalakis, 1998). Tis change became clearer after 1996 with the Simitis governments, when the European priority was set as the guiding objective. Greece struggled to meet the Maastricht ‘convergence criteria’ in order to join the European single currency. Modernization as

Europeanization and responsiveness to EU membership requirements took centre stage. Tey also gave an impulse to administrative reform attempts. A number of important, and less ideologically marked reforms aiming at institutional modernization were introduced, favoured by the unprecedented continuity of priorities under the eight years of the Simitis governments. Tese changes altered the institutional landscape as well as the state’s role in the economy. Examples of politically important reforms included the compulsory merger of first-tier local government units (municipalities), the creation of independent authorities for the regulation of liberalized markets, the establishment of accountability and control mechanisms, and the institution and/ or the constitutional grounding of independent authorities for the protection of rights. Certain performance modernization initiatives were also implemented, though the emphasis remained on institutional modernization. According to Lyrintzis (2005: 252), modernization as Europeanization has only been vaguely defined as a political project. It failed to become hegemonic in Greek society and politics; when Europeanization (membership of the EMU) was achieved, it lost its specific content and almost disappeared in the 2004 elections, in which New Democracy returned to power. Its ‘Refoundation of the State’ programme promised ‘radical reorganization and real modernization’, referred to as ‘Re-inventing Govern174

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ment’ (cf. Osborne and Gaebler, 1993). It was a combination of old and modern ideas, with an emphasis on restricting state interventionism. Te remaining areas of administrative reform included the systematically repeated and never implemented ‘small and flexible’ government with fewer ministries, better and less costly services for Greek citizens, the strengthening of local government, efficiency, e-government and regulatory reform, among many other things. Te New Democracy governments (2004–2009) lacked a clear normative framework guiding administrative reform, such as Europeanization and modernization. Neo-liberal references only partly filled the gap. No major institutional reform took place in this period. However, a number of initiatives revealed a gradual shift in emphasis towards aspects of performance modernization. While rather slow, limited, and often superficial, they translated into an increasingly economic approach towards administrative reform.

II. Deeds and gaps. Overview and assessment of reforms Tis section follows the distinction between institutional and performance modernization, and argues that reform outcomes can be assessed differently in each case. It focuses on priority areas that have often attracted the attention of reformers and are important for Greek public administration. Tese include: (i) civil service issues, such as recruitment, grade and career systems; (ii) administrative structures, including de-concentration, decentralization, independent authorities as well as the creation of inspection and control bodies; (iii) citizen-administration relations; and (iv) internal processes and operation. Civil service policies Te civil service has been a major area of concern in terms of institutional reform in Greece. It has witnessed numerous revolving the same issues (selection and recruitment, gradechanges and career systemaround and, more recently, the status of the civil service). Civil service policies have mostly been concerned with patronage and politicization, as well as attempts to achieve institutional modernization, which has never been accomplished. o illustrate, the management of the personnel system is highly centralized and organized along unified lines. Tis aims not only at controlling public expenditure but also at containing clientelistic practices. However, both objectives have hardly been achieved in the past thirty-five years, with 175

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responsibility attributed to the political personnel who sought to bypass official procedures. Public employment represents a precious electoral resource that is difficult to subject to impersonal rules. Tus, officially, recruitment procedures have constantly been subject to centralization, which is often a synonym for ‘rationalization’ in the Greek political-administrative system.2 Since fragmentation and discretionary procedures favour particularistic practices, solutions are sought in the establishment of central, uniform and detailed rules. Since 1983 (Law 1320) a series of provisions have caused recruitment procedures to become extremely formalistic (Spanou, 1992), at the expense of any personal assessment of the candidates. Centralization and impersonality were the main characteristics of the system introduced in 1983, though criticism focused on the ‘social criteria’ used, and which were later changed. An important institutional modernization initiative was the introduction of an independent authority for the selection of personnel (ASEP) in 1994 (Law 2190). ASEP was conceived as the cornerstone and the institutional safeguard of the recruitment process, centralizing responsibility and over-

sight the selection of personnel. when for it received constitutional status.Its mission was confirmed in 2001, From its inception, the task of ASEP met significant resistance. 3 Despite its disadvantages in terms of slowness, legalism and rigidity, ASEP remains the most prominent feature of the official recruitment system. However, these disadvantages served as an argument used by an increasing number of public organizations to exempt themselves from this centralized and timeconsuming system. Additionally, policies aiming at reducing public expenditure, and therefore the number of civil servants, affected official recruitment procedures but did not manage to prevent their being bypassed through the practice of hiring significant numbers of ‘temporary’ contract employees on the basis of flexible procedures and criteria.4 Tis resulted in the ‘regulariza-

tion’ of successive wavesworkforce. of contractItemployees and their incorporation the permanent public is not a coincidence that a numberinto of clauses were included in the Constitution in order to prevent such practices, although these were ultimately in vain. More recently, the 2001 constitutional amendment explicitly prohibited the transformation of short-term to long-term contracts.5 Tus, the recruitment system was split between a formalistic, slow and rigid process (ASEP) and a practice bypassing official rules, where there was practically no guarantee of transparency and objectivity.6 Tis resulted in 176

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substantial overstaffing in areas of the Greek public sector and, more importantly, in the misallocation of human resources (OECD, 2005). Te total number of public employees became difficult to assess. According to official statistics, there are 370,517 civil servants, of which 101,685 are employed on indefinite contracts; but the total number of employees, including various short term contracts, is estimated to be as many as 700,000. Others estimated contract and seasonal employees totalling as many as 550,000 (see statistics www.gspa.gr and www.in.gr 26.5.2009).7 Te systematic use of patronage practices has surrounded recruitment with high levels of suspicion, while human resources could not develop the necessary expertise. When there is expertise, it is often marginalized due to a lack of party political support. Furthermore, patronage has not allowed the emergence of an administrative elite; it has instead produced a civil service of low legitimacy, expertise, efficiency and prestige, despite the creation, since the mid-1980s, of the National School of Public Administration, which was meant to produce high competence ‘cadres’ for public administration Another aspect of civil service organization that has been subject to con8

stant change is the grade and career system. Te changes concern the number of top management levels andmost the important ‘stable’ or ‘mobile’ hierarchy of the civil service. A succession of party-political changes was inaugurated in 1982. PASOK abolished the general directorates of the ministries because it was constitutionally impossible to dismiss the holders of these positions, and they were replaced by political appointees (special secretaries). Later, the change of the grade system consolidated this ‘flatter’ hierarchy, presented as a form of democratization. In a similar logic, a three-year renewable term was introduced for responsibility posts (director, head of division), which produced a ‘mobile’ or ‘rotating’ hierarchy. Director general positions were re-established in 1990 (Law 1892), without however abolishing the political posi-

tions hadDespite replacedopposition them. Tree-year werea further re-introduced (Law that 2190). from theterms unions, revisioninof1994 the Civil Service Code under the first Simitis government (Law 2683/1999) adopted the ‘stable’ hierarchy for the two senior positions, only to be changed again in 2004 (Law 3260) by adopting it again for every responsibility post. Moreover, the code allowed for the selection of general directors among all civil servants at grade A, with at least twenty-years of service, even when they lacked any prior experience in a senior position (something that later changed). 177

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Another issue has been the composition of the service boards that decide on the appointment of directors and heads of division. In 1986, they were composed of five members, three of whom were freely appointed by the minister (1986). Tis was criticized as a form of ministerial interference by ND, which later changed it to include two elected representatives of the personnel, two members appointed by the minister and presided over by a judge (1991). However, this later changed again and returned to three ministerial appointments (1994), while all subsequent amendments of the civil service code preserved this composition. A significant change was introduced by Law 3528/2007 (the new Civil Service Code), which adopted a point system, thus making the criteria for selecting heads of administrative units more transparent. However, in parallel, it introduced personal interviews, a technique often discredited in the Greek context. In an effort to show impartiality at a higher level, since 1990 the selection of director generals has been carried out by a special service board composed of two ex-officio director generals, academics, judges and the president of the civil servants’ union. enuredincareer is an important of the civilinterference service. Its significance is greater the Greek context ofaspect party-political in the civil service, acknowledged since 1911 by the Constitution. Despite limited ideological references to the ‘over-protected, idle’ civil servant there has been no serious discussion on abolishing tenure. Given the politicized context in which the Greek public administration has to operate, such a system could cause more harm than good, returning to extensive pre-Weberian style patronage and favouritism, and further undermining professionalism and continuity. Te argument of converging private and public employment conditions was explicitly integrated into a law (3429/2005) concerning the modernization of public corporations. Te discussion had never concerned civil servants until adirection. last minute initiative thatvoted seemed drive into a similar A bill that was fortoon the the lastcivil day service of the th Karamanlis government, before the early elections of 4 October 2009, assimilated long-term contract employees in public administration—most of whom started as short-term employees and were later awarded tenure— to civil servants ‘in view of a better use of this human capital and offering them the opportunity for advancement in the hierarchy’ (introductory report of Law 3801/2009). Tis bill led to a mixture of two groups of employees, the tenured civil servants and the ‘assimilated’ contract employ178

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ees. It opened the door for recruitment based on private law contracts for the civil service. Tese changes in the grade and career system might be interpreted as having been intended to increase the efficiency of the civil service. However, the means used, as well as the objectives sought, were typically those of institutional reforms, as defined at the start of the chapter (i.e. to build a Weberian-type bureaucracy, ensuring objectivity and merit in career advancement). Te civil service is still to be freed from patronage and political interference. Yet corresponding policies exhibit a lot of hesitation (stable or mobile top hierarchy, service boards) while, as in the case of recruitment policies, efficiency concerns appear more than marginal. Structural and functional decentralization

Adjustments in the administrative organization present institutional as much as performance modernization potential. In most cases, the reforms that were introduced reshaped the territorial organization of the state and set up new administrative authorities in order to remedy long-standing administrative weaknesses. More specifically, the Greek political-administrative system was traditionally highly centralized and lacked control mechanisms. Tese features were challenged during the period under examination. Te administrative structure of the state experienced a number of important reforms during the 1990s. First, in 1994 the de-concentrated administrative units at the level of ‘nomos’ were transformed into second tier local government units, headed by elected prefects. Te prefecture had been one of the most longlived institutions since the foundation of the Greek state. Tis change was initiated in 1986 (Law 1622) but, after a great deal of hesitation, was only put into effect with the 1994 elections. Second, after the unsuccessful implementation of policies designed to achieve voluntary mergers and

cooperation between almost 6000 municipalities of varying size and capacities, a compulsory merger in 1998 led to the formation of 1033 units. Tird, a reform of the regional level administration was implemented, and this completes the picture of administrative reform in this period. In 1986 (Law 1622), thirteen regions were created as regional planning units headed by a centrally appointed secretary general, largely as a result of EC membership requirements. In 1997 (Law 2503), this regional and deconcentrated administrative level also took up administrative tasks for the implementation of domestic and European policies for regional economic 179

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and social development. Tis upgrading reflects the increased importance of regional administration: first, it is the only administrative level representing central government and, second, it has a core role in managing regional development programmes and the corresponding EU funds. In contrast, the urgently needed institution of some form of metropolitan government in the two main urban conglomerations, Athens and Tessaloniki, has not been politically possible to date. Since the early 2000s, the need for further mergers and reductions in the number of municipalities has been widely acknowledged, while both governing parties have discussed the possibility of establishing directly elected regional councils. Te ND government had included this reform in its 2004 ‘Refoundation of the State’ electoral programme but it did not implement any policy reform on this basis.9 Within a short amount of time, the above reforms changed the administrative configuration of Greece and the distribution of political power between the centre and the periphery (Hlepas, 1999). However, their political significance does not always match their administrative and operational significance. the the sub-national political level was opened to electoral competition,While breaking political ties with central government, in terms of real policy-making capacity, elected prefects seem restricted. ransfer of real power and resources has been rather hesitant. Besides, while numerous responsibilities have been assigned to the municipal government during the past twenty years, this has been accompanied neither by adequate financial resources nor by the necessary organizational development of local government units. Furthermore, fiscal decentralization has not progressed to date. It is notable that the size of local government remains very small relative to other EU countries, restraining local government capacities. Te influence of central government on local government activities thus remains pervasive (IMF, 2006: 14).

Another typical deficiency of Greek administration—namely weak or absent accountability and control mechanisms—has been dealt with since the 1990s. Internal inspection and control bodies (with a horizontal or sectoral responsibility) were created as a means to promote and enhance the legality and accountability of public administration: administrative inspectors, 10 financial inspectors, a financial crime confrontation body and a number of sectoral inspection bodies (in transport, environment, health etc.) as well as a general inspector’s service (Law 3074/2002), which was entrusted, among other duties, with the coordination of these control bod180

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ies. Most of these bodies are concerned with legality rather than economic efficiency and the effectiveness of services. Furthermore, a number of independent authorities have been created that were given constitutional status in 2001. Tese are the Ombudsman (1997), the Hellenic Data Protection Authority (1997), Hellenic Authority for Communication Security and Privacy (2003), the National Broadcasting Council (1989), and the Independent Authority for the Selection of Personnel (ASEP, 1994). Most of these authorities are concerned with improving the protection of citizen’s rights or the regulation of politically sensitive areas, such as recruitment and radio/television. Te importance of ‘the independent voice’ of such institutions in the Greek context cannot be emphasized enough (Eleftheriadis, 2005: 332).11 Other important changes were directly linked to the new role of the state in the economy. Under the impulse of the EU, a number of specialized authorities took up the mission of regulating the liberalized sectoral markets, such as telecommunications and postal services, energy and so on. Tis included safeguarding competition and consumer protection. Tey were

placed at arms length from were endowed with guarantees of independence—though lessministries than the and above independent authorities. Tey represent a new mode of regulation, and their importance can hardly be exaggerated (Koutsogeorgopoulou and Ziegelschmidt, 2005: 30). Greece has also experienced a discreet form of ‘agencification’, namely the creation of independent, single issue, decentralized and specialized agencies. A new generation of public organizations, mostly in the form of ‘joint stock companies’, outside the official boundaries of the public sector has emerged. Tey have served a number of diverse purposes and were not necessarily linked to any neoliberal ideology (Pollitt et al., 2006: 276–277). Tese agencies bypassed existing bureaucratic structures, leaving them more or less intact, and covered new policy areas and functions. Tey are justified on grounds of higher efficiency, better expertise and greater responsiveness, but often express a pessimism concerning the capacity of existing bureaucratic structures to ensure new and more demanding tasks. Tis has become most apparent concerning the implementation of EU policies and responsiveness to EU membership requirements more generally. Since the mid-1990s, over fifty agencies of this type have been created or have acquired this status (not including privatized industrial and commercial state organizations).12 Tese agencies are allowed a wider margin of manoeuvre in order to operate under better and more flexible conditions than tradi181

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tional bureaucratic organizations. Such conditions allow, for example, the potential of new technologies to be adequately used, modern management methods to be put into operation, as well as higher and more specialized expertise to be recruited from the labour market. Te proliferation of such organizations led, however, to a ‘two speed’ administration and did not contribute to upgrading the existing bureaucracy. Furthermore, their status entailed a number of obstacles regarding the control of their activities (e.g. transparency and citizen’s rights, access to documents and information). A rationalization policy has been in discussion since the early 1990s. Tis discussion involves the review of the expediency of various public entities and their legal status (public or private law). Changes in the legal status of public organizations, their unplanned proliferation, as well as privatization policies during the 1980s and 1990s resulted in insufficient knowledge of the exact number, status and raison d’être of certain organizations. Aimed at tidying up public expenditure, a number of attempts were undertaken under the Simitis governments to make an inventory of public sector organizations; policy options included merger, abolishment, reorganization

or transformation into public or mixed economy enterprises (public-private participation), or joint stock companies (Law 2469/1997). Few organizations were actually abolished (e.g. the Greek Productivity Centre). New Democracy included this objective in its 2004 ‘Refoundation of the State’ programme so as to limit state interventionism and achieve higher levels of efficiency. Te merger of the numerous and fragmented social security funds took place as part of the social security reform in 2008 (Law 3655). Te merger or abolition of various public entities has also been included in the three-year Stability and Development Plan (SDP), submitted to Brussels in early 2009, as a measure for cutting down public expenditure and an expression of ‘structural reforms’. At the end of May 2009 a further measure was announced involving the merger of 255 public sector 13

organizations out of 620 reviewed. Te early election of October 2009 has left the issue pending. Among the above-mentioned reforms, some can be qualified as institutional reforms, such as the setup of control and accountability institutions (independent authorities and inspection bodies); others might present stronger performance modernization aspects (agencification, regulatory authorities). But even when the main argument has been improved efficiency, their impact on the general performance of public bureaucracy has been limited. Agencification did not influence bureaucratic operation. Te 182

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underlying idea of a ‘lean’ state, concentrating on the formulation of strategy and policies, and relying on regional administration, local government and specialized agencies for routine management and implementation met considerable resistance and has never really been undertaken. In other areas, such as territorial government, the potential for improved performance has not been achieved due to the lack of further complementary measures. Changes in administrative structures have not reached the operational level. Relations with citizens Given the Greek experience of authoritarian regimes, democratization of citizen-administration relationships was a major issue in the reforms of the 1980s and it still dominates the reform agenda in Greece. Since the mid1980s (Law 1599/1986), a series of legal provisions have endowed citizens with procedural rights to contest and hold public administration accountable (e.g. access to documents, justification of administrative acts, deadlines for response by public services, protection of personal data, rights to appeal etc.). Te gradual development of such regulations (Laws 1943/

1991 etc.) led to the Code of Administrative Procedures (law 2690/1999). Even more important is the fact that these procedural rights were taken up by special independent authorities responsible for safeguarding them, such as the Ombudsman and the Independent Authority for the Protection of Personal Data. Reforms, however, had to act in the direction of the simplification of bureaucratic procedures as well. Since the mid 1980s, recurring initiatives aimed at the reduction of signatures (i.e. joint responsibilities), the replacement of certain official documents by a ‘Solemn Statement’ and the ‘interservice search’ of such documents. A Central Commission for the simplification of procedures established in 2004 (Law 3242) produced a significant number of reports, many of which have led to corresponding joint ministerial decisions (see www.kead.gr). On the basis of the gradual advances stemming from the above initiatives, improvement of service delivery has been attempted through the creation of special ‘Citizens’ Service Centres’ (KEP) at the beginning of the 2000s. Tey are considered successful as a form of ‘one stop shops’, providing administrative information and processing simple cases in cooperation with responsible services. Tey represent a form of rationalization of the bureaucratic encounter in terms of the predictability of procedures and quality of reception. Tis was much needed in the Greek context. Satisfaction rates from these centres 183

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reached heights of 94% and are considered a crucial aspect of the muchneeded administrative reform (Panayotopoulou, 2008). E-government has also improved service delivery. Te results of this have become visible since the start of the 2000s, though a lot remains to be done until it covers all public services evenly, the priority having been payments (tax administration, social security organizations etc.) (Observatory for the Information Society, 2008). In the area of citizen-administration relations, institutional and performance modernization initiatives have brought about some visible improvements. Yet these remain exceptional, in a context of complex, time-consuming and sometimes non-transparent bureaucratic operation.

Internal processes and operation Initiatives to improve the services provided to citizens have to fight constantly against obstacles from the political-administrative system. In that respect they have to be supplemented by a) wider actions in the direction of the legal and political environment of public administration, and b) a review of internal management and operation processes. A source of bureaucratic complexity and inefficiency is the quality of the regulation, consisting of overlapping and fragmented legal rules. In order to deal with this problem in a more systematic and coordinated way, a Central Codification Committee was created in 2003 (Laws 3133/2003 and 3226/2004). It established a number of priority areas, formulated guidelines for subcommittees and proposals to ministries via the general secretary of the government. Measures to cut red tape and speed up procedures began to be implemented under the auspices of ‘regulatory reform’ and the ‘reduction of administrative burden’. Next to the OECD, corresponding EU policies gave a further impulse and a more structured framework for these initiatives. As part of the Lisbon Strategy, an action programme was launched in January 2007 for simplifying and improving EU regulations in view of a 25% reduction by 2012, within the wider framework of a ‘Better Regulation’ initiative. Member states are invited to join this initiative and programme at the national level following a common methodology for measuring administrative costs (Standard Cost Model). As such action is more than necessary,14 Greece has adopted the same target and deadline (see www.gspa.gr). Better regulation also calls for the assessment (ex ante and ex post) of the impact of new legislation. A prime minister circular (‘Legislative policy and 184

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quality and efficiency assessment of legislative and regulatory provisions’) established the obligation in 2006 for any new bill or amendment introduced to be accompanied by an ex ante ‘impact assessment’ (see www.ggk. gr/reforms.php). Its potential learning effect will only bear fruits if it is sustained by political will. Te results have been very limited. Output performance also depends on internal administrative processes. Greek administration generally follows rather traditional patterns of operation and has up to now proven resistant to modernization. Job descriptions, goal-setting and planning, performance evaluation and measurement are still absent. After a failed attempt in the early 1990s (PD 318/1992), in 2003 a law (3230) introduced management by objectives, along with performance indicators and measurement (efficiency, effectiveness, citizen satisfaction etc.) as a mode of rationalization of administrative operation and evaluation of output. Since 2005, a number of circulars, issued by the ministry responsible for public administration, formulate guidelines and encourage other ministries and services to shape indicators appropriate to their tasks and introduce strategic management. At present, the implementation of this law is at an early stage. It is limited to the obligation of various

public agencies to set and formulate their objectives (see www.gspa.gr). Tis initiative runs parallel to one of EU srcin, the Common Assessment Framework, which aims at introducing quality management in the administrations of the EU member states. Te various administrative reform programmes (such as the ‘ Politeia’ programme) link modern operation and management methods to better services for Greek citizens and increased transparency. However, managerial tools are essentially promoted through the issuing of normative acts (presidential decrees and ministerial decisions). Te setting of objectives and performance indicators, for example, has to take the form of a formal decision of the corresponding management level. In some ways, these techniques tend to lose their managerial (and operational) character and are translated into a bureaucratic-legalistic culture of ‘executing norms’. In terms of in-service training, management techniques have been addressed through the corresponding activities of the Institute of raining (a unit of the National Centre of Public Administration) since the late 1980s. Its impact on the civil service and the operation of public services has been minimal due to the lack of preparation of the political-administrative system for a shift to a more managerial operation. Rationalization of internal management would require better planning and priority setting, monitoring and evaluation procedures. Tese were only 185

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introduced in Greece as a requirement of European Structural Funds (IMPs, CSF etc.). Outside of these, they are still lacking. Tis lack is also reflected in the absence of a central service at the level of the prime minister to monitor and coordinate on his/her behalf the implementation of major policies,15 and respond to EU and eurozone membership requirements. Tus, the more general framework for improved efficiency—that is, planning, preparation and study of policy options, of their preconditions and impact, as well as follow-up, evaluation and control—is still largely absent.

III. Discussion Tis brief examination of the reforms of the past thirty-five years shows that there has been no shortage of reform ideas and initiatives. However, the results of administrative modernization leave much to be desired. Te wider issue of reforms falling short in Greece has often been addressed in the literature (see Pelagidis, 2005; Papoulias and soukas, 1998). Based on the above analysis, certain patterns may be detected which determine their fate and explain their deficiencies. Uneven attention and results

First, attention to various reform areas has been uneven. Initiatives and reform results vary depending on the area involved. For example, certain areas of institutional reform involve an inherent dynamic that helps them take root, despite difficulties. Such examples are the territorial structure of the state, independent authorities for the protection of rights and for the regulation of liberalized markets, and so on. Other areas appear to be the most affected by reform initiatives but hardly show any visible results. Such an example is the civil service, which has been subject to constant reform and yet still suffers from the same old problems. Te fact that civil servants represent a kind of ‘clientele’ for the governing party and the high visibility of these ‘reforms’ may be reasons for frequent symbolic interventions but the lack of real change (Edelman, 1977). Finally, there are areas that have been much less affected by reform initiatives. Internal processes and patterns of operation are such an example; in this case, the lack of attention is explained by their low visibility, the absence of ‘clientele’ to press in their favour and deeper obstacles.

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Practices undermining reforms Administrative modernization efforts have been undermined in a number of ways. First, despite good intentions, words did not always match the actual practices of both parties in government. In their competition for electoral resources, parties were interested in politically controlling the bureaucracy and satisfying the expectations of their supporters within the civil service. At the same time, civil service politicization (Spanou, 2001; Sotiropoulos, 1996) or political discretion concerning top management posts have never been openly admitted by governments, who pretend that selection and appointment procedures are based on seeking merit. A similar pattern can be detected in the split between an official, rigid but transparent recruitment system via ASEP, and an array of exceptions to it that allow it to be bypassed and for it to serve patronage practices. In both cases, the unwillingness to set clear rules and to ensure that they are respected perpetuates a problematic gap between formal and informal aspects of administrative operation typical of the Greek state. It further undermines any institutional innovation (such as ASEP) and the corresponding rules, while discrediting reformers and their future initiatives. Furthermore, as shown above, party competition and political retaliation have brought the civil service into a state of permanent ‘reform’, lacking the time to digest changes; this increased its introversion and prevented any improvement of its actual operation. Hesitations concerning its organizational rules translate into a lack of clear reform goals but also of concern about efficiency. Tus, institutional reform, though desperately needed, was promoted almost half-heartedly; deficiencies that were meant to be eliminated were reproduced or allowed through the back door because they provided short-term benefits to governing parties. Civil service reform remained unaccomplished. Reforms have also been undermined by the lack of interest or capacity to go all the way. In order to achieve their full potential, they had to be relayed and complemented by further actions within the institutions and structures that were set up; this is clear in the case of territorial organization reforms but also in the belated initiatives to introduce management techniques and improve performance at the operational level. A simple example is the incapacity of public administration to take advantage of in-service training and put into practice the management training of thousands of civil servants. Tus, many useful initiatives have produced only ‘symbolic’ modernization. 187

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Sustainability of reform efforts and proper implementation are in high demand but low supply when a change of government or a change of minister occurs. Insufficient preparation, planning, coordination and consistency are typical weaknesses (Papoulias, 1990). A wider lack of consensus within the political system concerning the directions and necessity of administrative reform reflect a deeper conflict between the ‘modernizing’ and ‘traditional’ factions of Greek society (Diamandouros, 2000). Legalistic reforms

Administrative reform policies remain legalistic. For a number of historical reasons, such as the import of foreign institutions when the Greek state was formed (Mouzelis 1978), the Napoleonic administrative tradition (Peters, 2008) and the legal training of civil servants, a legalistic culture has been prevalent. But legalism today may be seen as serving deeper aspects of the political-administrative operation. First, politicians care more to shape as well as manipulate legal provisions than to create the conditions for their implementation. Legal provisions appear to be the start and the end of a reform as evidenced by the lack of systematic implementation. Tis benefits government and the political personnel, since the corresponding policies elude substantive evaluation. It further leads to a plethora of changing legal provisions and is fully compatible with the legal formalism that allows wide areas of informal operation. Besides, the complexity of the legal system increases the importance of those who can manage it, finding solutions or invoking constraints. In such a more general environment, and in the absence of any effort to change it, the hegemony of lawyers and legal experts is enhanced. Te predominant legal approach of public administration reform is in fact a trap in itself: more laws introducing reforms are supposed to produce change, disregarding the need for stable rules of the game as a prerequisite for improving performance. At the same time, this approach expresses the deep lack of understanding or indifference towards the socio-political causes and factors responsible for the existing situation. As experience has shown, legal provisions do not constitute limits to respect, but obstacles to overcome or possibly circumvent (soukalas, 1993: 23). Te Greek legalistic culture and the institutional dynamics of government (producing laws is its the main instrument to influence reality) further intensify the tendency towards inflationary ‘reforms’. Reform thus becomes an end in itself and 188

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formalism is only confirmed by the above-mentioned perpetuation of the gap between formal rules and informal practices, which disregard them. Dissociation from economic concerns While economic conditions and EU membership have undoubtedly sent a message for the urgency of administrative reform for at least two decades, awareness has been very slow. A long-standing feature of administrative reform policies has been that they have been dissociated from economic concerns. In the 1980s, these were overridden by the extension of the public sector and the political priority given to various forms of social policies. Even later, economic concerns never triggered any change deeper than simply cutting costs. Tis dissociation started to change with the 2004 New Democracy government, due to a neo-liberal ideological approach to government and the personality of the then minister of the economy (and finance). He claimed a role of ‘super minister’ and a more or less discrete role in decisions related to administrative reform, stepping into areas traditionally reserved to the Ministry of Interior. Tus, the economic and administrative components of modernization were brought closer. Tis novelty moved the centre of gravity for administrative reform towards the Ministry of the Economy. It also blurred the division of labour between the two ministries. Te ad hoc, indirect and imposing way in which this blurring took place left open the question of who has the central role in administrative modernization and is able to define its content and orientation. Administrative reform was driven by the need for cutting public expenditure but was accompanied by wider initiatives in the direction of performance modernization, such as the reduction of administrative burden. Tis benefited from the increasing involvement of the EU in pushing forward policies to improve competitiveness.

Conclusion In general terms, the 1980s and 1990s were characterized by institutional reforms. Te reforms sought to shape a Weberian-type bureaucracy and reverse long-standing features of the Greek state tradition: centralization, patronage and the repercussions of this on the political administrative system (Spanou, 2008). Tis required closing the gap between formal rules and the informal practices model (Spanou, 1995). Despite stop and go 189

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traffic, they produced results in certain areas. Tis is especially the case when they created their own dynamics, such as the case of decentralization (elections) and independent authorities (accountability, control), which were mainly designed for the protection of citizen’s rights. In other areas, such as civil service reform, the measures implemented were less successful, since the rules have been frequently changed and the civil service itself is not in a position to defend them. Red tape, legalism, rigidity and lack of citizen-oriented service remain, as well as citizen mistrust towards public services. Despite significant institutional modernization, institutional operation still suffers from weaknesses that prevent reforms from achieving their full potential. At the beginning of the twenty-first century, the emphasis had gradually shifted to performance modernization. But progress has been slow, leading sometimes to symbolic and formalistic action because of the lack of an internal dynamic to support it. Te involvement of the EU through its emerging ‘administrative’ policies (such as the ‘Better Regulation’ initiative, the Standard Cost Model, or the Common Assessment Framework) can be

considered a chance for sustainability a source of future endeavours.asTe question that remainsand is whether theoptimism politicalfor system accepts the importance of such modernizing initiatives, given that they tend to restrict the margin of freedom of the political personnel. Updating the administrative model in terms of organizational features, processes, context and performance requirements, especially in relation to the economy and the corresponding role of public administration, is far from a ‘technical’ matter. Performance modernization needs to challenge deeper patterns of operation. A solid institutional background is necessary in order to overcome the opposition of entrenched social and professional interests as well as the interests of political actors themselves. Until then, ‘performance modernization’ will remain incomplete and uneven, though not completely absent. Givenofthe of the task, administrative reform remains the quandary ourmagnitude time. Post Scriptum Te snap poll of 4 th October 2009 provided a wind of optimism for the introduction of much needed reforms in key policy areas, among which public administration played a central role. Very soon, however, the effects of the economic crisis exposed the full extent of the challenge, the costs involved and the economic consequences of delays in implementing urgently needed performance modernization and of the dissociation in public administration. 190

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Te heart of the matter consisted in keeping the country above fiscal waters, thus avoiding an imminent sovereign default. Te measures agreed with international lenders (comprising the IMF, the ECB and the European Commission under the umbrella term ‘troika’) provided a strong incentive towards reforms that had been in high demand but low supply during the past decade in Greece. A number of institutional reforms undertaken since the end of 2009 aim at increasing transparency and the objectivity of civil service recruitment and promotion procedures, as well as transparency of administrative decisions, mainly those with financial implications. Financial management procedures have been impressively tightened, further bridging the aforementioned gap between administrative operation and economic concerns. Te major reform of local government in 2010 replaced the prefectural with regional (second tier) self-government. Tis reform initiative also introduced a merger of municipalities which were subsequently reduced from 1034 thousand to 325 entities, thereby redistributing numerous competences at the sub-national level. Tese changes were meant to provide better services and reduce costs. of public employees play Pressure to contain theadministrative number and payroll their part in a number of other initiatives. A census of public sector employment from July 2010 has finally made it possible to put an end to widespread speculation about the precise number of employees and the expenditure obligations this entails. A trend towards assimilation of public and private employees’ status and remuneration is also present in various administrative reform measures. In the same vein, the issue of merging or abolishing numerous public entities has been firmly placed on the government’s agenda, despite the difficulty of dealing with such contentious issues as personnel status in a context of rising unemployment.

However,underlying progress in changes performance modernization is less spectacular, since it involves in the pattern of standard administrative operation procedures. An encouraging sign is, however, the setup of socalled ‘one-stop-shops’ for starting a business, a fast-track registration procedure that had not been achieved in the past decade(s). Te reform management under conditions of a profound economic crisis needs to be analysed in its own right. However, it seems already apparent that the crisis provides the incentives and/or the cover for initiatives and changes that have been dragging their feet for decades. Te challenge at 191

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hand is ever more important. Te extent to which public administration can rise to this challenge and thus transform itself into an efficient agent of change within the public apparatus remains to be seen.

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11

POLICY IDEAS AND FOREIGN POLICY REFORM IN POS-COLD WAR GREECE

Panayotis J. sakonas

In the late 1990s Greece undertook a significant reform initiative at the core of its foreign policy agenda, namely in its foreign policy vis-à-vis urkey, the neighbouring state which has been considered as Greece’s major security threat for the past thirty years. Greece’s reform initiative—which attempted to alter the very logic of Greek-urkish relations—reached its institutional climax at the Helsinki EU Summit of December 1999, when urkey was granted candidate status after Greece’s decision to lift its long-lasting veto. Was this paramount foreign policy shift the result of a rational recognition of Greece’s new strategic needs and priorities, of a more in-depth ideational change related to a collapse of the traditional—and reigning—orthodoxy about how to deal with the ‘threat from the east’, and of the effects of the force ofall Europeanization tion of of the above? on foreign policy formation? Or was it a combinaTis chapter argues that, beginning in the mid-1990s, an ideational change has occurred in Greece’s foreign policy on how to deal more effectively with developments in Greece’s immediate Balkan neighbourhood, and particularly in terms of its relationship with urkey. Qualitative data, including interviews, memoirs, and public statements in various forums, are used as sources for the stances of policy intellectuals and decision-makers. Te latter are identified as the agents of a new ideational framework intro193

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duced into Greek politics in the mid-1990s, and as being primarily responsible for conceiving, initiating and enacting the reform initiative at the core of Greece’s foreign policy agenda in the late 1990s. Te chapter argues that, by functioning as a filter through which international constraints and/or domestic politics are analysed and assessed, the policy ideas of certain key decision-makers proved to be essential in explaining the major shift in Greek foreign policy. Tey did so by defining state interests, underlining the burden of the counterproductive policies followed by successive Greek governments since the mid-1970s, highlighting certain policy alternatives over others, and providing guidelines and strategies on how foreign policy goals can be achieved.

Te Ancien Régime of Policy Ideas and Foreign Policy-Making Te dominance of the urkish threat remained the driving force behind most of Greece’s security and foreign policy initiatives from the mid-1970s to the early post-Cold War years (Stearns, 1995: 60). Te fear of a looming urkish threat has haunted public opinion, parliament, and the country’s

opinion leaders, and this fear has dominated the national psyche. It has also been reflected in the dominant scholarly approach towards the Greek foreign policy phenomenon (sakonas, 2005: 427–37). Te 1974 urkish invasion and subsequent occupation of the northern part of Cyprus, in particular, was a traumatic experience for Greece that served to further strengthen the Greek mentality concerning urkey’s perennial revisionist attitude (Rozakis, 1996). Historically, a sense that the country is eternally facing external threats to its territorial sovereignty is deeply rooted in the Greek mentality. Unsurprisingly, this strong conviction stems mainly from traumatic historical experiences that are primarily linked to the long and painful process of the construction of the Greek state (Veremis, 1990). Associating ‘Greekness’ with classical antiquity, the Byzantine tradition and Christian Orthodoxy— and thus regarding western liberal ideas as foreign to Greek idiosyncrasy (Campbell and Sheppard, 1968: 33)—the dominant political culture in Greek politics from the mid-1970s until the 1990s has been characterized by elements of introversion and xenophobic nationalism. A sense of pride co-exists with an inferiority complex vis-à-vis the advanced West (Lipovats, 1991: 276), creating a ‘siege mentality’, and an inclination for conspiracy theory approaches to and interpretations of international affairs (Diamandouros, 1993: 1–25; Mouzelis, 1995). 194

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Hence, the West, both Europe and the United States, was viewed through a Manichean casting of pro-Greek (‘philhellene’) and anti-Greek (‘anthellen ’)—with a political discourse concentrating on the ‘injustice’ caused by ‘foreigners’—while there was a clear tendency on the part of this political culture to identify with groups or persons (e.g. Arabs, Kurds etc.), who were considered victims of Western injustice (Diamandouros, 2000: 49). As a result, a ‘schizophrenic’ view of the role of the ‘external factor’ (be it the United States or the European Union) developed. According to this view, both the US and the EU had to be condemned for not offering protection to the Greek state against external threats, while, at the same time, ‘protection’ has been criticized as a deleterious phenomenon leading to unacceptable interventions in Greece’s domestic politics (Ioakimidis, 1994: 47; Pettifer, 1994: 18). Unsurprisingly, these collectively held sets of world views and foreign policy ideas became ‘axiomatic’ and accepted assumptions of foreign policy. Indeed, from the mid-1970s until the 1990s, Greece conceptualized the core of its foreign policy agenda (i.e. the Greek-urkish conflict) not simply in terms to of Greece’s urkish territorial revisionism, but in terms of urkish ‘inherent’ aggressiveness integrity, and hence as an ‘existential threat’ to its survival. By implication, the possibility of a compromise with ‘the enemy’ was ruled out, and a policy of containment and deterrence appeared to be the sole options. Interestingly, in the early post-Cold War era—with Andreas Papandreou in power—this ‘realist’ mode of reasoning, along with some of its excesses, played a decisive role in the formulation of Greece’s foreign policy agenda, and dictated certain appropriate methods for dealing with urkey on the basis of the perceived need to deter its ‘inherently expansionist’ neighbour (Constantinides, 2003: 52). Tis same reasoning also underlay particular security and foreign policy decisions of the Greek government towards urkey 1993–95. Tese included the implementation of the doctrine of during extended deterrence between Greece and Cyprus, materialized through the establishment of a Joint Defence Doctrine (JDD) in 1993, and the subsequent decision to purchase the Russian S-300 anti-missile system some years later (Constas, 1997: 41). It could indeed be argued that, despite differences in style over the course of twenty years (1975–1995), both ND and PASOK have shown remarkable continuity in perceiving urkey as the country’s major security concern, with the Greek public appearing to acquiesce in the persistently high 195

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levels of defence expenditure, despite its severe budgetary implications. According to a prominent Greek foreign policy analyst, the substance of Greece’s foreign policy seemed ‘to follow since the mid-1970s a steady course oriented toward European unification [the positive challenge] and deterrence of urkey based on an adequate balance of forces [the negative challenge]’ (Couloumbis, 1997: 51). Moreover, enjoying a comparative advantage as a full member of the European Community (EC) since 1981—and with urkey being an aspirant member since the early 1960s—Greece has consistently tried to employ the EC/EU as a diplomatic lever against urkey. Successive Greek governments have consistently used the Cyprus issue to block EU-urkey relations since the 1980s (Stephanou and sardanidis, 1991). At the same time, any advances in relations between the EU and urkey remained linked to the exercise of Greek veto power, unless urkey first met particular criteria relating to democracy and human rights, and abandoned its revisionist policy in the Aegean (Couloumbis, 1994: 51).

Te New Ideational Framework and Foreign Policy Reform Crisis and the introduction of new policy ideas Te January 1996 Greco-urkish crisis over the islet of Imia rocked the newly formed Greek government of Costas Simitis and his self-styled ‘modernizers’ faction of PASOK. Simitis became prime minister after the seriously ill Andreas Papandreou was persuaded to step down. As luck would have it, the Imia crisis peaked ten days after Simitis’ election as prime minister—following internal party elections on the 18th January 1996, and six days into his premiership (22nd January 1996). Interestingly, the Imia crisis seemed to validate the thesis that some cata-

lytic external eventinterests is necessary to move states to Indeed, dramaticbypolicy initiatives in line with their (Krasner, 1976: 341). making ‘thinkable—if not probable—what was until then considered unthinkable in relations between neighbours’ (Simitis, 2005: 73), namely war, the Imia crisis had earth-shaking effects on Greece’s ability to go beyond the counterproductive policies of the past. Hence, old, dominant ideas about how national objectives can be pursued—including both the rationale and the conduct of foreign policy—started being questioned under the Simitis modernizers’ new ideational framework with regard to cause and effect. 196

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What started to appear as an alternative idea in Greek foreign policy was a pragmatic ideational framework arguing that a stable bilateral relationship with urkey, based on the successful interconnectedness of the two states’ interests with legitimate international rules and standards—as, for example, that of European integration—is both feasible and realistic. From the beginning of its term, the Simitis government made clear that the old antagonistic ideational framework should be replaced by a more rational one focusing on engagement and cooperation. 1 While recognizing that states function in a competitive international environment, this pragmatic ideational framework also assumed that neo-functionalist strategies can still prove effective at the process level, especially through the actors’ socialization, which limits and shapes behaviour. Predictably, the global and regional power configuration was also being filtered by the Simitis modernizers in a way that differed greatly from that in the past.2 Tis in turn meant that Greek decision-makers began adopting a world view that retained a distance from the traditional realist state of affairs, and which was closer to a model of complex interdependence. According to such a world view, successful economic and the use of international institutions—not force—are themanagement dominant instruments, and a state’s wellbeing—not only security—becomes the dominant goal. Moreover, in accordance with the ideational framework of the Simitis modernizers, the post-Cold War era has also brought about a broader definition of the notion of security. New types of power emerged in the political sphere beyond the traditional role of military might (‘hard power’), such as diplomatic, economic, cultural and moral influence (‘soft power’). Recognition of the central role of soft power in interstate relations, and especially of the need to use this type of power for the optimal promotion of Greece’s national interests, necessitated the rapid adaptation of diplomacy to meet the new demands.3 Forthe thispost-Cold reason, the advocates of the system new ideational framework argued that War international should not be viewed as purely anarchic, but as a system where institutions and channels of communication can provide stable expectations of continuing peace. Moreover, they claimed that the deeper engagement in international institutions could be used to support the normative system that southeastern European states required: a system based on the importance of democratic governance domestically, the rejection of war as means for dispute resolution, the legitimacy of existing dispute/conflict resolution mechanisms, and a prefer197

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ence for multilateral solutions to common security challenges (Simitis, 1996: 94–97). As a consequence, Greece’s national objectives could only be obtained if both the new instruments of ‘soft power’ (i.e. diplomatic, economic and moral influence), and the use of international institutions were incorporated into Greece’s strategy towards its immediate environment.4 Moreover, in order to be competitive in the post-Cold War international order, the proponents of this new approach argued that Greece should create a strong domestic economy within the parameters of a globalized competitive market.5 By implication, Greece’s full integration into European structures and the redefinition of Greek identity within the framework of an open, multicultural European society (Simitis, 1995; Simitis, 1996: 73–81; and Simitis, 1998) was the only way forward. Tis in turn meant that the advocates of the new ideational framework would have to link political choices at home with choices abroad. Te modernization of the Greek political system inevitably called for Greece’s adjustment to the post-Cold War realities. Te main foreign policy goal of the in Simitis administration at the time to restore the country’s credibility the eyes of the international andwas European community and thus overturn Greece’s image in the mid-1990s as ‘an immature Balkan parvenu in the Western European milieu while its very membership of the EU was [put] in question’ (Economides, 2005: 481). 6 Moreover, for the Greek government in the mid-1990s, political system modernization and membership in the Economic and Monetary Union (EMU) were means to end the ‘Greek exceptionality’, to upgrade Greece to a beacon of liberty and economic progress in the Balkans, and move the country from the periphery to the centre of developments of interest for Brussels and Washington alike, such as the EU and NAO expansion to the east. Tere was thus an intentional effort of the Simitis modernizers to transfer into thenorms Greekand political system a model governance values, principles upon whichofthe EU systemthat andreflected those ofthe its member states are constructed (Ioakimidis, 2001: 74–75). In other words, there was a systematic politico-ideological reform programme towards a parallel direction of foreign policy ‘Europeanization’ and domestic modernization (Economides, 2005: 481) or towards ‘modernization’ and thus ‘Europeanization’ (Ioakimidis, 2000: 74; Ioakimidis, 2007: 35). Interestingly, the policy ideas of the Simitis government constitute a clear demonstration of an intended ‘top-down Europeanization’ 7 of Greek foreign 198

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policy. What had actually begun to become noticeable in the mid-1990s was the ‘policy impact of Europeanization’, namely the impact of European integration on policy-making, including actors, policy problems, instruments, resources and styles (Radaelli, 2001; Ioakimidis, 2001: 359–72). Tis had gradually contributed to the adaptation and socialization of the Greek political and policy system to the European norm.8

New policy ideas regarding relations with urkey In the aftermath of the Imia crisis and in accordance with the new ideational framework of the ‘modernizing’ Simitis government,9 the conceptualization of Greco-urkish relations moved from the traditional realist state of affairs to the complex interdependence end of the spectrum. Tis implied a new understanding of urkey’s role in a globalized international and regional environment as well as the potential role Greece could play by placing the new notions of power (both ‘hard’ and ‘soft’) at the centre of its relations with its neighbours. Although mostimportance of the conventional assessments of urkey’s post-Cold War geostrategic were shared by the Simitis modernizers (e.g. urkey’s prominent place in US strategy in the Middle East, the Balkans and Central Asia), the identification of Greece’s security interests with those of its EU partners seemed like a ‘one way street’. Tus, Greece rejected a strategy of isolationism, complemented by urkey’s seclusion from European developments, while at the same time stressing that ‘a closer relationship between urkey and the European institutions and organizations should be pursued—a relationship which would in turn imply urkey’s compliance with the principles and rules of the European institutions’. Te latter were viewed as functioning in accordance with particular norms and principles and by implication any notion of revisionism, violation of human rights and/or the current use of force for changing the status(Simitis, quo would be unacceptable for both and aspirant EU members 1992). Greece was thus called upon to develop policies vis-à-vis urkey that were consistent with its standing as an EU member, and with European political civilization and norms of behaviour, namely conflict resolution through the application of international law and agreements. By implication, Greece should abandon the reactionary and defensive policies of the first decade and a half of the post-Cold War era and adopt a more flexible and constructive foreign policy with regard to neighbouring urkey.10 199

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In the aftermath of the Imia crisis, Greece’s key decision-makers were convinced that the traditional strategy of deterring the omnipresent urkish threat on all fronts and at all costs was at best ineffective and at worst counterproductive. By extension, they argued that the traditional strategy followed by successive Greek governments since the mid-1970s should be replaced by a new one, based on a completely new argumentation consistent with international law, dialogue, the peaceful settlement of disputes and European norms of behaviour. At the heart of the new strategy lay the strong belief that it was in Greece’s interest to resolve its long-standing conflict with urkey as its reproduction and endurance would have disastrous effects on Greece’s economic development and stability both in the short and the long-term. Hence, after raising its credibility in the eyes of the international community, and especially among West European states, and repositioning itself in the European mainstream, Greece had to make full use of the benefits stemming from its active participation in the exclusive club of the European Union.11 Te Simitis government held the belief that a stable bilateral relationship with urkey, based on the successful interconnection of the interests of both states with legitimate international rules and standards, such as those of the EU, was both feasible and realistic. 12 Tis in turn meant that Greece also viewed urkey as a ‘security maximizer’ whose aims should not be regarded as being unlimited. Tere was indeed a sharp contrast between Greece’s new policy ideas and those of the past, especially that of Andreas Papandreou, who viewed urkey as a ‘power maximizer’, and a revisionist, and inherently aggressive neighbour with unlimited aims. Furthermore, the ideational framework of the Simitis government called for a move from the traditional discourse of non-negotiable rights to one of interests in an effort to disentangle the two and find a degree of common ground and a possible compromise, as an acceptable and effective way of 13

dealing with the urkish threat. More specifically, the Simitis government was convinced that a comprehensive strategy for dealing with Greece’s most important foreign policy issue should be developed. In the words of Simitis: []his ‘comprehensive strategy’ should challenge the bilateral-bipolar character of Greek-urkish relations as well as the simplistic logic of the use of force (e.g. urkey’s threat of ‘casus belli’) as a means of resolving the Greek-urkish differences… [G]reece was in need of a strategy which would go hand in hand with Greece’s strategic priority for membership in the EMU; …[a] strategy which would eventu-

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POLICY IDEAS AND FOREIGN POLICY REFORM ally lead Greek-urkish relations into a peaceful and cooperative context based on international law and agreements (Simitis, 2005: 75–76).

Apart from highlighting the need to develop a comprehensive strategy, the new policy ideas of the Simitis government were also called upon to set the framework of alternatives Greece had at its disposal in developing an effective strategy vis-à-vis urkey. In other words, apart from specifying the nature of the ‘urkish threat’ and the goals to be pursued, Greece’s new policy ideas were also called upon to specify the means that could be employed to attain the strategy’s goals. owards this end—but prior to suggesting certain policy alternatives over others—the ideational framework of the Simitis modernizers was catalytic in diagnosing the limits of Greece’s internal balancing efforts towards the urkish threat and in highlighting the need for a more sophisticated external balancing policy in order for Greece’s short- and medium-term strategic priorities not to be undermined. Indeed, two important goals had to be achieved by Greece in the aftermath of the Imia crisis: in the short-term to reverse the existing imbalance of power with urkey and, in the medium/ longer-term, to ‘escape’ from the existing interminable arms race with urkey in a way that would not deviate from Greece’s greatest strategic objective and challenge, namely to attain the EMU nominal convergence criteria and join the single currency (Simitis, 2000). In full accordance with the ideational framework of the Simitis modernizers, it was soon made evident that for achieving both goals—effectively balancing the urkish threat without undermining its strategic priorities— Greece had to move towards a new position where credible deterrence, mainly achieved by the strengthening of the Greek Armed Forces, would be coupled with sophisticated diplomatic manoeuvring and initiatives. It was indeed obvious that unless successful external balancing through diplomatic means and manoeuvring could offset urkish military superiority, the only option for Greece would be to follow urkey in a costly and destabilizing arms race. As Simitis put it: …in the long-run, the most effective screen grid for dealing with future crises [with urkey] is to actively participate in and shape developments taking place internationally, contribute to the resolution of international disputes, not necessarily related to the Greek-urkish conflict, build up coalitions with states which are supportive to our interests and choices and succeed in gaining the solidarity of our EU partners.14

Te rationale for the new strategy was presented for the first time in the Greek parliament in 1997 as the only comprehensive and credible response 201

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to the ‘urkish issue’ and as the only strategy capable of addressing both Greece’s long-standing conflict with urkey and the intractable Cyprus problem.15 Greek decision-makers had a series of reasons for viewing the EU as the most appropriate means and the best available context for a comprehensive strategy towards urkey. First, the Simitis government strongly believed that by playing the EU card in a more sophisticated manner than in the past, Greece’s medium and long-term policy should endeavour to enmesh urkey in the European integration system, where it would have to follow certain European norms of behaviour and European-style ‘rules of the game’. Tus, by pushing urkey deeper into the European process, Greece would aim at successfully linking urkey’s state (i.e. elite) interests to certain international (i.e. European) ways of behaviour. In this way, Greece could expect to borrow the ‘socialization power’ component of the EU, namely the high degree of its normative persuasion. Secondly, further engagement of urkey with the European integration project could link urkey’s strong incentive for eventual EU membership

with thea specific membership put, Greece impose set of obligations on conditionality. urkey, such asSimply the prohibition of could certain modes of behaviour that do not comply with the rules, norms and standards of the international institution of which it seeks to become a member. Obviously, particular care would then be taken to ensure that urkey’s relations with the EU were linked with the promotion and realization of Greece’s short and medium-term interests. Tirdly, Greece could also exercise a certain amount of control over urkey’s ‘conditional engagement’ with the European integration system by putting urkey under the constant screening and monitoring process of certain EU mechanisms and procedures, thus allowing for certain structural changes (i.e. democratization) to take place in urkey in order for the Euro16

pean acquis to be fully endorsed. Tis ‘Europeanization’ of urkish and society, Greek decision-makers expected, would eventually leadpolitics to the abandonment by the urkish elite of the aggressive behaviour and to the adoption of policies based less on geopolitical instruments of statecraft and more on international law and agreements. Last, but not least, Greek decision-makers also believed that the ‘conditional and monitored engagement’ of urkey in the EU context, where Greece had a comparative advantage, would further enhance Greece’s balancing stance vis-à-vis urkey because it would enmesh the latter into a new 202

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binding framework, where only certain European ways of behaviour are acceptable. Moreover, through this strategy, part of the cost Greece was traditionally obliged to bear to balance urkey would now depend on urkey’s fulfilment of particular European rules and conditions.17

From Reflection Foreignurkey Policy Choices: Te U-turn in Greece’s policytovis-à-vis From the January 1996 Imia crisis to early 1999, the central tenets of Greece’s traditional behaviour vis-à-vis urkey remained unaltered because bilateral, regional and systemic developments did not seem to favour the foreign policy change prescribed by the Simitis government. Greece kept relying on a mixture of ‘internal’ and ‘external balancing’ policies that involved strengthening Greece’s deterrent ability vis-à-vis urkey and the use of the EU as leverage to promote Greek national interests by blocking urkey’s European accession effort (the policy of ‘conditional sanctions’). However, the Ocalan fiasco in January 1999 demonstrated the dangers of confrontation to both countries. Te Kosovo crisis in April 1999 also made evident the benefits of cooperating to create a more secure regional environment. Both crises made a Greek-urkish détente increasingly attractive in a post-Cold War world of constant flux. Te official détente introduced by the Greek government was facilitated by the catastrophic earthquakes in urkey and Greece, in August and September 1999 respectively. Te so-called ‘earthquake diplomacy’ contributed substantially to an improvement in Greek-urkish relations by offering policy-makers on both sides some latitude in pursuing a détente. Hence, with the EU preparing for the next enlargement phase and en route to the EU summit in December 1999, which was critical for urkey, the time seemed ripe for a major shift in Greece’s traditional stance of using the Cyprus issue to block EU-urkey relations, for the abandonment of its

long-followed strategy of ‘conditional sanctions’ towards urkey, and for the adoption of a more flexible strategy of ‘conditional rewards’. 18 Greek decision-makers thus appeared committed to abandoning the policy Greece had followed from the mid-1970s to the late-1990s in pursuit of a strategy which could employ the EU as a means of better balancing urkey, and also turning the EU into a catalyst for the resolution of the Greek-urkish conflict (sakonas, 2010). In fact, Greek decision-makers saw the forthcoming EU Council in Helsinki as a ‘window of opportunity’19 precisely because it could make urkey’s 203

FROM SAGNAION O FORCED ADJUSMEN

engagement with the European integration system conditional upon certain rules, procedures and deadlines, through which Greece believed it could promote its aforementioned medium-term interests. owards this end, Greece could make the resolution of its bilateral conflict with urkey a prerequisite for urkey’s closer relations with the EU. Greek decisionmakers had thus viewed the European Union as the factor which could act both as a ‘framework’—by ‘socializing’ urkey into the EU institutional and normative environment—and, more importantly, as an ‘active player’ in the resolution of the long-standing bilateral dispute (sakonas, 2010). Moreover, in view of the Helsinki summit, Greece’s key decision-makers felt confident that the new ‘post-nationalist’, ‘outward-looking’, and ‘flexible’ foreign policy20 could then be projected onto the EU foreign policy agenda, allowing for an additional, ‘bottom-up’ form of Europeanization to unfold.21 By reflecting a realist view that EU policies are the result of competitive and cooperative state bargaining and demonstrate underlying institutional or structural power, this ‘bottom-up and sideways process’ also pointed to an externalization—and/or ‘national projection’ (Wong, 2006: 7, Greece’s preferences, andthat foreign positions to 12)—of the EU level. It isnational indeed through suchideas process statespolicy use the vehicle of the EU and its weight in the international arena to promote national foreign policy objectives (Economides, 2005: 472). Furthermore, for Greece to realize that the EU could be used as the best and most privileged means to promote its national interests also meant that Greece was in a position to actively engage its foreign policy objectives and goals in facilitating the realization of the EU’s major project of the late 1990s, namely enlargement. Te European Summit held in Helsinki on 10–12 December 1999 represented the institutional climax of Greece’s foreign policy reform initiative vis-à-vis urkey. It constituted a breakthrough in relations between Greece and urkey as itthe managed to in alter the very logic of Greek-urkish relations by linking—for first time almost thirty years—urkey’s EU orientation to the resolution of the Greek-urkish conflict over the Aegean and of the Cyprus problem (sakonas, 2010: 92–96). Moreover, through the major reform initiative undertaken at the EU Helsinki summit, a series of foreign policy goals were obtained. First, certain key Greek foreign policy issues (relations with urkey and the Cyprus issue) were externalized into the EU. Second, Greece’s new policy made the EU an integral and catalytic means of not only obtaining better relations 204

POLICY IDEAS AND FOREIGN POLICY REFORM

with urkey, but most importantly of resolving the two states’ long-standing conflict. Tird, the ‘magic recipe’ of the Helsinki summit was actually the linkage it managed to acknowledge between urkey’s EU orientation, the resolution of the Greek-urkish conflict over the Aegean issues, and the end of urkey’s occupation of the northern part of Cyprus (Arikan, 2003: 171). Fourth, through the Helsinki decisions, two important goals of Greece’s foreign policy, namely democratization and compliance with the ‘Copenhagen criteria’ were also illustrated as essential preconditions for urkey’s accession path to the EU (sakonas, 2001: 31). Tus Greece’s foreign policy reform initiative succeeded in transforming the European factor into a catalytic means for strengthening Greece’s balancing efforts towards urkey and also acting as a framework. A framework which, through democratization and gradual integration, could, in the medium to longer term, eliminate the bases of the bilateral conflict. Helsinki also succeeded in transforming Europe into an active player, by making the resolution of the Greek-urkish conflict a prerequisite for urkey’s closer relations with the EU. major observers shift in Greek foreign 22policy vis-à-vis urkey wasUnsurprisingly, acknowledgedthis by many and analysts as a courageous turn from a ‘defensive’, ‘static’, ‘reactionary’ ‘inward-looking’ foreign policy to a ‘post-nationalist’, ‘outward-looking’, ‘pro-active’, ‘flexible’, and much more confident one. Particularly for Greek decision-makers, the Helsinki summit represented the success story of the new policy thinking, which questioned both the rationale and conduct of foreign policy followed under previous governments. It is worth noting that already in the period following the Greek-urkish rapprochement, and particularly after the development of the ‘earthquake diplomacy’ in September 1999, the decline of the dominant traditional thinking about how Greece should deal with the ‘threat from the east’ began

giving wayinto,the andshort-run, legitimizing, latterresults, appeared to deliver, especially as itnew was thinking. related toTe fruitful rapprochement and cooperation on ‘low politics issues’. In Legro’s terms, a ‘new replacement idea’ seemed to replace the reigning orthodoxy about how to deal with the state’s most demanding foreign policy issues (Legro, 2005: 84). Indeed, gradually but steadily, those influential segments of Greek society seeking change started turning from minority to majority, as their ideas appeared increasingly feasible.23 Te situation was paralleled within Greek foreign policy by decision-makers, as modernizers’ ideas on how best to deal 205

FROM SAGNAION O FORCED ADJUSMEN

with urkey were also gradually acquiring dominant status with the signs of their dominance vis-à-vis PASOK’s nationalist faction becoming all the more clearer in 1999.24 What eventually tipped the balance in favour of the modernizers’ ideas was the appointment in January 1999 of George A. Papandreou as minister of foreign affairs. A sincere fellow modernizer, the son of Andreas Papandreou was viewed by the more nationalist sections of his party—and stern opponents to premier Simitis’s foreign policy choices 25—as a patriot par excellence. By implication, he soon appeared as the only political figure, or as the symbol, which could personify the bridge that could unite the party’s traditional and nationalist base with its new modernizing faction (Karzis, 2006: 166). Moreover, it was not only the governing party’s nationalist faction that seemed receptive to George Papandreou’s foreign policy initiatives favouring rapprochement and cooperation with urkey. Te Greek public had also seen in the low-profile and moderate manner of Papandreou, the ideal implementer of Greece’s reform initiative towards urkey (Ker Lindsay, 2007: 120). Tus,momentum, en route to legitimacy the Helsinki summit, new foreignTis policy gained and gradualthe consolidation. wasthinking mainly due to the fact that, instead of simply leading and expecting the public to follow, foreign policy decision-makers addressed the need for reform in Greece’s policy towards urkey on a rationalist basis in order to maximize domestic support. Te arguments used by Greek decision-makers in the aftermath of the Helsinki summit pointed convincingly to ‘a safe journey and a better harbour’, having managed to keep the temperature in the Aegean at the lowest possible level, to allow Greece to enjoy the fruitful results rapprochement and cooperation on ‘low politics issues’ with urkey could provide, to secure Cyprus accession to the EU—with or without a resolution of the island’s political problem—and, last but not least, to lead to the resolution of time-frame. Greece’s long-standing dispute with candidate urkey 26 within a reasonable Te comprehensive, rational and persuasive strategy proposed by Greek decision-makers in the late 1990s was based on a realistic logic, suggesting that Greece could indeed promote its foreign policy objectives and deal effectively with the ‘threat from the east’, without expecting a gesture from urkey and without making any concessions. With Cyprus’s EU accession remaining the most appealing argument, the new foreign policy thinking appeared capable of offering a comprehensive alternative, able to delegiti206

POLICY IDEAS AND FOREIGN POLICY REFORM

mize the opponents of Greek foreign policy reform, whose main weakness was the lack of a convincing alternative with regard to Greece’s policy toward urkey. Indeed, the arguments used by the opponents of the Helsinki foreign policy shift appeared fragmented and disoriented.27 While Kostas Karamanlis, leader of the New Democracy chief opposition party, played down the Simitis government’s achievements at the Helsinki summit28 (though he did feel obliged to publicly acknowledge the Helsinki positive provisions concerning Cyprus’ EU accession to the EU—Karamanlis, 2000: 9) other liberal voices and leading figures of the ND party openly and clearly applauded the Helsinki decision, characterizing it as a major Greek diplomatic success.29 Similarly, on the one hand the Simitis government was accused of failing to oblige urkey to resolve its border conflict with Greece by the end of 2004, while on the other, it was accused of conceding—through the Helsinki conclusions—‘Greek sovereign rights to the compulsory verdict of the fifteen juries of the ICJ in Te Hague’.30 With fragmentation, disorientation and the lack of a convincing alterna-

tive characterizing the opponents of did Greece’s foreign policy reform vis-à-vis urkey, the new foreign policy ideas not find it hard in the aftermath of Helsinki to gain strong legitimacy and gradual consolidation. At the dawn of the twenty-first century it seemed that Greece succeeded in introducing a paramount reform initiative in its foreign policy agenda, comparable only to Greece’s entry into the European Union in January 1981.

207

12

HE 2010 GREEK ECONOMIC CRISIS AND HE CONDIIONALIY PROGRAMME

Michael Mitsopoulos and Teodore Pelagidis

How the crisis unfolded and how the new government reacted Te beginning of the current crisis in Greece is officially documented by the events in the fall of 2009 when the then New Democracy (ND) centre-right wing government called for a snap election citing the need to take measures to deal with an international crisis that had ‘started to affect the Greek economy more than initially and “reasonably” had been expected’. Yet a closer observation of the available facts quickly reveals that the causes of this crisis were deeply rooted in the way the country had been run during the past thirty years. We have extensively described these causes in Pelagidis and Mitsopoulos (2006, 2010) and Mitsopoulos and Pelagidis (2009a, 2009b, 2011), and they have gradually become common knowledge to most readers of reports bytothe OECD, researchers. the European andhow the Greece World Bank, as well as individual TeCommission evidence shows had chosen over these past decades to gradually turn its economy into an uncompetitive conundrum of excessive, rigid and vague regulations that distributed rents to well organized interest groups and created a fertile breeding ground for corruption and abuse of office and public money. o put it simply, in order to finance the ‘passage fees’ that fed these interest groups, it was effectively forbidden to undertake an honest and serious business initiative cheaply and legally. Te need to create the rents that are 209

FROM SAGNAION O FORCED ADJUSMEN

then distributed to the politically favoured interest groups also meant that serious distortions were introduced in the labour and product markets, leaving the Greek economy with a depleted production base that was no longer able to offer quality employment in sufficient numbers, as documented by the facts presented, for example, in the numerous annual OECD Employment Outlooks and their respective supporting databases. Back in 1995, the electorate recognized these problems, which had become commonplace during the ‘change’ of the 1980s, and chose the promises made by the Simitis’ PASOK government to ‘modernize’ the economy and society without reverting to liberal choices that were still deemed unnecessarily excessive. Yet the electorate was to realize ten years later that these promises had been kept only superficially as, apart from successfully administering the EMU accession of the country, few reforms were passed regarding the complicate web of government interventions in the economy and the feeding lines of the rent-seeking interest groups and corruption, which, according to Kaufmann and Kraay (2006), breeds in such environments. Tus, the failings of the peculiar Greek economic

model—which combined elements government in markets paired with corruption and of theextreme failure of the rule ofintervention law with some token concessions to free market principles—became gradually more entrenched in the system. For a while the economy was fuelled by the longterm impact of the deregulation of key markets and important infrastructure projects that sustained a boom that emerged in the wake of EMU accession and which, conveniently, kept financing the above-mentioned rents. In particular, the deregulation of the financial services sector that had been initiated by a reform-minded liberal ND government until 1993 was successfully completed by the Simitis government during the EMU accession. Te wide-ranging infrastructure projects financed by concessions to the private sector and the EU structural funds, and which were mostly initiated by theand same reform-minded ND government, also other successfully expanded completed by the Simitis government.were Finally, initiatives, like the creation of the market for mobile communications by the ND government and the subsequent, less aggressive, deregulation of fixed-line telecommunications by the Simitis government further added to the sense of reform and progress. Yet, at the same time, the deeper failings of the adopted economic model of unconstrained rent creation and distribution in an environment where the rule of law was faltering kept permeating a society whose coherence continued to deteriorate as quality employment, 210

HE 2010 GREEK ECONOMIC CRISIS

especially for the young, was becoming an impossibility for most Greek families, in a process that is described by the OECD (2009). Increasingly aware of the accumulating problems, in 2004 the electorate handed over a strong mandate to the ND party, which had promised to ‘reinvent’ the government, battle corruption and put public finances in order. Once again the hopes of the electorate were not fulfilled, as, with the notable exceptions of a handful of ministers and managers of public companies, the majority of the members of the new government quickly proved to share the same aversion to useful reforms its predecessors had demonstrated. At the same time, the engagement in corruption and mismanagement of public affairs by several members of the ND government demonstrated an incompetence that kept surprising, day-after-day, the increasingly gasping electorate. While it is the pattern of structural failings that gradually set the ground for the current crisis in Greece, and the political events marked the milestones towards this crisis, it was the evolution of public finances that ultimately acted as the catalyst in the events that led the Greek government to request financial assistance in the spring regarding of 2010. Te Simitis governments in passing useful reforms the failures control ofofthe primary expenditure, the reduction of tax evasion and the shadow economy—which could easily have built on the painful but critically useful fiscal efforts of the 1991–93 period, as well as the even worse performance of the successor ND government in the 2004–09 period—is clearly documented in Figure 12.1. Tere we can see how the primary expenditure of the central government reduced, as a percentage of GDP, in the 1990–92 period, and how, after a significant increase in the 1993 election year, expenditure was kept under control, as a percentage of GDP, until 2003. Yet we have to note that in the 1999–2003 period growth was already increasing rapidly, which at least partly implies that government expenditure was not controlled sufficiently. After 2003 largely the ratio of the expenses tothe GDP , which wasofmatched throughout this period with help of rapid growth GDP and the consequent growth in tax revenue, started to increase, as the new government that won the 2004 elections did not fulfil its promise of fiscal responsibility. In 2009, when GDP growth had started to falter for the first time since the mid-1990s, the ratio of central government expenditure to GDP increased rapidly, while for the first time in over a decade the tax revenue ceased to increase at a very high rate. Tis was the result, among other factors, of unbudgeted expenses, such as an increase in salaries that reflected the lack of 211

FROM SAGNAION O FORCED ADJUSMEN Figure 12.1: Net revenue, primary expenditure and interest expenditure of Greek central government budget 35% 30% 25% 20% 15%

% ,6 5 1

% ,5 7 1

% 0 , 5 1

% ,7 4 1

% 2 , 5 1

% % ,7 ,1% ,0% 7% 7% % % % 2% ,5% ,0 13 14 14 15, 15, 15,2 6,3 7,2 19, 17 19 1 1

10% 5% 0%

% ,8 ,4% ,4% 9% 14 14 14 13,

% % ,1 ,3 ,6% 17 16 14

9 8 9 1

0 9 9 1

1 9 9 1

2 9 9 1

3 9 9 1

4 9 9 1

5 9 9 1

6 9 9 1

7 9 9 1

8 9 9 1

9 9 9 1

0 0 0 2

1 0 0 2

2 0 0 2

3 0 0 2

4 0 0 2

5 0 0 2

6 0 0 2

7 0 0 2

8 0 0 2

9 0 0 2

E 0 1 0 2

B 1 1 0 2

Net ordinary budget revenue of the central government to GDP. Primary expenditure of central government, without revenue assigned to third parties, to GDP. Interest payments on general government debt to GDP.

Source: Annual government budgets. E: estimate, B: budget, including Stability and Growth Programme update of budget with measures taken up to March 2011.

restraint in government hiring over previous years, the increasing needs of the underfunded and completely unreformed social security funds for large unbudgeted cash infusions, and increases in the pension bill for former public sector employees. Yet while the numbers deteriorated in 2009, the events of that year simply put on the stage the failings that had been meticulously prepared backstage during the previous decade. At this point, the irresponsible strategy that was consistently adopted by successive Greek governments over the past fifteen years, which involved viewing double-digit government revenue growth rates as a permanent and unquestionable certainty that would forever finance runaway expenditure, was forcefully As 2009 started with signals about the upcoming impasse, exposed. the ND government replaced the economics and finance minister who had presided over almost five years during which little was done to improve revenue collecting mechanisms, rationalize government expenditure and reform the economy. Yet as his successor was not granted the political mandate to proceed aggressively with reforms, given that other principal ministers who had the senior positions in the ministerial council dogmatically opposed useful reforms, no coherent reform strategy was formulated until autumn 2009. Te only meas212

HE 2010 GREEK ECONOMIC CRISIS

ures approved by the ministerial cabinet included some consumption tax increases, an excessive increase of taxes on mobile communications, a scheme for the replacement of old cars and a constitutionally questionable scheme to legalize buildings that had exceeded the size foreseen in their building licence. At that time, the then prime minister appeared to seek an exit strategy from what increasingly appeared to be a fiscal and political impasse, and called for a new electoral mandate. Te snap election was announced along with a proposed reform platform that was rather haphazardly put together and which lacked both necessary detail and sufficient strategic coherence. Rationally, the electorate did not want to reward a government that asked for a third mandate to implement the same reforms it spectacularly failed to implement after receiving two strong mandates to do so, and gave a mandate to the only alternative. Following the 2009 elections, and while it was already clear that the deficit would greatly exceed the latest officially quoted number of the outgoing government for a deficit in excess of 6% of GDP, the problem of runaway expenditures was further aggravated by the initially inappropriate response to the crisis of the newly elected PASOK government. Te new government proceeded at the end of the fiscal year 2009 with a

‘solidarity’ handout, and with an initiative to incorporate as many expenditure items it could saddle on the budget of 2009. Tese were either expenditure items that had previously been kept off budget, like the procurement of hospitals, or which had not been allocated to a certain fiscal year, like the settlement with former Olympic Airways employees. A number of other items also included the decision to pay out an unusually high amount of tax returns in December 2009, as shown in Figure 12.2, and the reduced zeal to collect a number of taxes in 2009 and postpone their collection for 2010, like the individual real estate tax for 2009. In total, these actions and inactions added about three percentage points to the deficit, which was already settling at an exorbitant 10% of GDP. As a result of the combined effect of the weakening revenue, runaway expenditure and rising interest expenditure, the primary government budget surplus available to finance interest expenses followed a deteriorating trend, and in 2009 even turned negative. Figure 12.3 documents the reflection of the concerns of financial markets regarding the Greek government bonds, and the ability of Greece to finance its public debt, through the rise in the yield of the benchmark Greek government ten-year bond. Financial markets initially observed with bewilderment the choice of the ND government to apparently run away from the problems, but decided to wait until the new government took its first initia213

FROM SAGNAION O FORCED ADJUSMEN Figure 12.2: Monthly tax returns of the central government ordinary budget (million euros) 900 800 700 600 500 400 300 200 100 0

1

2

3

4 2007

5

6 2008

7

8

9

2009

10 11 12 2010

2011

Source: Monthly bulletin on implementation of budget, Ministry of Finance. Note that in 2009 the ND government had shifted many tax returns from the end of 2008 to January 2009 in order to window-dress the 2008 budget, and then the PASOK government paid out many tax returns in December 2009 to window-dress the 2010 budget.

tives. At that time the Greek government was still able to raise cash through the practice established in early 2009, according to which the government extracted new borrowing from Greek commercial banks, which, via the ECB, accepted Greek government bonds as collateral for cash that was then used by Greek commercial banks to buy more Greek government bonds. But by early 2010 the ECB tried to put a stop to this process, as at that point it was already dangerously overweight on Greek government bonds. And when the new government started to act towards the end of 2009 in a way that signalled that it had actually ignored the seriousness of the situation, international financial markets simply down Greek for thegovernment Greek government. At that time, spreads between theshut ten-year bonds increased to a level that was implying approximately a 25% possibility that the Greek government would default on its debt. By early 2010 the Greek government gradually came to recognize publicly that a sizeable problem existed, and that demonizing international capital markets would not solve the problem. It was at this stage that the government started to take measures to increase taxes and, finally, even to cut expenditure, as summarized in able 12.1. 214

HE 2010 GREEK ECONOMIC CRISIS 0 2

8 1

6 1

4 1

2 1

0 1

8

6

4

2

0 7 4 1–11 10 7 4

s d le iy d n o b ra ey n et t n e m n re v o g d et ar A A e n o z o r u e d n a t n e m n re v o g k ee r G : 3 . 2 1 reu gi F

1–10 10 7 4 1–09 10 7 4 1–08 10 7 4 1–07 10 7 4 1–06 10 7 4 1–05 10 7 4 1–04 10 7 4 1–03 10 7 4 1–02 10 7 4 1–01 10 7 4 1–00 10 7 4 1–99

% 0 0 6

% 0 0 5

% 0 0 4

% 0 0 3

% 0 0 2

% 0 0 1

. ld ie y e g ar ev a s d n o b t n e m n evr o g A A A e n o z ro u feo % sa d n o b y 0 1 t n e m n re v o g ek re G f o ld ei Y

. d n o b h t n o m 2 1 r o f 7 /6 6 l ilt at a D . G o B at a D . % sa d n o b y 0 1 t n e m n re v o g ek re G f o ld ei Y

. B C E ec r u o S . ld ie y d n o b % t en m rn ev o g A A A e g ar e av e n o z ro u E

.e ce reG f o k n a B d n a B C E

e:c uor S 215

FROM SAGNAION O FORCED ADJUSMEN able 12.1: Extraordinary measures taken by the Greek government for the stabilization of the fiscal situation in 2010 before the request for financial assistance

Million euros. ax increases.

Dec. 2009

Jan. 2010

Feb. 2010

Mar. argeted 2010 total

One off tax on profitable companies and large estates 1.085 – PermanentVAincrease – – Increaseinconsumptiontaxoffuels – – Increaseinconsumptiontaxontobacco – 645 Increaseinconsumptiontaxonalcohol 70 Luxurytaxandnewtaxonexpensivecars – – Abolition of tax exemption of Public Power Corporation from consumption tax fuelon – – Newconsumptiontaxonelectricity – – One off tax of 1% on 2009 incomes over 100.000 – – Reapplicationofestatetax – 200 otal new taxes payable from or in 2010

1.085

915

– – 934 – – –

– 1.085 1.400 1.400 616 1.550 350 995 80 150 120 120

–

87 180

– – –

87 180 141

– 934

141 200

2.974

5.908

Expenditurecutsorfreezingofexpenditures

March 2010

Reductioninwagebillofpublicsector Freezing of increases in cash handouts and working group remunerations Reduction of annual grant to the pension funds of Public Power Corporation and Hellenic elecoms employees Freezingofincreasingpensionsin2010 CutsinMinistryofEducationprogrammes Non execution of part of the Public Investment Budget otal expenditure reduction or freezing of expenditures

–1.218 – 14 – 146 –450 –100 – 600 – 2.528

Source: Government announcements.

Tus, in January 2010, Law 3815/2010 was passed to reinstate estate taxes, alongside an increase in alcohol and tobacco tax, while in February fuel taxes were also increased. Law 3833/2010, named specifically as a law to deal with the crisis, was passed in March and increased consumption taxes, reduced tax exceptions for electricity, introduced an extraordinary tax on high-declared incomes for fiscal year 2009 and introduced a luxury tax. Finally, a new tax law, Law 3842/2010 of April 2010 for ‘reinstating tax justice’, introduced some measures to fight tax evasion with ‘objective cri216

HE 2010 GREEK ECONOMIC CRISIS

teria’, gave incentives to collect receipts from professionals that traditionally did not issue receipts and abolished the exemptions and predetermined, irrespective of income, flat income taxes previously foreseen by the legislation for a number of politically favoured professional groups and the selfemployed. In addition, cash handouts to government employees were set to be taxed, for most cases, like any other income. But the law also made Greek personal income taxation even more progressive and increased taxes on corporate profits and dividends to one of the highest rates of the OECD and EU. Flat taxes on real estate transactions were reintroduced, abolishing a badly designed scheme to tax capital gains on such transactions by the previous government, but once again the rate was set to be among the highest in the OECD. Te annual tax on property, which was already administered in 2008 by a new electronic database and which was set by the previous government at a very low rate encompassing almost all property, was now limited to ‘large’ holdings of properties. However, for this latter category the tax rate was set at one of the highest levels in the OECD. Finally, favourable terms to import large sums of money within a deadline with a flat tax,sums, and with no background check legitimacy of the imported were included in the new taxregarding law in anthe effort to repatriate undeclared funds that had fled the country. Te law to deal with the crisis (Law 3833/2010) of 15 March 2010 also included serious measures to cut government expenditure for the first time. An upper limit on paid overtime and travel expenses was introduced, a number of the multitude of cash handouts that have been granted to government employees during past decades was cut by a certain percentage (even though a substantial number was exempt from the reduction), and government committees were ordered to convene in working hours and not to ask for extra payments. Christmas, Easter and summer gifts to government employees and pensioners were also cut, a hiring freeze was announced andAtthe was slashed by half a billionhad euros. thepublic outsetinvestment of its termbudget in January 2010, the government initially attempted to solve the impasse solely through tax increases, and it took until March to make the step to actually target government expenditure, and especially the wage and pension bill of the public sector . Te mustering of this ‘political courage’ can be explained by the fact that, with money markets shut at this point, the Greek government had no alternative but to demonstrate at least the existence of a will to slash some expenditure. Yet the measures announced by March were perceived by the markets to 217

FROM SAGNAION O FORCED ADJUSMEN

be ‘too little and too late’, and, in any case, the targeted fiscal correction of these measures still amounted to only a small fraction of the government deficit of well over twenty-five billion euros. Te same can be said of a new tax law that indeed tried to abolish some of the tax exemptions that had allowed so many professionals and those who were self-employed to pay so little personal income tax, and which had made the everyday circulation of undeclared income so easy. By now the financial markets were completely aware of the cobweb of the intervening problems of the uncompetitive Greek economy, and they wanted to see a fiscal consolidation effort commensurate to the deficit, as well as a coherent reform strategy. Yet by April they had not received this, and they remained firmly shut for the Greek government, leaving it with only two options: to default or to seek financial assistance. Contemplating the fallout from a default, the government rationally chose to seek financial assistance in April 2010 by sending a letter in which it requested the initiation of a process that had been formulated and offered to it by the European Commission, the ECB and the IMF in anticipation of the unfolding events. Tis offer required the signing of a Memorandum (henceforth: the Memorandum), which was ratified by of theUnderstanding Greek parliament in Law 3845/2010 of 6 May 2010, and in which the Memorandum of Understanding on Specific Economic Policy Conditionality described the measures the Greek government had to implement in order for the 110 billion loan facility agreement to be activated.

What the Memorandum initially provided Te Memorandum constitutes a brand-new approach towards the implementation of a reform programme in a country whose government seeks financial assistance in an environment of fiscal and macroeconomic pres-

sures thatadopted it can nothus longer manage by itself. Tis approach is different the one far by the IMF in countries that have sought from such assistance in the sense that, once the political agreement was struck, the eurozone membership of Greece called for the active involvement of the European Commission and the ECB, together with the representatives of the IMF, to draft the conditions set and to then supervise the implementation of the commitments the Greek government had made. Tis collaboration between the European Commission and the ECB on the one side, and the IMF on the other, brought together an unprecedented 218

HE 2010 GREEK ECONOMIC CRISIS

combination of expertise and capacity to formulate a detailed plan to stabilize the finances of the Greek government and the macroeconomic fundamentals of the Greek economy. A crucial ingredient has been the— increasingly more advanced—benchmarking exercises that are undertaken, especially by the European Commission. Te coincidence of the know-how at the level of the European Commission to formulate the precise details of the gravest failings of Greece that followed from these benchmarking exercises, as well as the experience accumulated from the ‘Lisbon Agenda’, allowed the European Commission to pinpoint the exact contours of the conditions that had to be set in the case of Greece before the financial support package could be activated. At the same time, the IMF had the necessary experience to oversee and implement such a programme. Furthermore, in recent years the IMF has tried to improve the design of the measures that countries seeking its help are asked to implement in a way that addresses the demonstrated weaknesses of these countries without any prejudice towards the measures that have to be taken. Hence the programme designed for Greece did set a useful precedent in terms of the detailed knowledge of thea challenges posed by a rooted country with a to political system that demonstrates consistent and deeply aversion useful reforms, and which was combined with the accumulated expertise of implementing such a custom-made programme. As a result, the Memorandum provided measures that: a) deal with the acute fiscal imbalances of the Greek government; b) try to propose longterm solutions to the underlying reasons that have allowed these imbalances to emerge over many decades, and which relate to the inability of the government to supervise the use of public funds, control widespread tax fraud and abolish tax exceptions by privileged professional groups; c) try to deal with general government entities, from social security to the public electricity company and public railroads, which have traditionally operated with

complete towardsofthe fiscal constraints; d) try to remove thedisregard most important therealities bindingofconstraints that suppress competition and productivity in product markets; and e) try to introduce some flexibility in a better supervised labour market. Te measures provided by the Memorandum are consequently wide ranging. In all, it contained, in its srcinal version, over 200 separate actions that were planned to be taken until 2014, either as small individual actions or as groups of separate actions that ultimately aim to secure the successful achievement of some goal, the most important of which are presented in able 12.2. 219

FROM SAGNAION O FORCED ADJUSMEN able 12.2: Selection of most important actions included in the initial Memorandum, with the implementation dates as initially foreseen

1. Reduce government wage bill through reduction of Easter, Christmas and summer gifts as well as cash handouts to government employees. By 6/10. 2. Reducing pension bill through reduction of Easter, Christmas and summer gifts but with protection of weakest pensioners. By 6/10. 3. Reduction of highest pensions. By 6/10. 4. Unique tax bracket for all incomes. By 6/10. 5. Abolishing of privileged tax treatment for cash handouts to government employees. By 6/10. 6. Publication of monthly data on the finances of social security organizations. By 6/10. 7. Publication of monthly data on the finances of hospitals. By 6/10. 8. Publication of monthly data on the finances of municipalities. By 6/10. 9. Creation of fund for the stability of the financial system. By 6/10. 10. Stress tests for banks and insurance companies. By 6/10. 11. Legislation for the reform of local government and the reduction of their operational expenses and wage bill. By 6/10. 12. Publication on the internet of all decisions on government expenditure. By 6/10. 13. Law to simplify start-ups. By 6/10. 14. Preparation of business plan to rationalize public railroads, shut down loss making lines, comply with EU directives and rationalize holdings of property and other assets. By 6/10. 15. Equalize retirement ages for men and women. By 6/10. 16. Link contributions with benefits of the pension plans. By 6/10. 17. Draft budget that includes detailed financial data for the publicly owned enterprises. By 9/10. 18. Replace one in five retirees of the public sector. By 9/10. 19. Freeze in pensions. By 9/10. 20. Extraordinary crisis tax on profitable companies till 2013. By 9/10. 21. Scheme to pay for violations of building permits. By 9/10. 22. Objective criteria to determine the income of professionals. By 9/10. 23. Expand VA base. By 9/10. 24. Introduce gradually green tax. By 9/10. 25. 26. 27. 28. 29.

Increase official values of property to increase revenue from property taxes. By 9/10. Luxury tax. By 9/10. Setting of upper limits of expenditure to entities financed by the budget. By 9/10. Law to improve efficiency of tax audits. By 9/10. Working group to improve tax compliance through a) supporting collection mechanism, b) collect verified debts in cooperation with social security funds, c) creation of special division that deals with large tax payers d) creation of special division to deal with high risk groups e) penal prosecution for large tax evaders f) enhance control of filed returns. by 9/10. 30. Adoption of new pension law with numerous precisely specified details. By 9/10.

220

HE 2010 GREEK ECONOMIC CRISIS 31. Frequent publication of data regarding the wage bill and employment at publicly owned enterprises. By 9/10. 32. Initiate simplified mechanism to pay all wages and cash payments to government employees and link of pay with performance. By 9/10. 33. Supervision by independent auditors of the use of human resources at the level of central government, entities supervised by the central government, assessment of initiatives to reduce expenditure through this supervision, evaluation of social programmes and termination of the least effective ones and estimation of expected savings. By 9/10. 34. Operation of companies register. By 9/10. 35. Deregulation of road freight transport with abolishing of all requirements not foreseen in directive 96/26/EU and the abolition of all unnecessary obstacles to entry the profession of road freight including minimum set fares. By 9/10. 36. Deregulate wholesale electricity market and rationalize consumers’ electricity bills. By 9/10. 37. Empower the finance minister with respect to the ability to control the budget of other ministries, by giving him the power to veto expenditure decisions. By 12/10. 38. Ensure that the parliament focuses on the composition of the expenditure side of the annual draft budget and that the included expenditure and revenue projections are reliable. By 12/10.

39. Introduce stronger controls to the fiscal responsibilities the central government and thatwith mayrespect derail the budgeted commitmentsaccruing via othertoentities of the general government, the local government, social security funds and hospitals. By 12/10. 40. Creation of special budget division in the parliament. By 12/10. 41. Law regarding the wage policy of the public sector. By 12/10. 42. Application of new law for local government, and transfer of responsibilities and funds to them. By 12/10. 43. Full operation of single payment authority. By 12/10. 44. Completion of first phase to rationalize public procurement, with creation of supervising authority, activation of electronic platform and e-auctions and introduction of ex ante and ex post checks. By 12/10. 45. Adoption of better regulation agenda. By 12/10. 46. Completion of reform of procurement in public health sector, with encouragement

47.

48. 49. 50.

of use of generics, computerized supervision of prescriptions, reform and audits in hospital finances. By 12/10. Adoption of new legislation regarding the wage bargaining process, overtime pay, flexibility in work time allocation, connection of pay with productivity and change of the mediation process. By 12/10. Reduce minimum wage for weak social groups that are at high risk of long-term unemployment. By 12/10. Freeze of minimum wages for three years. By 12/10. Reduction of severance pay and unique treatment for white and blue collar workers. By 12/10.

221

FROM SAGNAION O FORCED ADJUSMEN 51. 52. 53. 54.

55. 56.

57. 58. 59. 60. 61.

62.

Increase of the level for group lay offs. By 12/10. Facilitate use of part-time and partial employment. By 12/10. Adoption of directive 2005/05/EU. By 12/10. Compliance with European Court of Justice decisions regarding professional skill recognition. By 12/10. Law to simplify business licensing and creation of business areas and spatial plan to be operationally activated. By 12/10. Changes in competition law to harmonize it with EU directives and make its operation more streamlined and efficient by focusing on important cases and by enhancing its independence. By 12/10. Adoption of directive 2007/66/EC regarding appeals in public contract cases. By 3/11. Adoption of plan to rationalize public railroads. By 3/11. Legislation to separate activities of electric energy and gas market deregulation, including liberalizing use of the grid and gas supply infrastructure. By 3/11. Measures to enhance Energy Regulatory authority. By 3/11. New remuneration scheme in public sector to link productivity and responsibility with pay as part of better human resource management in the public sector. By 6/11. Following the independent report, legislation to rationalize use of resources and improve organization of social programmes in public sector. By 6/11.

63. Complete reform of employment inspection authority and ensure it is sufficiently staffed with adequately trained employees. By 6/11. 64. Shore up legislation to declare new employees. By 6/11. 65. Reform social programmes to enhance support of those who are most in need. By 6/11. 66. In addition to the full implementation of the services directive, legislation to allow competition in professional services, including abolition of minimum mandated fees and other profession specific constraints. By 6/11. 67. Reduction of government staff beyond attrition from the 1 to 5 rule. By 9/11. 68. Unemployment benefits to adapt to minimum living standards. By 9/11. 69. Report on the better regulation agenda application. By 9/11. 70. Measures to reduce administrative burden by 20% with respect to 2008. by 9/11. 71. Change tax law to reduce disincentives in company mergers and sale of companies. By 9/11. 72. to allow certified companies to clearregister customsofprocedures. 9/11. 73. Decision Abolish requirement to register in exporters’ chambers ofBycommerce in order to proceed with exports. By 9/11.

Source: Annex 3 and 4 of Memorandum.

For example, the Memorandum provided for the complete deregulation of road freight transport. Te knowledge of the lack of political will from the side of successive Greek governments meant that the wording included in the Memorandum was very specific, and it allowed practically no wrig222

HE 2010 GREEK ECONOMIC CRISIS

gle-room. Greece was asked to deregulate this network industry and to include no constraints beyond those that are foreseen by the EU directives regarding road freight. Such a strong wording is not binding for the other EU member countries, and was a result of the additional obligations Greece had accepted, beyond EU membership, as a result of the extraordinary, and unforeseen by the reaty for the European Union, financial assistance the Greek government had asked for, and received. Te inclusion of road freight transport in the Memorandum follows as a result of the extent of government regulation in Greece of this market before the implementation of this deregulation (the extent of government regulation in this market was unprecedented for the OECD, as shown in Figure 12.4). Figure 12.4: OECD indicator. Regulation of road transport, 2007 6 5 4 3 2 1 0 A N C D F L P S S U U A C G I J S B MP N S I I N H F K G T o p w o o lo ce ta e r o r u u Z a e in u u z e re ap w e n n l x la ai ti K S s A s e r al a e lg ex rt r v al yl t u n an r e rk

tr al ia

e n n z ad m an m er a ar d b d la o k n u d rg

tr ch m n n d i i c en u ia mo R an d ep y u b li c

u w ak n ga a d l y P ep u b li c

h er la n d s

ga ce ea ece ey ry

Source: OECD. 6=most stringent.

Another similar example is the deregulation of professional services. Te past the European Commission regarding the lack of will fromexperience successive ofGreek governments to usefully implement significant reforms had already put the European Commission on increased alert as the deadline for the implementation of the services directive was approaching. As expected, successive Greek governments failed to adopt a detailed and convincing legislative and infrastructure package that would lead to an honest implementation of the services directive on time, in spite of the fact that professional services appear, according to the OECD indicators and for the most important of them, at least, to be very stringently regulated in 223

FROM SAGNAION O FORCED ADJUSMEN

Greece. Legal services, for which Figure 12.5 shows the OECD regulatory indicator, are only one example. Again, very specific terms were included in the Memorandum that foresaw the implementation of the services directive and, in addition, the abolition of administratively set minimum fees, regional constraints on professional activity and other constraints that are particular to each profession.

Figure 12.5: OECD indicator. Regulation of legal services, 2007 5 4,5 4 3,5 3 2,5 2 1,5 1 0,5 0 S U F MI U S A J K S C A I F N C L S N I D P G P G B H N T w K in e ce S w u ap o p z u er ra e a u lo o ta e o e o r e u Z u

e d n

aln icx lan A itze stra an rea in a ech trsi lan cn th ad xem vak rw yl n m rtu e n rl il d o d ar ga R a d e rla a b P ay an a o k l ep e n p u d d u rg u s b b li ilc c

ra lan m g n d ece lgiu m ar n y y

ery k

Source: OECD. 6=most stringent.

Te Memorandum also included measures to deregulate the wholesale electricity market and to simplify company start-ups. More crucially, it asked for the simplification of the licensing process, which has as a prerequisite the ironing out of the details of the incomplete laws for spatial planning as well as the laws for the establishment of areas for business activity, and forthese a reduction the daily administrative that spelled businesses While crucial in requirements were initiallyburden sometimes outface. in a more general and less precise way than other measures, these areas have since been repeatedly revised and spelled out in greater detail, according to the procedure foreseen in council decision 2010/320/EU, Article 4(3). In view of the fact that the structural reforms dictated by the Memorandum are so wide–ranging, detailed and strategically important, it seems surprising that the Greek government initially put all the emphasis on the fiscal measures included in the Memorandum. Even in cases such as the 224

HE 2010 GREEK ECONOMIC CRISIS

initial draft law for road freight, the government seemed to blatantly ignore the goals and conditions set in the Memorandum. Tis fact becomes even more surprising once one realizes that the Memorandum is less a contract dictated by lenders to make sure that they get their money back, and more of a consistent and well-orchestrated package of measures that aims to ensure long-term prosperity for the majority of Greek society. Tis is not to say that fiscal measures are not included in the Memorandum. On the contrary, a large number of measures aim to further increase government revenue, reduce tax evasion and avoidance and put, at last, a break on runaway and unsustainable public expenditure. But while it is true that there are measures that dictate a fast increase of taxes or cuts in expenditure, there is also an extensive list of administrative and structural measures that strategically aim at almost all of the documented weak points in the way the economy operates.

Te implementation of the Memorandum Te of the Memorandum withconsolidation a further confirmation implementation of the adopted government strategy to started base fiscal mainly on tax increases rather than expenditure cuts. Tis happened in spite of widespread evidence that episodes of fiscal consolidation that are based on expenditure cuts, rather than tax increases, are far less likely to succeed and have a much shorter expected duration, as, for example, has been documented in Guichard et al. (2007). Tese concerns are even greater in an economy that is widely expected to fall into a severe, and quite possibly protracted, recession, and which may generate much less taxable income than expected. On the contrary, it has to be stressed; expenditure cuts do not face such risks in a contracting economy. In short, the act of the parliament that accepted the Memorandum

included to further tax increase consumption as well asinan extension measures of the extraordinary on corporate profits. taxes Te reduction the Christmas, Easter and summer gifts to government employees that had been foreseen in the previous law was also replaced by a new, more complicated and less effective scheme. At the same time, some of the other cash handouts to government employees received a second, additional, reduction. In the end, the cumulative fiscal measures taken by the Greek government before and with the Memorandum aimed at tax increases that should lead to tax revenue increases, which were projected to be significantly higher 225

FROM SAGNAION O FORCED ADJUSMEN

than the revenue increases prescribed in the initial draft of the Memorandum. On the other hand, the concrete measures to cut expenditure that had been taken prior to the summer of 2010 were significantly lower than the measures prescribed by the Memorandum, as shown in able 12.3. For the year 2014, and according to the existing government projections that were included in the text of the laws that were passed by the summer of 2010, the tax revenue increase should exceed by 60% the tax revenue increase asked for by the Memorandum, while, until the summer of 2010, the concrete and quantifiable cost cutting measures were significantly less than half the target set by the Memorandum. During and after the first half of 2010, the large increase in consumption taxes, which occurred mainly from the March and May 2010 increases, had compensated for the fall in private consumption as the Greek economy slipped into a deep recession, as shown in Figure 12.6. Te price paid for maintaining this tax revenue on a track that seems relatively stable was a significant increase in consumer price inflation, which had increased—during a strong recession—to over 5% as a result of these consumption tax increases, as shown in Figure strategy 12.7. to bridge the time interval until the Te apparent government implementation of the new tax law for 2011 with extraordinary taxes, which would make most of the extraordinary taxes permanent, and the full activation of measures to fight tax evasion and to abolish tax exemptions, stabilized the tax revenue in a contracting economy during 2010. Te Figure 12.6: Monthly revenue in million euros from VA and special consumption taxes, as gas, alcohol and tobacco 4.500 4.000 3.500 3.000 2.500 2.000 1.500 1.000 500 0

2 2 . . 0 2 4 4 9 9 1 1 . 1 . 1 0 7 9 8

1 1 . . 0 1 7 1 2 3

1

2

1 1 . 5 . 6 1 3 8 2

3

4

5

1 . 1 4 0

6

1 1 . . 1 2 7 4 5 7

1 . 1 7 8

7

2009

8

1 . 9 0 5

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9 2010

1 . 1 9 4

10

1 . 3 2 4

1 . 0 5 9

12

1 . 2 3 7

1 . 7 2 4

1 . 9 7 9

1 . 1 9 8

1 . 3 2 6

1 . 2 3 6

13

2011

Source: Monthly bulletin on implementation of budget, Ministry of Finance. 226

1 . 2 8 7

n i d et a im ts e n o it c u d er ts o c d n a sea er c n i e u n ev er xa t e th d n a m u d n ar o e m M y b n ee se r o f se r u sa e m es ae rc in xa t d n a g n tiu c ts o c f o n o si ra p m o C : .3 2 1 el b a T

140 2 130 2

. 0 1 0 2 ya M li t n u 9 0 0 2 re b m ec e D o m fr t en m n re v o g k ee r G e h t y b ed ss a p s w al e h t

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% 3 2 , 4

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U O M y b d e b ir cs er P

d e fi ic e p s t o n t u b le p ic n ir p in d ec n u o n n a se r u sa e M

xa t in at re c o t ad el ll i w ta h t ya w a in et d las ig el en e b ev a h ta h t d es ae rc n i xa T

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.s w al ta n ve le r e h t o t ed ch at ta yr ts i n i M ec n a n i F e h ytb st r o p er d n a m u d n ar o m e M e:

c uro S

FROM SAGNAION O FORCED ADJUSMEN Figure 12.7: Monthly revenue in million euros from VA and special consumption taxes, as gas, alcohol and tobacco and inflation 8.000 7.000 6.000 5.000 4.000 3.000 2.000 1.000

VAT 21 %, Gas, alcohol and tobacco “1” and luxury tax

Gas, alcohol and tobacco “2”

123456

6% 5% 4% 3% 2% 1% 0%

2009 monthly income from VAT and special consumption taxes. 2010 monthly income from VAT and special consumption taxes. CPI annual change with VAT increase but after deducting of other specific taxes. Annual % change of CPI.

Source: Monthly bulletin on implementation of budget, Ministry of Finance and monthly press releases for Consumer Price Index changes published by the National Statistical Service and, subsequently, National Statistical Authority.

extraordinary tax on corporate profits of December 2010, which was collected in January 2010, significantly supported revenue during the first six months as shown in Figure 12.8. Yet the question of the future impact these high taxes will have on generated income and profits remains open, as underlined by the weakening revenue during the first six months of 2011. Te fall in the revenue collected from the extraordinary tax on profitable companies, for example, exemplifies the shrinking base of these taxes as the recession deepened in Greece during 2010 and 2011. On the other hand, the cuts in expenditure (i.e. the salaries and cash handouts paid to public servants) may have managed to stop expenditure increasing March but until of June 2010 thesome monthly savingcomhas been ratherafter modest, with2010, the exception April where cuts were puted retrospectively from January and as shown in Figure 12.9. A larger fall was observed in July, where the summer gift was paid, and an even clearer indication of the impact of these cuts appeared in the data for December 2010, when the reduced Christmas gifts were paid. But the final impact of these measures was not expected, even at the time, to exceed significantly the sums projected in the respective laws, which, as stated, aim at expenditure cuts that cover less than the half of the expenditure cuts 228

HE 2010 GREEK ECONOMIC CRISIS Figure 12.8: Ordinary budget of central government monthly revenue net of tax returns in million euros 6.500 6.000 5.500 5.000 4.500 4.000 3.500 3.000 2.500 2.000 1

2

3

4

5

2007

6

7

2008

8

9 1 0

2009

11

12

2010

2011

Source: Monthly bulletin on implementation of budget, Ministry of Finance.

foreseen by the initial Memorandum, and which are a small percentage of the government’s large deficit. Te supervising lenders had identified these problems and urged the Greek government to take expenditure cuts more seriously. Supervision regarding a plan to rationalize the debt laden (ten billion euros) and lossmaking (up to one billion annually, of which 450 million is the wage bill and up to 450 million is interest on accumulated debt) publicly owned railroads rapidly became tighter, as resistance by interest groups within the railroad staff indicated a possible faltering of the government’s willingness

Figure 12.9: Central government payments for salaries and public employee pensions in million euros 4.000

3.000 2.000 1.000 0 1

2

3

4

5

6 2009

7

8

9 1 0

2010

11 12 2011

Source: Monthly bulletin on implementation of budget, Ministry of Finance. 229

FROM SAGNAION O FORCED ADJUSMEN

to deal with the issue. Efforts have also been made to make the supervision of hospital and medical expenditure bills gradually tighter, along with supervision of the social security system and the contribution collection mechanism. At the same time, more detail on the implementation of measures to control runaway expenditure items is constantly asked for and the mechanism that prepares and audits the implementation of the central and general government budgets is enhanced through initiatives included in the Memorandum. By the summer of 2011, the debt of the railroads had been transferred to the government debt, the measures to reduce medical expenditure were still in various stages of progress but had failed to yield tangible results, and a plan to restructure the public railroads apparently had demonstrated some significant initial successes regarding cost reduction. Finally, the government, under the intense pressure of its lenders, was faced with a far-reaching agenda of structural reforms in product and labour markets. Regarding labour markets, Law 3863/2010 included measures to abolish a number of constraints to the operation of private sector labour markets that were not even considered by past governments, and was passed under the pressure of the of the clause to balance the mediation process wasrepresentatives postponed at the last lenders. minute, Aand announced for before the deadline included in the Memorandum. Tese measures aimed to have an important impact, as together with the increase of the effective taxation of self-employment, they could make salaried labour more attractive. Regarding the core of the important reforms—such as those pertaining to social security, the opening of crucial network industries and services to competition, as well as the cost cutting side of fiscal consolidation—during the first year of the implementation of the Memorandum one can identify an initial unwillingness of the responsible ministers to fully conform with the spirit of the Memorandum, subsequent and increasing pressure from the lenders and a tendency to finally, with great delay, present initiatives

that seem conform withwith the basic guidelines of the Memorandum. freight wasto deregulated, a three-year adaptation period, only Road after repeated oscillations by the responsible ministers and after the exercise of intense pressure from the lenders. An initial effort to deregulate professional services with Law 3919/2011 ultimately succumbed, at least partly, to the pressures of the legal profession and, especially, engineering representatives. Tis is clearly documented by opinion 11/VI/2011 of the Competition Authority, which was mandated by the Memorandum. Further uncertainties regarding the truthful deregulation of significant industries for the 230

HE 2010 GREEK ECONOMIC CRISIS

competitiveness of the economy, job market and government budget professions emerged with the postponement of the deadline for the deregulation of medical professions until the end of 2011, which is to be added to the half-hearted deregulation of the pharmacist’s profession, where, for example, constraints such as mandatory ownership by a licensed pharmacist remain. Regarding the reduction of red tape, a one-stop shop for company start-ups was created, even though the underlying procedure was not significantly simplified and its effectiveness seems to be questioned by various observers. Furthermore, an action plan to identify thirty obstacles to doing business had still not been implemented by summer 2011, even though working groups supposedly made progress in their drafting. Finally, regarding the energy market, all the main challenges still remained by the summer of 2011. On other fronts, however, some behind-the scenes progress was gradually becoming apparent, as for example with the important issue relating licensing and spatial planning, which is especially important to production and manufacturing. By the summer of 2011 key pieces of legislation had been put in place such as Law 3982/2011, which significantly simpli-

fies the for licensing process licensing, for smaller establishments. new process environmental which is the crucial Similarly, remaining the obstacle for larger establishments, was still work in a (reportedly very advanced) state of progress. Also missing were a couple of secondary decrees, which were expected to be completed within a reasonable amount of time. Drafts for the two final decrees were announced soon after a cabinet reshuffle in early 2011, and were probably marked to be legislated by September 2011. Since product market reforms usually take some time to bear fruit, the insistence on allocating them towards the end of the implementation agenda (as was already manifest in the initial draft of the Memorandum), and then to further procrastinate over their truthful and aggressive implementation evidently risks exposing the economy to a longer, and possibly unnecessarily deep, even slowdown. extent of this may ultimately undermine the factTe that markets willprocrastination price in the anticipated impact of these reforms immediately, as Professor J. Stournaras, of the Greek think tank IOBE, correctly points out. Te torpor with which structural reforms that can create a substantial upside to the Greek economy have been promoted has also created the risk that implementing these reforms after a prolonged recession has weakened the domestic financial institutions to such an extent that they will be unable to provide a speedy and strong support to initiatives that aim to take advantage of this upside. 231

FROM SAGNAION O FORCED ADJUSMEN

On the other hand, and particularly with regard to the Ministry of Finance, there was, as mentioned, an initial reluctance to publicly admit the severity of the situation and a failure to present for over a year the parameters of a coherent and adequate exit strategy. But, finally, the additional measures described in the Medium erm Fiscal Strategy (MFS), announced in the context of the European Semester by May 2011, seem to have a magnitude that appears proportionate to the problem at hand, regardless if one can argue about the policy mix and the details of the corrective measures. Furthermore, press reports and announcements from officials of the Ministry of Finance and the tax authorities indicate at least a truthful effort to end the days of unchecked tax evasion, tax avoidance and tax fraud from private individuals as well as office abuse and corruption from the side of employees. A census of public servants was completed, a census for employees of public companies is planned and the single payment authority for public employees is moving towards completion more than two years after its initial announcement. Furthermore, a number of initiatives included in the Memorandum,

some of which weremade already on the agenda, seemthe to have receivedofincreasing attention and have firmer progress under supervision the lenders. Especially regarding the two laws on social security reform, Law 3863/2010 and 3865/2010, their speedy implementation, following the pressure of the lenders to do so, seems to have alleviated the forecasts of crippling future fiscal imbalances that until now have significantly burdened the long term creditworthiness of the Greek government. Tis significance follows from the fact that pensions for former public employees and contributions to social security funds are, as shown in Figure 12.10 and together with government wages, among the largest, and fastest growing, single expenditure items. Tese laws will contribute much to the reestablishment of the creditworthiness of the Greek government as they remove some of the uncertainties regarding future of theofGreek governmentmajor to honour its obligations, eventhe before theability full impact these laws is felt and before the actuarial studies, which are currently being prepared, are finished and published. Crucially, this social security reform introduces, for those who are first insured after 2011, a link between lifetime contributions and the pensions received. For older workers it makes marginal adjustments, but this is less important for the long-term projections that are largely stabilized as a result of the new system. 232

HE 2010 GREEK ECONOMIC CRISIS Figure 12.10: 2009 Central Government Budget. Expenditure items as % of all ordinary budget expenditure items except interest payments 8,4%

18,41%

Wages and quivalent 32,2%

Public emplyee social security Contributions to social security funds Social protection

7,2%

Operational expenditure 13,2% 21,1%

ir party revenue

Source: 2009 data in 2010 budget.

In the meantime, these laws include important measures such as increased contributions by pensioners, an increase in average retirement ages and disincentives for early retirement, reforms regarding the employment of pensioners and pensions inherited by spouses and unmarried daughters, measures to make social security contributions evasion and fraud more difficult, the equal treatment in the future of private sector and public sector employees as far as their pension is concerned and changes in the way prescriptions are supervised. In addition, a number of administrative measures are expected to enhance the administrative capacity of the system to operate more efficiently, even though some other measures still leave a number of questions open.

After the Memorandum: Te new structure for economic governance in Europe By early 2011, the risks associated with a strategy of front-loading the fiscal adjustment process with measures that aimed to increase tax revenue, rather than expenditure cuts had materialized in line with the related international experience. In addition, the implementation of the structural reforms that could act as growth generators was slow, as an observation of the initial implementation dates of many reforms listed in able 12.2 and not imple233

FROM SAGNAION O FORCED ADJUSMEN

mented by the summer of 2011 reveals. As a result, an orderly return of the Greek government to capital markets within the timeframe set out in the initial Memorandum started to appear increasingly unrealistic, implying that the initial size of the rescue package could no longer avert a disorderly default of the Greek government. Furthermore, the new structure for economic governance in Europe, as represented by the European Semester, asked for an intensified and coordinated effort on the fiscal and structural front from member states starting from 2011. For Greece, the comments of the European Commission regarding the National Reform Programme amounted, simply, to the requirement to fully implement the Memorandum, thus demonstrating that the Memorandum effectively now incorporates in Greece the National Reform Programme. Regarding the fiscal consolidation process, the European Semester asks for the MFS to incorporate recommendations made by the Commission in the case in which the submitted national five-year fiscal plan is not based on measures that are realistic or appropriate to the challenges the country faces. Tus, the MFS of Greece in the end of the first semester of 2011 had to be adjusted with sizeable new that fiscalpromised, measures at inleast orderontopaper, present, the firstoftime, bundle of measures thefor prospect fiscalasustainability by 2015. As can be seen in Figure 12.11, in the absence of new measures Greece would have been on a baseline path of increasing general government defiFigure 12.11: General government deficit, in billion euros, according to revised Eurostat data and according to the projections of the Medium erm Fiscal Strategy (MTFS) 2011–2015 with, and without, additional measures 0 –5 –10 –15 –20 –25 –30 –35 –0 1

9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0 E

2 0 1 1 B

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

General government deficit, billion euros. Eurostat, without new measures. General government deficit, billion euros. Eurostat, Medium Term Tiscal Strategy.

234

HE 2010 GREEK ECONOMIC CRISIS

cits that would have led to an accumulated general government debt of 500 billion euros (200% of GDP) by 2015. Te reality presented in the baseline scenario can be identified as the main reason why markets were reluctant to accept the reform progress of Greece as sufficient, as neither the fiscal consolidation strategy matched the size of the problem at hand, and nor was the reform strategy aggressive enough to generate a sufficiently large upside. As a result of this reality, which was identified on paper due to the requirements of the European Semester and in particular through the exercise of the MFS, measures were proposed to put the country on a baseline path of almost zero general government budget deficits by 2015 and to aim for a debt of 350 billion euros by 2015. o achieve this, a plan that includes an extensive list of fiscal measures that amount to an additional, to the baseline scenario, fiscal adjustment of twenty-eight billion euros from 2011 till 2015 was presented, and approved both by the EU bodies as part of the process that constitutes the European Semester and the lenders. Also, and in spite of the initial opposition of the government to such a plan, an ambitious privatization programme was announced to reduce the stock of debt by about billion euros, and the tools to implement it wereamounting outlined. to Law fifty 3986/2011 immediately implemented measures about half of the total size of the fiscal adjustment programme. Essentially, these measures attempt to make up for the inability of the fiscal consolidation strategy initiated in 2010 to achieve its targets and, in addition, to provide a credible path that aims to create a sustainable fiscal situation within a tractable timeframe. It is important to point out that it does so within the standard mechanisms set up to form the European Semester, and which thus also form the groundwork for the 2012 budget of the Greek government and the Stability and Growth Programme. Te same law creates the fund that will administer the public property and shares that are to be sold, or leased out. Crucially, this fund is empowered to overcome the

obstacles regarding licensing and ownership disputes that have often dwarfed similar efforts in the past. One credible point of criticism against the composition of the fiscal measures immediately implemented as part of the MFS for 2011–2015 is that, while in principle it introduces measures that are equally split among revenue increases and expenditure cuts, it once again proceeds with the aggressive and front-loaded implementation of the revenue increasing side of the measures, rather than the expenditure cut side of the measures. Increases of taxes and levies on the existing revenue and tax base amount to 235

FROM SAGNAION O FORCED ADJUSMEN

over half of the revenue increasing measures, and all of them are implemented immediately, as can be seen in able 12.4. Tat is, out of all the tax increasing measures listed, which amount to more than 50% of the revenue increasing measures, 94% are implemented immediately, implying that 54% of the revenue increasing measures are implemented immediately. Sizeable measures to reduce tax evasion and social security payment evasion, which amount to the other half of the revenue increasing measures, are essentially postponed until after 2013. Furthermore, specific expenditure cuts that are implemented immediately amount to less than 27% of the total amount of the listed expenditure cuts. Tus, overall, the MFS seems to repeat the fundamental mistake of the strategy of fiscal consolidation initiated in 2010, that is to put almost all the weight on tax increases rather than expenditure cuts. While this criticism is certainly true, one has to acknowledge that for the first time Greece—after almost two years of crisis—has presented a multiannual budget that includes credible and reliable numbers for the central government and the general government entities, and which, in addition, presents a baseline scenario that aims towards fiscal sustainability. Furthermore, approach regarding tax and social security payment evasion is the alsocautious related with the request of the European Union and the IMF that the numbers included are not overly optimistic, thus leading to the inclusion of conservative estimates regardless of the progress observed in the activities of the responsible working groups. Finally, the increased aggressiveness of the supervision of the implementation of the Memorandum, which follows from the slow progress observed in many areas during the first year of its implementation, suggests that a rebalancing of the measures towards more aggressive expenditure cuts can be anticipated every time that the expected revenue increases fail to materialize. Besides the provisions of the Memorandum, the framework of the European Semester, as well as the emerging details of the legislative packages that will support the permanent support mechanism of the eurozone also hint towards a more aggressive and determined implementation of measures that will achieve fiscal sustainability with greater predictability in the future. Regardless of this accelerated and better scrutinized implementation process, and the size of the new fiscal consolidation programme, the misjudged mix of the fiscal measures taken in 2010 that put so little weight on expenditure cuts, in addition to the delay and procrastination in the implementation of the structural measures listed in the Memorandum, implied 236

HE 2010 GREEK ECONOMIC CRISIS able 12.4: Measures described in the Medium erm Fiscal Strategy (MFS) for 2011–15 and implemented by Law 3986/2011.

Measures, mil. Euros

2011

2012

2013

2014

2015

Sum

Wage bill Operationalexpenditure

770 140

600 92

448 161

306 323

71 370

2.195 1.086

490 414 200

150 329 333

200 298 333

60 250 1.088 629

204 493 1.280 259 878

149 203 363 979 200 100 100 1.143 1.025 1.010 700 5.013 714 1.139 504 3.245 975 1.147 3.000

2.318

3.380

Mergersamongof public entities Restructuring public enterprises Defensespending Improvement in medical care finances Medicalexpenditure reduction Social security revenue increase axevasionreduction ax exemption reductions and tax increases Improvement of regional and municipalauthorityfinances Investmentbudget Sum

Measures, mil. Euros Revenueincrease Instantly legislated revenue increase Expenditurecuts Instantly legislated expenditure cuts Sum Sum Postponedmeasures

150 355 850 –346 6.745 7.081

2011 3.095

2012 3877

152 345 4.934

2013 2069

200 150 1.190 274 1.315 333 1.199

699

6.549

350

305 1.505 504 5.936 4.317 28.923

2014 3153

2015

Sum

1896 14.090

2.882 3.691 154 809 4 7.540 3.650 3.004 2.664 2.783 2.222 14.323 1.553 6.745 4.435 200

1.260 6.881 4.951 201

440 4.733 594

415 5.936 1.224 199

130 3.798 4.118 28.413 134 11.338 600

Source: Introduction to parliament, and final text of Law 3986/2011.

that during the summer of 2011 the Greek government faced a continuing loss of confidence in the markets. Tis was reflected not only in the continuing downgrades of the rating of its sovereign debt that remains in private hands well below investment grade. It was also reflected in the apparent unwillingness of private lenders to finance the needs of the Greek government even at very high interest rates. Tus, amid fears of contagion to other European countries, it became inevitable that Greece would need an extension of the size of the fiscal support it receives even before the activation of 237

FROM SAGNAION O FORCED ADJUSMEN

the permanent support mechanism of the eurozone. And while the fiscal measures included in the MFS alleviated the reservations of the IMF regarding the existence of a baseline strategy that would allow such an additional fiscal support programme to be meaningful, the credibility deficit of the Greek government and the uncertainties pertaining to the exact details of the permanent support mechanism implied that the government of Greece was still facing the bulk of the challenges relating to its access to market financing. Tus, the unwillingness of markets to reward the chosen mix of the fiscal consolidation strategy as well as the torpor in the implementation of structural reforms led to the agreement of the European bodies as well as the IMF in July 2011 to offer Greece a second rescue package, amounting to an additional 109 billion euros, which would finance its needs for the next years. Tis second package comes at a time when the initial Memorandum anticipated a gradual return of Greece to market financing. Tis second package also reduces the interest on outstanding debt held by the European Bodies and the IMF. And for the first time it also offers to private holders of debt different options to government roll over their at terms thatGreek take sovereign the pressure away from the Greek ofclaims redeeming the face value of the claims at this time, while technically trying to avoid a rating of the country that would be equivalent to that of a default or selective default. Te additional fiscal measures needed to present, with the MFS, a fiscal plan that at least aimed at sustainability, which was effectively set as a prerequisite to the adoption of this plan that once again protected the Greek government from an disorderly default. At the same time, the elaboration of the structural reform agenda in the fourth review of the Memorandum of July 2011, IMF (2011b), suggests an increase in the pressures placed by the lenders on the Greek government to proceed more aggressively and truth-

fully with reforms that will remove constraints thetruthfully prospects for the Greek economy. Apart fromthe thebinding insistence to finallyonand implement labour market reforms that had been fudged previously, an elaborate list of reforms asks the government to specifically and very speedily address key issues regarding professional services, ranging from the recognition of professional qualifications to shareholding requirements. Te long overdue deregulation of the energy sector is also now laid out with great technical detail that leaves no wriggle-room open to misinterpret the needed and imminent legislative action. Even the unorthodox design of the one238

HE 2010 GREEK ECONOMIC CRISIS

stop shop for company start-ups is required to become immediately subject to an impact assessment. Similarly, an almost immediate reduction in startup costs is mandated as well as a requirement to reduce the publications of corporate acts in daily newspapers. As a result, after its fourth review, the Memorandum includes a long list of clearly specified immediate measures, some of which are set out in able 12.5, which meticulously describe the removal of key legislative realities that for many decades have been at the core of the mechanism that allocated rents to Greek vested interests. able 12.5: Selected key reforms that are spelled out in great detail in the fourth review of the Memorandum, and which confront vested interests that are deeply rooted in Greek society.

1. Te government will implement a medium-term reform of the judicial system (without prejudice to the constitutional principles and the independence of justice). 2. Implement the announced anti-tax evasion action plan. 3. Medium term staffing programme of government, including cancelation of vacant job posts. 4. Legislation a simplified remuneration system introduced in July 2011, and phased in infor three years. 5. Align wages in state owned enterprises with wage grid of public sector. 6. Launch of e-procurement platform by July 2012, and make it fully operational by Q2 2012. 7. Include supplementary pension schemes in the reform of the pension system, and the related forecasts. In depth revision of these funds with an aim to ensure their sustainability. 8. Adjustment of lump-sup retirement payments that are out of line with contributions. 9. Government freezes nominal supplementary pensions and reduces the replacement rates for accrued rights in funds with deficits, based on the actuarial study prepared by the National Actuarial Authority. In case the actuarial study is not ready, replacement rates are reduced, starting from 1 January 2012, to avoid deficits. 10. Te Health Committees set up by Law 3863/2010 will start operating the planned revision of disability status and produce a first quarterly report of its activities by end of December 2011. 11. Initiation of joint purchase of medical services and goods to achieve substantial expenditure reduction of at least twenty-five percent compared to 2010 through price—volume agreements. 12. Te Bank of Greece commits not to grant pension privileges to its staff and to revise the main parameters of its pension scheme to align them with those of IKA. 13. Government revokes market regulation 40 (17.12.1990) to abolish the 0.4 percent contribution of wholesale sales prices in favour of the Panhellenic Pharmaceutical Association.

239

FROM SAGNAION O FORCED ADJUSMEN 14. Starting from 2012, pharmacies’ profit margins are calculated as a flat amount or flat fee combined with a small profit margin with the aim of reducing the overall profit margin to no more than fifteen percent, including on the most expensive drugs as defined in Law 3816/2010. 15. Calculation of stocks and flows of medical supplies in all the hospitals using the uniform coding system for medical supplies developed by the Health Procurement Commission and the National Centre for Medical echnology for the purpose of procuring medical supplies. 16. Te programme of hospital computerization allows for the setting up of a basic system of patient electronic medical records. 17. Te Ministerial Decision also lowers fees for company creation, for copies and for additional pages. 18. An audit is launched to assess to what extent the contributions of lawyers and engineers to cover the operating costs of their professional associations are reasonable, proportionate and justified. 19. Government identifies measures to reinforce transparency in the functioning of professional bodies by requiring them to publish an annual report on their webpage regarding their financial performance and statistics on disciplinary actions in defence of consumers’ interests. 20. All Presidential Decrees needed for the implementation of the law on fast-track licensing procedure for technical professions are adopted. 21. Abolish provisions of the regulations of the professional chambers on access to, and exercise of, the profession and on pricing, that are against Law 3919/2011 and EU law including competition rules. 22. Set up contributions of lawyers and engineers to their professional associations that reflect the operating costs of the services provided by those associations. 23. Legislation amending Law 3328/2005 is adopted to ensure that holders of franchised diplomas from other member states have the right to work in Greece, accordingly, under the same conditions as holders of Greek degrees. 24. Facilitate establishment by abolishing or amending unjustified and disproportionate requirements, including those relating to quantitative and territorial restrictions, legal form requirements, shareholding requirements, fixed minimum and/or maximum tariffs and restrictions to multidisciplinary activities. 25. Simplify and reduce costs linked to company publication requirements. 26. Address restrictions in the transport sector, including the transport of empty containers and of non-hazardous waste. 27. Reduce the complexity of the Code of Books and Records and provide clarity on all categories of non-deducted expenses. 28. Government starts screening Ministerial Decision A2–3391/2009 on market regulations as well as any other related regulations. Te screening is carried out, in cooperation with the Hellenic Competition Commission, with a view to identifying administrative burdens and unnecessary barriers to competition to be eliminated. 29. A comprehensive list of non-reciprocating charges in favour of third parties is presented, identifying beneficiaries and quantifies contributions paid by consumers in favour of those beneficiaries.

240

HE 2010 GREEK ECONOMIC CRISIS 30. Legislation is adopted to simplify and shorten procedures to complete studies on environmental impact and to get the approval of environmental terms with a view to reducing the number of projects subject to environmental licensing and the duration of approval procedures to EU average levels. Te acceleration of the environmental licensing is assured by committing the authorising authority to proceed with the approval procedure after a specified time period. 31. Government reviews and codifies the legislative framework of exports (i.e. Law 936/79 and Law Order 3999/59), simplifies the process to clear customs for exports and imports and gives larger companies or industrial areas the possibility to be certified to clear cargo for the customs themselves. 32. Te obligation of registration with the exporters’ registry of the Chamber of Commerce is abolished; such a registration is simplified and becomes voluntary. 33. Te decrees necessary for the implementation of the law on fast-track licensing procedure for manufacturing activities and business parks are implemented. 34. An impact assessment is presented to evaluate Law 3853/2010 on simplification of procedures for the establishment of companies in terms of the savings in time and cost to set up a business. 35. Government finalizes the remedies to ensure the access of third-parties to lignitefired electricity generation. 36. Government adopts legislation to improve regulatory governance.

Source: Fourth review of the Memorandum, July 2011.

Concluding remarks Te nature of the socio-political reactions to reform that have been observed so far in Greece seem to confirm the pattern described in Pelagidis and Mitsopoulos (2006, 2010) and Mitsopoulos and Pelagidis (2009b, 2011). Strong resistance has been demonstrated by interest groups and parties that have clearly gained from the status quo. ruckers strongly opposed the honest deregulation of the road freight market, and given the experience of the past, when blackmail always worked, they failed to conduct a realistic negotiation that could fine-tune the deregulation according to guidelines such the onesservice suggested in Mitsopoulos andreduction Pelagidis (2011). Employees of theascustoms effectively opposed the of their cash handouts and equal tax treatment. Public sector unions organized numerous demonstrations and strikes before the vote on the new tax law and the new law on social security for the public sector. Lawyers, engineers and pharmacists’ unions succeeded in dwarfing an initial attempt to deregulate professional services. And the trade union of the public electricity power corporation has threatened to allow the country to go without electric power if the planned deregulation of the electricity market and rationaliza241

FROM SAGNAION O FORCED ADJUSMEN

tion of the company they work for is attempted. Strangely, though, most citizens, and especially private sector employees and taxpayers, do not seem to oppose the proposed structural reforms. On the contrary, one can say that they observe the forced implementation with some relief, after decades of mismanagement, graft and special interest pampering by successive governments. Special interest groups seem to have discovered that neither society nor, for the first time ever, the media, supports their cause. At the same time, groups, such as the Communist Party, which gain support when social coherence deteriorates and when poverty increases, express, rationally, the strongest opposition to the proposed, and implemented, progressive structural reforms. Tis is not to say that the implementation of these reforms is beyond criticism or that their substance is always perfect and precise. As already mentioned, the adopted strategy for fiscal consolidation has so far—twice if the initial implementation of the MFS is also taken into account— placed a disproportionate weight on increasing taxes for those that were already paying taxes, while avoiding more aggressive spending cuts. And, especially case of year socialof security reform, it is of not clear at all— effectively in in the the second the implementation theyet Memorandum— that the adopted measures are sufficiently oriented towards the aggressive reduction of obscene privileges instead of cutting pensions of individuals that have contributed strongly to the system or, especially, of individuals that are among the poorest. Finally, contrary to the suggestions made in Pelagidis and Mitsopoulos (2010) and Mitsopoulos and Pelagidis (2009a), labour market reform took precedence over product markets reforms, something that may send the rate of unemployment to sky-high levels, especially given the aggressive increase of tax rates and the slow promotion of product market reforms. Yet the fine-tuning of the details to counter such criticism is the responsibility of the Greek government, which has so far had signifi-

cant freedom in the prioritization of the measures that were to be implemented. One also has to keep in mind that the Memorandum did not start out as a plan to solve all the problems of Greece. It was initially a list of useful reforms, but it was neither exhaustive nor perfect. Tus initially it said nothing about the reform of the education system and the judiciary, and it said little about active labour market policies. Yet any initial criticism regarding these weaknesses missed the point. Te Memorandum started out as a plan to pass a number of crucial reforms that the Greek political system 242

HE 2010 GREEK ECONOMIC CRISIS

could not pass for decades, but it could not aim to automatically solve all problems of Greek society and, above all, to improve directly the quality of governance in Greece, beyond some references to, for example, the better regulation agenda. During the first year of its implementation, it gradually became obvious that this is something Greece was not able to do by itself. Tus, inevitably, issues like education reform, which was included in the third review in March 2011 (IMF, 2011b), is apparently now on a promising track. Furthermore, details regarding the reform in the judiciary and reform regarding issues of governance were included in the fourth review of July 2011 (IMF, 2011a) at the same time that Greece was shielded from the consequences of failing to address numerous issues listed in the initial memorandum with the second rescue package. Te anticipation of the framers of the Memorandum, even now, remains that, by passing the reforms that are included in the Memorandum, the groups that traditionally oppose reforms and take the political system hostage when they want to secure their rents, and which are the main obstacle to improved governance, will gradually fade away. During such a process, Greek society, as a society whole, in may transform itself a kleptocratic, and misgoverned which the rule of from law fails extensively,corrupt into a well-governed nation with credible prospects to take a place among the developed nations (Pelagidis and Mitsopoulos, 2010; Mitsopoulos and Pelagidis, 2011; Rodrik, 2007). Such a prospect will also imply that the competitiveness of the economy will increase to a level that will suffice to service and pay off its debts in order to avoid the pitfalls described in Azariadis and de la Croix (2006), regardless of the alleviation on the debt burden held by private and other legal entities implied by the second rescue package. Ultimately, the success of this strategy has emerged as an important issue for the future of the whole of Europe, as the weak governance structure of Greece increasingly threatened during the first year of the implementation of thethat Memorandum to shut out of markets other governments in the eurozone were also suspected of weak governance.

243

13

HE POLIICAL ECONOMY OF FORCED REFORM AND HE 2010 GREEK ECONOMIC ADJUSMEN PROGRAMME

George Pagoulatos1

In the eurozone sovereign debt crisis that erupted in 2010, Greece was the first to succumb, followed by Ireland and Portugal—and the list at the time of writing is still open. Apart from the colossal gaps created by global-level financial deregulation, the eurozone debt crisis was largely a result of the structural deficiencies of EMU, the non-implementation of fiscal sustainability rules, and the neglect of financial instability and current account imbalances in the eurozone. Greece was not the root cause of the eurozone debt crisis domino. But Greece carried enormous responsibility for the extreme financial vulnerability that made it the first domino to fall, turning its own debt crisis into an acutely destabilizing factor for the eurozone. Tis chapter does not set out to examine the crisis as such, but rather selected aspects of the Greek political economy that surrounded the reforms launched under the 2010 adjustment programme. Te latter was agreed with Greece’s creditors, the EU and the IMF, following the country’s 2010 bailout. Since at least the late 1980s, any observer of the Greek political economy could witness a glaring discrepancy between abundantly flowing reform talk, including heroic programmatic declarations (from ‘modernization’ to ‘reinventing government’) and limited reform policy action in practice, leading to even more limited tangible results. Te undeniable success stories 245

FROM SAGNAION O FORCED ADJUSMEN

(EMU accession, Ombudsman, ASEP, KEP, etc.) have been a poor match if compared to major policy areas that remained chronically lagging and in urgent need of far-reaching reform: from the operation of the state, the performance of public administration, widespread corruption and tax evasion, to the health system, the pension system, and higher education. Te repeated government re-iteration of reform intentions, followed by either minor amendments or overall inertia, have often brought to mind the closing scene from Samuel Beckett’s tragicomedy Waiting for Godot (i.e. when Vladimir says: ‘Well? Shall we go?’ Estragon replies: ‘Yes, let’s go’. [Author’s instructions: they do not move…]) And yet they finally moved. Within less than a year, in 2010, Greece shifted from ‘the paradox of non-reform in a reform-ripe environment’ (Sotiropoulos, Chapter 2 in this volume) or ‘the sense of the intractability of reforming the “system”’ (Featherstone and Papadimitriou, Chapter 3 in this volume), to a brazen programme of reforms, from widening the tax base, to public sector, pensions and market reform. Several of the policies implemented (like the statutory rise of the retirement age or the 2011 higher education reform) would have been considered unthinkable only a year earlier. By early autumn 2011, as this book was going to print, Greece’s most pervasive and painful economic adjustment programme of the last few decades was being applied. Notably, contrary to ‘silent’ reforms of the past (financial liberalization) or reforms concerning a limited number of stakeholders (privatization), the 2010 adjustment programme involved policy areas that are socially sensitive, and which directly affect the income and welfare of the wider population, and which are exposed to political conflict, such as wages, pensions, taxes, employment and services regulation.

Forced reform, the external constraint and the politics of economic conditionality Te unprecedented speed with which a comprehensive package of unpopular measures and reforms was initiated following Greece’s resort to the EU/ IMF bailout mechanism points to the obvious impact of the single most important defining factor in the Greek crisis, namely the external constraint: a last-resort lender offering a last-moment bailout under specific conditions. Te overbearing presence of the external constraint (i.e. binding, direct and ineluctable conditionality for the release of every tranche of the EU/IMF loan), provides most of the explanation as to why reforms of 246

HE POLIICAL ECONOMY OF FORCED REFORM

such scale were launched—although this is not the whole explanation, as we shall subsequently see. Direct external constraints are largely associated with various forms of formal conditionality policy, such as institutional membership of an international organization or entitlement to other benefits such as the provision of emergency finance (Haggard, 1986; Kahler, 1992; cf. Dyson, 2006: 13–35). In general, formal conditionality entails the use of incentives to alter a state’s behaviour or policies. Based on power asymmetries, conditionality links perceived benefits for a state from another state or international organization(s) to the fulfilment of specific conditions. In this respect, conditionality is an implicitly coercive instrument to secure compliance with certain desired policy or institutional outcomes (Hughes et al., 2004: 525). Forced reform does not necessarily imply external imposition (as some would have it) but the inexorable force of events, leading to a stark, salient and polarized dilemma between the catastrophic implications of non-adjustment (default, in the Greek case) on the one side, and harsh adjustment, a last-moment financial rescue plan, and its concomitant conditionality, on the other. negotiated with the Greek government’s creditors Te loan conditionality (the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF), all three acting together as the ‘troika’) operated as the crucial external constraint. A specific adjustment programme of economic measures and structural reforms was formulated in the Memorandum of Understanding signed between the Greek government and the troika (see able 12.2 of Mitsopoulos and Pelagidis, Chapter 12 in this volume), which was enacted into Law 3845/2010. Subsequently, in July 2011, a second bailout loan was agreed, the conditionality of which was by and large prescribed by the June 2011 Medium-erm Fiscal Strategy (2012–15) that aimed to achieve a primary budget surplus by 2012.

Exogenously-driven reform has in been the of paradigm category reform; successful not necessarily terms its outcomes, butofinsuccessful terms of managing to become adopted and implemented. Te more direct and forceful the external constraint, and the clearer and more visible the adjustment programme, the higher the chances for the enactment of reform (see soukas, Chapter 5 in this volume). Te role of external constraints overlaps with a vibrant literature on Europeanization (Featherstone and Radaelli, 2003; Featherstone and Kazamias, 2001). In the pre-EMU accession phase, the power of exclusion exercised intense pressure on aspirant 247

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members to redress fiscal imbalances and bring about fiscal consolidation (Dyson and Featherstone, 1999; Featherstone, 2004). Looking at reforms in Greece, and Europe more broadly, one reaches the conclusion that they happened whenever they were driven by a serious and ineluctable external binding constraint (whether this is the single market programme deadlines or the EMU roadmap), which could also take the form of self-binding (such as organizing the 2004 Olympic Games). Te ‘hard conditionality’ on the road to EMU accession was succeeded, inside the EMU, by a softer and more politicized conditionality under the Stability and Growth Pact (SGP), which was unable to resort to equally powerful instruments of coercion (Blavoukos and Pagoulatos, 2008; Heipertz and Verdun, 2010). Tus Greece, more than other member states, took advantage of a favourable political environment to repeatedly breach the EMU fiscal limits until its fiscal standing was no longer sustainable. Te 2010 three-year Greek adjustment programme was widely considered one of the harshest in the eurozone, mainly because of its extremely ambitious fiscal consolidation targets. In many ways, its measures did nothing morealready than reduce Greek deviation fromEU/ the European norm, adopting reforms implemented by most other EMU governments. Probably its harshest feature was the significant nominal public sector wage cuts 2 and the pension reductions that it involved, a feature unprecedented in recent Greek memory and exceptional in post-war Western Europe (cf. Knoppik and Beissinger, 2009). Past stabilization programmes had repeatedly relied on extensive wage freezes; in some EU countries (such as Germany) trade unions have at times agreed on limited wage reductions in order to rescue jobs and sustain competitiveness. But real income losses had by and large been a function of inflation rather than nominal wage reductions in the public sector spreading over to the private sector; money illusion not government decree did the job.3 In that respect, and in the severity of accumulated losses tax (from theand combined effectinof2010) incomes cies, rise of directwelfare and indirect rates, 5% inflation at a politime of Greece’s worst recession and the highest unemployment rate since 1974, the Greek adjustment programme has been exceptional.4 Notably, the programme’s obligations extended to social policy areas, such as social insurance and labour market reform, areas that so far have been outside the purview of EU-imposed adjustment, being dealt with mostly by way of ‘soft’ rather than ‘hard’ law, under the open method of coordination. Tere is growing EU momentum in support of a stronger role 248

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for Brussels in the pension reform of eurozone member states (as confirmed in the Euro-Plus Pact of March 2011), given the obvious implications of non-reform on public debt sustainability. Externally imposed adjustment entails the political advantage of allowing government to use the external force (e.g. the EU) as a ‘scapegoat’ for necessary but unpopular domestic reforms. Tis has been a frequent occurrence across Europe in a number of EU policy areas. It has been a noted paradox that although external EU and international constraints seemingly curtail state autonomy, such a loss may actually empower the state to pursue its own public interest against strong societal and sectoral interests (Moravcsik, 1994). Conditionality-led adjustment is not without difficulties. Lack of clarity and target mobility create frustration and disillusionment, resulting in less vigorous efforts to comply with the set criteria (Grabbe, 1999). An additional concern is the primacy of output focus (satisfying specific criteria) at the expense of an interest in the modality of reaching such output (Smith, 1997: 8–9). Given such focus, conditionality often ends up faring badly, as it ignores the national, political, socioeconomic, and institutional

context in and through which it isBlavoukos transcribed specific policy measures and actions (Killick, 1998: 156; andinto Pagoulatos, 2008).

Policy actors and the political context External constraints are mediated by forces within the national institutional setting, where the modus operandi of the political system determines the degree and modality of internalization and implementation of these constraints. Most importantly, reforms require agents: political actors or policy entrepreneurs, and decision-makers committed to policy change with a strong sense of direction and a specifically elaborated policy plan. Tus a standard way of accounting for reform success or failure is by looking both atthey the policy actors and the institutional/structural framework within which operate. Political actors carry their own cost-benefit calculus. Te actors’ choices and preferences are defined by their surrounding context, domestic and external. Te surrounding conditions and context define the alternatives, assigning values to them, rendering some more desirable than others. o illustrate this last point, take the elegant argument developed by Monastiriotis and Antoniadis (in Chapter 4, this volume). Tey demonstrate reform failure to be a function of the ‘limited role of experts in 249

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informing policy-design and the poor content of many reform proposals’. Clearly, the 2010 programme, designed through unprecedentedly close collaboration with the European Commission, IMF and ECB technocrats, was characterized by significant engagement with the expert communities. But looking at policy actors in conjunction with their environment suggests we should qualify and contextualize their generally limited engagement with expert advice. It is not cognitive barriers that tend to prevent policymakers from adopting the reform proposals of experts. Rather it is a calculus, driven by a stronger prioritization of political and electoral pursuits, that leads to ‘pre-set agendas’ or reform inertia. Tis prioritization of political and re-election pursuits, commonly known as ‘the political cost’, while rather immutable in its prominence among a government politician’s criteria, is of changeable relative importance. In ‘ordinary times’ the political cost consideration is accounted for in standard terms: if a policy reform carries a serious risk of creating conditions of political adversity by turning important segments of the population against the reformist minister or the entire government, jeopardizing re-election, then political rationality suggests this reform be avoided or significantly toned down. In this case, the public acceptance of a reform is not entirely exogenous; it can be altered by a skilled politician or government that have invested precious political capital in informing and defending reform, persuading and converting reform opponents and multiplying potential proponents. Tat said, it should also be recognized that the chances of substantially reversing negative public stances vis-à-vis a reform are limited if this reform directly reduces the income or welfare of a wide plurality of citizens, as was the case with much of the 2010 adjustment programme. And it should also be observed that, whatever one believes about truly reformist politicians, very few among them would be consciously willing to walk toward their political demise. However, and this is the main point I wish to make, extraordinary crises encourage extraordinary political boldness. At times of extreme crises (such as 2010) the political cost is weighed against other general interest priorities, the salience, importance and urgency of which have risen exponentially as a result of the crisis. Crises require urgent remedial action; during crises political leaders become more daring, as rapid deterioration is looming, and the ability to infinitely postpone or ‘pass the buck’ is no longer available (Weyland, 2002: 5). Tus momentous changes in the surrounding context can lead to a significant re-ordering of government political preferences, rendering reforms that carry a large political cost finally possible. 250

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Concerns over the prohibitive function of political cost have often led to the formulation of a dilemma between ‘government by politicians’ versus ‘government by technocrats’; some observers have reiterated this dilemma in the context of the 2010 Greek crisis. One reading of the policy experience would perhaps suggest that the fear of political cost, the looming possibility of electoral defeat for the adoption of painful but necessary reform would be a formidable constraint, acting as a reform deterrent; therefore, the ideal reformer would be someone facing a minimal political exit cost, possibly a non-politician, a technocrat, recruited to implement heroic change, absorb its political cost, and then quietly retire or return to his or her previous occupation. Tis reading is tempting, as much as it is superficial. Implementing hard reform is a political enterprise; it requires huge political skill devoted to devising a political strategy, communicating the expected benefits of reform, converting potential opponents into reform proponents, placating opposition, tactically manoeuvring through the obstacles, and so on. Anyone who has seen a finance minister defend an unpopular stabilization programme while being grilled by aggressive journalists on national television, or an employment socialthat welfare minister countering the angry parliamentary opposition,and realizes nothing less than first rate political acumen would suffice to successfully carry through a harsh reform programme. Tese are acquired skills of professional politicians that are not easy to find among non-political technocrats. Te technology of policy reform is primarily political. Tus, while non-politicians would be well endowed in terms of individual incentives and a cost-benefit calculus, they would probably be disadvantaged in terms of public communication and political implementation skills; professional politicians would tend to be characterized by the reverse set of qualities. In the antipodes of Monastiriotis and Antoniades, Featherstone and Papadimitriou (in this volume) have accounted for reform failure by way of

structural ‘systemic constraints derive the capacity’. domestic economic adversity, and socialthe regimes’, employing thethat notion of from ‘reform Tey have pointed out that Greece’s limited reform capacity has functioned as an obstacle to a more streamlined adaptation to the imperatives of Europeanization. Yet, one may choose to focus on a different set of features to draw the opposite conclusion. Greece can be claimed to possess a politicoinstitutional system that should facilitate (or at least not hamper) reforms, as Sotiropoulos has also argued in this volume. Te Greek executive is not constrained by complex co-decision procedures and coalition partners typi251

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cal of federal or consociational systems, nor does the government need to depend on other parliamentary party groups to form a minority government, as in other European countries. Greece does not possess a presidential system, where the executive would have to convince the legislature of the need for its policies, nor does it have a semi-presidential system, where the executive may be divided between ‘cohabiting’ political opponents. On the contrary, institutional (constitutional) veto-players in the Greek system are limited (sebelis, 2002). Since 1974, with very few exceptions, Greece has had strong single-party governments that have relied on clear parliamentary majorities. Tey have stayed in power for three–four years, are usually reelected for another term, and they have governed ‘vertically’ and unilaterally without being exogenously forced into cross-party consensus. Te 1975/1986 Constitution has afforded Greece, for good or for bad, an institutionally powerful (even though heavily under-resourced) prime minister (Papadimitriou and Featherstone, 2009), who can appoint and dismiss his (it has always been ‘his’) ministers and deputy ministers at will. Moreover, the government unilaterally decides the appointment of thousands of government the institutional requirement parliamentary majoritiesofficials, being relatively recent and limited toofa broader very small number of public officials. In addition, this top-heavy, unilateral government system is not filtered by a strong public administration equipped with high capabilities, self-confidence and a civil service ethos, as in the case of countries like the UK or France. Greek public administration is politically subservient to government, colonized by the political parties, frequently demoralized, notoriously hampered by extensive pockets of corruption and serious inefficiency, as argued by Spanou (Chapter 10 in this volume). Tis is not to underestimate the obstacles arising from that same public administration hiding behind legalistic obstructionism and bureaucratic inertia, and often dragging its feet (Pagoulatos, 2001); from local government generating

points contestation; when or from the courts, which tend to reforms, overstretch claims of of political anti-constitutionality it comes to blocking policy in ways that have occasionally rendered judicial activism a main obstacle to reform, even in cases of ‘social acquis’ that are blatantly unfair or financially unsustainable (Alivizatos, 2010). Te courts have posed a major challenge to the implementation of the 2010 reforms by questioning their legality and constitutionality, with a risk of nullifying them. But such obstacles tend to surround the enactment and implementation stage of reforms, leaving their initiation, formulation and adoption stages largely unaffected. 252

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Tis also means that a decidedly reformist government can make a real difference if it is determined enough (or cornered enough) to shoulder the political cost entailed in advancing the hard reforms. Tis is the real precondition to begin with, and the main distinguishing factor of the 2009 Papandreou government; that the unprecedented intensity of the crisis had redefined the conditions and content of political survival or success, and rendered electoral popularity a less overarching consideration than it normally is. Such urgent mega-crises, in our case of global market proportions, also recast internal balances within the government apparatus, leading to a relative primacy of policy over politics. Tey minimize the presence and relative bargaining power/influence of party strategists, pollsters and spindoctors, such as those who predominated in the fair-weather government times of the 2004–2009 Karamanlis government.5 Such crises maximize the importance of and need for crises managers, foreign experts and leading policy advisers, and experienced technocrats to help devise policy detail. Indeed, the prime minister’s office under George Papandreou relied on a wide network of top-level policy advisers, Greek and foreign, to a point that was derided theinitial opposition and the press.of the 2010 reform proA even related pointbyand facilitating factor gramme was that the reforms were led by a strong political agent. Te Papandreou government enjoyed a fresh and powerful electoral mandate, and faced a centre-right wing ND opposition heavily discredited by an avalanche of high-profile mismanagement and corruption scandals, and which was widely regarded as being responsible for bringing the economy to the verge of collapse. Te programme was initiated a few months after PASOK’s October 2009 rise to power, with a 10% electoral lead over ND. Tus a part of the strength of the PASOK government derived from the de-legitimization of the opposition, to an extent comparable to the electoral defeat of Andreas Papandreou’s PASOK in 1989. Tough this could hardly

be consideredvictorious an immutable (as demonstrated both Andreas Papandreou’s 1993 factor comeback and George A.byPapandreou’s steep decline in the polls by mid-2011) it did prolong the government’s initial sense of valuable political time and widened its window of opportunity. A further facilitating factor of the 2010 reforms was the particular modality of the adjustment programme, which not only required a strong executive at the core of decision-making (the prime minister’s office and the Finance Ministry), but which empowered the core executive even further. Te finance minister was rendered a de facto über-minister; the prime min253

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ister’s office in conjunction with the vice president of the government undertook a supreme government coordination role, assumed the authority to keep the performance scorecard of ministers, and was free to exercise pressure where needed. Tis structure was soon to be upgraded to a fullyfledged coordinating executive core under the prime minister’s office and the Ministry of Interior.6 Te emergence of an executive core (Rhodes and Dunleavy, 1995; Peters et al., 2000)7 derived from the need to manage the extremely demanding adjustment programme, and to provide a single, steady, forceful and credible interlocutor for the troika. Te executive core emerged amidst an undeniable further strengthening of the executive itself vis-à-vis parliament, the governing party or other socio-political actors. Te finance minister in particular was practically vested with formidable power and authority over all policies associated with the conditionality/Memorandum, earning him privileged access to the prime minister. Following the June 2011 cabinet reshuffle, the new finance minister also became vicepresident of the government. In general, ‘inheriting’ an acute fiscal crisis enhances the power of the treasury; in the Greek case, the Finance Ministry

remained powerful before, during and afterMemorandum, the negotiationswhich with the troika, and through the implementation of the served to consolidate the authority of the treasury over the entire implementation of the 2010 adjustment programme. Tis is an interesting observation in light of the experience of other past reforms or attempted reforms (privatization, pension reform, tax reform, etc.), where the Finance Ministry should be the principal stakeholder, promoter and ‘diligent party’ but was never fully able to summon the power of the budget to overcome ministerial resistance. Reforms can die at the implementation stage; the modality and content of reform defines the limits of the implementation problem. A determined government can initiate a bold reform and twist elbows to get it past through parliament, but even a most determined government may not suffice to overcomerelies street-level implementation obstacles wherever reform implementation upon actors other then the core political executive itself (Hogwood and Gunn, 1984: 206 ff; Sabatier, 1986). Tus the Papandreou government managed to pass a bold pension reform where far more moderate efforts of the past had failed. Te wage cuts and abolition of various salary allowances in the public sector were also enacted rapidly without implementation problems. But policy change that requires prolonged onthe-ground implementation involving a multiplicity of actors is harder to implement as compared to policy change completed simply through one-off 254

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legislation or (even less visibly) administrative acts. Tus, the government decision to effectively widen the tax base by persecuting tax evasion was critically undermined by unmotivated, inefficient or simply corrupt tax collectors. Similarly, the absorption rate of EU structural funds depended on the problematic efficiency of a decentralized network of central and local government and private sector actors. In such cases of a long implementation cycle, the political advantage of front-loaded reform evaporates, as the vicious electoral cycle dynamic kicks in, eroding government commitment. Most notably, in several cases legislated reforms failed to materialize as government bureaucracies were dragging their feet or dissenting ministers were even undermining the effort; such was the case with the liberalization of some closed professions and the close-down of wider public sector entities. As troika representatives often voiced their desperation over the government’s inability to deliver on its promises, it was proven once again that legislation is not implementation. In such cases, the government was again confronted with a most intractable problem, in that a principal target of reform (the government sector and public administration) is at the same time thebrings indispensable for reformofimplementation. Tis us to the instrument temporal dimension reform. Te proper timing, sequencing and packaging of reforms have been recognized as vital for policy success (Williamson, 1994; Haggard, 2000: 29 ff). Te George Papandreou government utilized the initial tolerance period that follows a new government’s rise to power. With regard to its structure, the programme was front-loaded in political terms, as some of the hardest and most unpopular measures (wage and pension cuts, rise of retirement age) were passed early on. It was also front-loaded in economic policy terms, as both fiscal adjustment and structural reform targets were very ambitiously set for the first year of the three-year adjustment programme. Te government promoted a strategy of considerable reliance on structural measures and reduction ofstrategy, public sector expenditures, which,impact comparedthe to permanent a purely revenue-based can have a more enduring on public finances. Te government also tried to ‘package’ measures painful for the middle class and weaker strata (wage and pension cuts, rise of VA rates) together with tax increases for the wealthy and a highly publicized (though ineffective) crackdown on big tax evaders. An associated temporal aspect of reform involves policy learning, the habituation of policy actors and the public with the desirability and inevitability of reforms (Hall, 1993). While a sharp, shock-therapy type, front255

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loaded sequencing of reforms, advocated in the heydays of the Washington consensus (Williamson, 1994), entails the tactical advantages of catching status quo interests by surprise and preventing opposition from building up, its disadvantage is that policy learning, habituation of the broader public with the idea and the necessity of reform is hampered. Tus shock reforms are thin, remain unpopular, and are susceptible to reversal when the government or even minister changes. One can conceive trade-offs between the speed of enactment and the time length of habituation/ maturity of a reform with the public. Tis issue was raised by some regarding the 2010 reforms: why didn’t the government implement them directly upon rising to power in the end of 2009, as soon as a budget deficit in the 14% area was revealed (subsequently revised to 15.4% GDP)? Te answer is that the gravity and urgency of the lending crisis had not yet fully unfolded, and the government was not set for an adjustment programme of such harshness. With hindsight one can also hypothesize that this would have prevented the necessary discourse of necessity from sinking in with the public, assisted by the politics of brinkmanship, as an indispensable factor for the toleration of such painful reforms or at least for partly mitigating widespread popular reaction.

Policies, institutional change, and the distributional context It is an inherent feature of institutional and policy reform that it is bounded by the institutional limitations of the status quo that it attempts to change (Telen, 2002). It is not only policies and institutions that are nested within broader configurations, but actors are called to operate within those same arrangements they seek to disrupt. Tus policy resources are affected and power balances are formed under the constraints of antecedent circumstances. Reform unfolds in a path-dependent manner, adjusting to those preceding circumstances, in ways that may diverge from the reformist policy-makers’ initial intentions. Policies, it can be said, are institutions in the sense that they constitute rules for actors other than the policymakers themselves (Streeck and Telen, 2005: 12). Tis observation is important because it suggests that specific policies of the past produce binding frameworks and dependencies, allocate resources between groups, shaping a specific discourse reproduced by or opposed to the status quo, affecting future choice alternatives, and to a certain extent conditioning their outcomes. o give an example, the fact that past social policies had established a status quo under which certain groups could retire at the age of fifty had 256

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consolidated a critical binding benchmark for any future reform attempt. Tus the obvious rationalization brought about by the July 2010 pension reform through the establishment of a universal retirement age of sixty-five (sixty for early retirement) confronted a status quo coalition that forcefully opposed the reform as a ‘demolition of the social state’. In a path-breaking study on welfare state retrenchment efforts, Pierson (1994) concluded that these efforts failed because, among other things, the welfare state had created powerful constituencies and potential veto-players that were well positioned to fight welfare state retrenchment policies. Future policy outcomes depend on past choices in a path dependent way: past institutional and policy arrangements often ‘lock-in’ future choices; the set of choices faced for any given policy issue is limited by the decisions one has made in the past, even though past circumstances may no longer be relevant (Pierson, 1993 and 2000; Mahoney, 2000). Policies create their own politics; as Teodore Lowi (1972) wrote a few decades ago, ‘policies determine politics’. Tus, particularistic and populist policies of the past leave behind them not just the policies themselves, but the status quo interests surrounding them, their acquis acquis,inresisting attempts to reform. Te the policiesdefending and resulting time, the more entrenched the deeper status quo coalitions. Matsaganis, inios and Dimitropoulos (in this volume) have illustrated the political economy of reform, providing strong evidence of the difficulty of reversing policies and institutions that have entrenched their own beneficiaries and defenders over time. It is not only the process of rolling back policy inefficiencies that requires new reforms, but from the moment existing entitlements have been entrenched they raise the yardstick for new, further future claims as well. o that one should add what behavioural economics and prospect theory identify as an inherent psychological aversion to change, resulting from loss aversion: because the reference point is the status quo, the properties of alternative options are evaluated as

advantages to thethan current situation, and the disadvantages of or thedisadvantages alternatives relative loom larger the advantages (Kahneman, 2003: 1457–8). Te entitlements owned consequently tend to be overvalued, even in the face of a high probability of them not being financially available in future, leading to a strong status-quo bias (Kahneman, Knetsch and Taler, 1991). Aversion to change is higher under conditions of recession and economic insecurity, which sap people’s confidence in the future. Of all reforms, those that entail intergenerational redistribution are perhaps the most difficult to apply, if the losses concern the present. In such 257

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cases the ‘concentrated losses versus diffuse gains’ asymmetry is exacerbated. While the current losers are harmed in a visible and direct manner, relative gainers (e.g. pensioners of the next generations) are not only dispersed, but they discount their future benefit as vaguely defined, remote and uncertain. Tus the capacity for potential reform beneficiaries to operate as a proreform coalition is hampered, also given the familiar collective action problems associated with vast and unorganized groups (Olson, 1974). Reforms in advanced political economies take place amidst intense distributional conflict (Streeck and Telen, 2005; Haggard, 2000). Far-reaching adjustment and reform intensifies distributional conflict between socioeconomic groups, not just in traditional labour versus capital terms, but along sectoral and sectional lines as well: the temporary versus permanent public sector personnel; the higher- versus lower-paid; private sector versus public sector employees; government versus public enterprise employees; sheltered versus exposed sectors; tax evading business and professional groups versus the tax-paying wage earners and pensioners; ‘closed professions’ versus the rest; and so on. Te variety of potential reform dimensions engenders crosscutting conflict lines,For each one splitting social interests in a different distinct way (Häusermann, 2010). example, the private sector wage cost (which the troika attempted to reduce) is an issue for the larger-size companies, but far less so for the sea of small and medium-scale enterprises that employ few workers and rely on self- and family-employment. It is also far less of a concern for export-oriented firms that aspire to a deflationary policy to gain competitiveness, contrary to domestic-oriented firms that rely on domestic consumer demand. Te same also applies to unions operating in the sheltered wider public sector, which have always enjoyed great bargaining power compared to those employed in the private business sector and especially in the exposed sectors of the economy, which have been under pressure to remain competitive in the face of regional, European, and global competition. even within the apparently homogeneous categories of public sector But employees or public enterprise employees, there existed substantial differences in wages, allowances, insurance status and benefits, creating various crosscutting lines of interest. While the height of such distributional conflict renders government a constant target of fierce interest group pressures, it also increases its policymaking political power, as the government is able to play competing interests against each other. One of the Greek government’s first acts during the crisis was a much-publicized crackdown on doctors in the expensive 258

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Kolonaki district declaring ridiculously low incomes in their tax statements, a clear message to tax-evading professions. Protesting truck drivers, farmers, port workers, public enterprise trade unionists, and taxi owners were some of the categories the government sought to delegitimize by juxtaposing their narrow ‘anti-social’ reactions to the general interest. Te government’s capacity to engineer encompassing reform coalitions, even by way of depicting ‘enemies’ of the public interest, juxtaposing certain ‘privileged’ groups to the general public, was an important element of its reform strategy. A seminal case of distributive politics, as mentioned, was pension reform. Te social insurance reform voted for by parliament in July 2010 was resisted by affected groups, which framed their opposition by pointing out the ‘severe cost to be borne by working mothers’ and the disproportionate change the abolition of early retirement of mothers employed in the public sector would imply, amounting to an extension of the retirement age by ten or even fifteen years. Te Greek social insurance and pension system has indeed been heavily skewed in favour of the public sector, public enterprise sector groups, and privileged groups such as engineers, lawyers, mass media employees, rendered summer 2010 pension reform the mother and of allothers, battleswhich on behalf of thethe representatives of these organized interests, in defence of as much as could possibly be rescued from the status quo. Tis was an intense enterprise at pressure politics, of a distinctly particularistic pluralistic hue, each group lobbying to protect its own particular benefits and insurance fund. Te opposition effort was led by the General Confederation of Labour (GSEE), controlled by pro-PASOK trade unionists, seeking to make the most of its privileged access to government, speaking in fact mostly on behalf of the wider public enterprise (DEH, OE) and bank employee interests that it predominantly represents. Te different crosscutting conflict lines and multidimensionality of the policy space (from income policies to labour regulation to insurance and pension provi-

sions) afforded government2010). policy-makers the possibilities political exchange (cf. Häusermann, It is too early to write the for story of the politics of the 2010 pension reform, or how the above-mentioned privileged narrow interest groups organized in defence of their own ‘noble’ pension funds and managed to water down many of the intended provisions, and minimize their own particular losses, in their intense negotiations with government. Important highlights are provided by inios in Chapter 7 of this volume; Matsaganis8 also points out that the final version of the social insurance bill was skewed in favour of its better off, best organized and 259

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politically powerful beneficiaries, at the expense of the weak and least well organized, such as private sector employees insured in IKA. All this reminds us of a fact of political life. A government being closely cornered to advance urgent far-reaching reform does not mean that it can take on all interest groups at once. Te fact that it has chosen to shoulder the political cost of unpopular reform even by waging war against specific categories (such as big tax evaders) and not yielding to the demonstrations of others (farmers, truck drivers) does not mean that it will advance by conflict whenever bargaining and mutual compromise are feasible. An announced strategy of defying political cost (as Prime Minister Papandreou called it) is a government strategy of building credibility through waging certain battles until final victory, but selecting those battles carefully; in other words it remains a strategy of calculated risk-taking. Tus the government opted to establish its credibility early on, when in the first major confrontation of its term, in January 2010 with the farmers, the government made no substantial concession, forcing them to dissolve in defeat after several weeks of demonstrations. Equally, the government chose truck owners, one of theowners, least popular groups (as compared to lawyers, notary publics, pharmacy and others) to wage its campaign for the liberalization of ‘closed professions’. Te protesting truck owners again paralyzed the transportation of supplies for many days in July 2010, until forced to retreat without having achieved their main objectives. Te government was far more cautious a few days later when faced with the powerful proPASOK labour union of the Public Power Corporation (DEH), which threatened to ‘shed blood’ if plans for the privatization of power plants materialized; the government rushed to assure the trade union that this would not be the case. Tis micro- and meso-level distributional conflict surrounding the 2010 reform programme has unfolded against the backdrop of important macro-

structural trends thattwenty had nurtured the mature and demand reform. Over the last to twenty-five years, need the Greek economyfor and society underwent a far-reaching process of EU-led modernization. In most cases, top-down, elite-driven reform dragged along a reluctant society, bringing about a hesitant pace of societal change: opening the market and society to the European market, intensifying exposure to the norms of globalization, redefining boundaries between church and state, instituting better guarantees of civil rights protection, shifting policy vis-à-vis urkey post-1999, all these were instances of EU-driven modernization. In other 260

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cases, socioeconomic change preceded a reluctant institutional and policy reform, leading to institutional friction, outdated institutional structures incapable of meeting contemporary needs: the institutional rigidity in the overregulated part of the dual labour market (the other, unregulated, part functioning in total breach of labour rights) defied changing workplace conditions and the accelerating entry of the young and the women, both of which necessitate greater flexibility—combined with social security. Or the outdated corporatist framework governing higher education and its constitutionally prescribed exclusive state provision seriously hindered the creation of a level of quality in the universities that would sufficiently respond to modern needs. Or the parochially structured pension system pre-2010, by failing to accommodate changing demographic, societal and financial developments, had turned into a ticking time bomb threatening to explode in a few years time. In all such cases, rigid institutions had failed to catch up with rapidly changing economies and societies. One notable implication of these structural developments involved the progressive tertiarization of the Greek economy and ‘financialization’ of the

productive base. Especially since the late 1990s, thespreading financial sector expanded rapidly, creating thousands of new jobs, as wellhas as destroying wealth, but also disseminating new attitudes and values, associated with consumerism, a cultural proclivity towards the Anglo-American part of the world, a culture of ‘quick and smart’ money, and a view of globalized financial markets as pacesetters of the economy. Tese trends facilitated the broader understanding and dissemination of the news regarding Greece’s financial and public borrowing crisis, thus also probably increasing public receptiveness to the applied policy remedies. An implication of the structural Europeanization process involved the growing (ideological, political, mental) shift of Greek society towards Europe. Over the 1990s and 2000s, a pro-European ideology or political

culture became hegemonic in Greek society. wasforced not antounconditional hegemony, for the Europeanist ideology wasTis always cohabit with (and often appease through various concessions) a traditionalist, nationalistic, anti-Western, instinctively Euro-sceptic ideology. Western-leaning, reform-minded elites have vitally relied on the European Union as the single most important strategic and ideological ally, ‘enlisting Europe’ in the purpose of promoting the country’s socio-political and institutional modernization (Pagoulatos and Yataganas, 2011). Dynamic elite and middle class strata have consistently operated as a constant influential advocacy 261

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coalition in support of EU-led reforms in Greek society. Tese strata overwhelmingly closed ranks in support of the Papandreou government’s efforts to rescue the Greek economy from collapse in 2010. Te ND decision to vote against the Memorandum in May 2010 and against the social insurance reform bill in July 2010 alienated the pro-European middle class and elite social strata. Overall, as a result of the ideological and cultural Europeanization that had unfolded during the previous decades, Greek society was more prepared than at any time in the past to perceive the 2010 fiscal crisis in the context of a European and eurozone problem, and this mitigated reactions to the externally imposed conditionality of the Memorandum. Tis socio-political climate, however, turned increasingly negative in 2011 as the government was visibly losing the reform momentum it had built in 2010. Te recession was deepening and the economy appeared to be locked in a vicious cycle of austerity measures that further aggravated recession, leading to slippage in meeting fiscal consolidation targets. Phrased in different, equally macroscopic terms, we could conceptualize the reform problematic in terms of ‘first’ and ‘second generation’ problems:9 institutions andfrictions policiesassociated are adopted in order to resolve ‘firstofgeneration’ problems and with a specific hierarchy priorities. Having been adopted, they create their own set of ‘second generation’ problems and failures, whose salience leads to a new, different prioritization of policy objectives. After 1974 the economy was managed under the overbearing political priority of democratic consolidation. In post-authoritarian Greece and Southern Europe, public and social expenditure was significantly increased and nationalizations were implemented (Maravall, 1993 and 1997: 74 ff). Te same, though even more intensified priority, drove the economic policies of the 1981 PASOK government, the pursuit of consolidating the socialist rise to power, by cementing a social plurality of new beneficiaries, the ‘non-privileged’ of the past, a category so broadly and

vaguely defined that itaverage could encompass almostwere everyone. health system was created, nominal wages raised Abynational over 30% in 1982 (Iordanoglou, 2008: 273), pensions and early retirement were extended to various groups regardless of contributions, and the public sector opened its arms. Tese were the kind of reforms prioritized in that particular historical juncture characterized by the imperative of democratization, a primacy of politics over policy (Maravall, 1993), and a socialist programme of catching up with Europe in terms of social spending. Tese were facilitated by the limited importance of the external economic con262

HE POLIICAL ECONOMY OF FORCED REFORM

straint (it was still a relatively closed economy), and a rather low level of public debt. But these reforms, amounting to pronounced state expansion, bred a new generation of problems and failures, associated with their economic and fiscal costs. Hence, a ‘second generation’ reform agenda became necessary, this time motivated by the reverse prioritization: the primacy of policy over politics, the need to transform the state in order to respond to the pressing economic constraints emanating from European market integration and the fiscal front. Te fiscal constraint became inexorable after the government (following single market liberalization and the Maastricht agenda) lost its ability to finance its deficits by taxing the domestic banking system. If the ‘first generation’ of reforms expanded the state at the expense of the market to serve political objectives as part of a broader ideological agenda of democratization, the ‘second generation’ reforms sought to roll back the state, to release the market from its tentacles in order to serve a different set of overarching political objectives under the rubric of Europeanization, modernization, and integration into a globalizing political economy. In broader terms, this corresponded to Hirschman’s (1982) ‘shifting involvements’ between state and the market, public and private sector,

the pendulum moving from one end to the other. Or, as Hirschman (1970) again would put it, for the unhappy many, the public goods (past policies and institutions) had become ‘public evils’. Te offshoots of the ‘first generation’ of reforms (a wide and overstaffed public sector, an unsound pension system, a rigidly regulated economy, extensive state ownership, a politicized public administration, powerful wider public sector unions) were now the targets of the ‘second generation’ reforms, as well as being the principal obstacles to their implementation (cf. Pagoulatos, 2003: 216 ff).

Policy, discourse, paradigm, and the economic context Even externally-induced, forced adjustment, even reform whose time has

come, needs a public legitimizing discourse. Reform rarely occurs as a result of a sweeping international paradigm shift, leading to domestic change through what Streeck and Telen (2005) identify as a displacement of the institutional status quo. Such can be claimed to have been the case with the emergence of economic interventionism in the 1930s or neo-liberalism in the 1980s (Blyth, 2002). Even in such cases, the demise of the pre-existing status quo is far from evident and self-explanatory. People in democracies always need to be convinced, and the domestic enactment of reform requires a legitimizing discourse. 263

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Te legitimizing rationale for the 2010 adjustment programme was straightforward: ‘we have no other choice’. Te programme was framed in terms of a clear and compelling dilemma, reiterated by policy-makers: ‘measures or bankruptcy’. A discourse of inevitability is probably stronger than a discourse of necessity, and stronger than a discourse of desirability. Te (real) dilemma between painful economic adjustment versus imminent economic collapse, which was presented to the electorate repeatedly in 2010–11, was a potent discourse in support of economic reform. In support of the initial public acceptability of the conditionality of adjustment operated the relative conceptual clarity regarding Greece’s immediate policy problem: an unserviceable public debt and deficit, a debilitating government inability to borrow in the international money markets, leaving no option other than resort to a bailout, and then apply its attached conditionality. Not all policy problems entail such clarity as to the actual state of the situation. At the same time, the crisis had entered the public sphere with unprecedented urgency, fully dominating the daily headlines as a present, imminent, and devastating existential threat for the Greek

economy. Tis tended to neutralize thebuck, main reform postponement mechanism of procrastinating, passing the referring painful adjustment measures to the indefinite future. As regards the actual adjustment programme, there existed a formulated blueprint of directly applicable reforms and measures, where in the past various half-baked conflicting policy proposals abounded, subject to cognitive uncertainty and political hesitancy. Te clarity of the policy problem largely compensated for what standard argument would consider a weakness of the Memorandum-induced adjustment, namely the partial lack of ownership of reforms (i.e. the government embracing the reforms on the grounds of their appropriateness). It has been observed that conditionality generates an ownership problem domestically; when reforms are seen as externally imposed, this may end up undermining domestic support for policy may change (Checkel, 2000). Subsequently, in such cases, compliance problems emerge, raising doubts about the efficiency and effectiveness of conditionality policies as well as the longevity and continuity of achieved reforms. Indeed, the discourse that became more salient was one of exogenously imposed necessity rather than autonomous political choice. Tis should not be surprising. In the eyes of a majority within society, Greece ended up in the 2010 crisis following a series of mismanagement scandals culminating under the previous government, in a system chronically ripe with corruption and pervasive tax evasion, and after a 264

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global crisis that resulted from a globalized financial sector socializing the losses after having reaped all the gains. Against such a backdrop, it stretches the limits of popular tolerance to invoke an argument of systemic fairness to defend an adjustment policy that spreads the cost to the wider plurality of ‘little people’, employees and pensioners, while all the ‘big fish’ are able to get away. It is politically sensible to rely on the convenient legitimizing discourse of external necessity. Tis is not to say that political arguments of rightness and fairness were not consistently employed by the most articulate of government politicians to justify painful measures, thus indeed claiming ownership of the reforms. Government ministers repeatedly defended tax policies and even allowance cuts on the grounds of reducing income inequalities and injustices in the public sector, curtailing long-entrenched privileges of certain groups, and implementing a fairer distribution of the tax burden by widening the tax base. Te unpopular pension and social insurance reform was forcefully defended by leading MPs as a ‘change of paradigm in social policy’: the transition from an unjust, unproductive and financially unviable system serving the system interestsofofsocial the most privileged groups, to a progressive, socialdemocratic protection delivering high-quality social services 10 for all and especially those in need (Mossialos, 2010). And, in September 2011, at the peak of the socio-political reaction to far-reaching structural reforms including the opening up of a wide array of closed professions (e.g. taxi drivers) and extensive downsizing of general government personnel, the government assumed ‘ownership’ of the reforms by articulating the objective of ‘a new development model’ for the Greek economy. Te conceptual clarity of the ‘measures or bankruptcy’ argument that provided the legitimizing rationale for the Memorandum-prescribed adjustment was sustained, at least in the first few months of the programme, by the absence of a visible, easily defensible alternative. From the first days of

the severala analysts, from therestructuring. Anglo-American part of the Greek world,crisis, advocated unilateralespecially default or debt Tese calls were echoed by a few, mostly left-wing, voices in Greece. Such analyses focused on the fact that over 75% of the Greek public debt was being held by foreign institutional investors, who would consequently be the main ones to bear the cost of a debt restructuring. Tey underplayed the fact that the remaining 20–25% was in the hands of Greek institutional investors (banks, insurance and pension funds), which would thus suffer grave losses, prompting a serious banking system crisis. Greece (a capital-hungry economy) 265

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would lose access to capital for many years, credit would dry out for businesses and households, and the economy would enter a long period of deep and prolonged recession. Moreover, in the case of a default, Greece will still be unable to finance its primary budget deficit and trade deficit, both at record eurozone levels. Most importantly, Greece would become a pariah in Europe, seriously jeopardizing its major political acquis of the last thirty years, participation in EU institutions, including the EMU. As for the even greater catastrophe of defaulting and exiting the euro, the vast majority of Greeks realized the huge income losses a devaluation and return to the drachma would imply. Any of these hypothetical developments would not have left unaffected the country’s national security standing and bargaining power in the region with regard to its major foreign policy concerns. Tus, a unilateral default or debt restructuring11 was not a convincing solution in the mainstream public debate, was not advocated by the mainstream parties, and was not considered by the government as a serious alternative, especially since priority was attached to restoring national credibility. Domestic adjustment appears more compelling when it is concordant with the international policyreform paradigm. o a significant extent thisorganized was the case with the 2010 Greek programme. o begin with, bailouts have been on the agenda since 2008, and moral hazard concerns have been overshadowed by the serious fear of financial contagion and the spread of systemic crisis. Tis also included the existence of a symbolic and conceptual anchor, which made sense in the eyes of the expert community: Greece should not be left to become the Lehman Brothers of sovereign debt. rue, Greece was the first sovereign bailout of such proportions, and the first in the eurozone to be forced to apply an austerity programme of such severity. However, by May 2010, an equivalent EU/IMF €750bn European Financial Stability Facility had been set up to avert a sovereign debt crisis in other vulnerable economies of the eurozone periphery such as Portugal and Ireland.ofTis was followed by a simultaneous by the governments France, Spain, Portugal and Italy ofannouncement fiscal austerity plans similar to those in Greece, and the (highly controversial) shift of the entire eurozone including Germany to fiscal consolidation.12 Tese developments rendered the Greek case highly concordant with a European policy framework—at the risk of a potential anti-EU backlash. Te above notwithstanding, there has been a seeping ideological tension of having to embark on an orthodox austerity programme at the exact time when, following the 2008–09 crisis, the neoclassical Washington consensus 266

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had been discredited, and Keynesianism was on the ascendant suggesting a greater tax burden on the financial sector and countercyclical expansionary policies to confront recession. Along with the financial crash came the fall from grace of a neo-liberal economic orthodoxy founded on the axioms and hypotheses that markets are efficient, market prices reveal all relevant information, actors are fully rational, information asymmetries are of minor concern, banks are best left to be self-regulated. Tese postulates had been elevated to a status of theological doctrine that led political and regulatory actors to completely deregulate financial markets, supervisory authorities to exercise residual supervision, and central banks to focus exclusively on inflation, ignoring the severe effects of asset price bubbles and financial destabilization.13 As international institutions (IMF, EU, ECB) had long sustained these economic beliefs and policies, the global financial crisis tarnished their own credibility too.14 Social-democratic politicians in Europe such as Papandreou, Zapatero or Socrates were therefore placed in the paradoxical position of applauding the Obama stimulus while being forced to apply the opposite policy mix at

home. contradiction, however, suggestofa superficial comparison. Te USTis government operates underwould conditions full economic policy autonomy, with the Federal Reserve able to print US dollars if needed, having the world’s main global reserve currency and hence virtually unlimited access to financing government deficits in the global markets, visible in the low bond rates. Moreover, the lack in the US of the automatic fiscal stabilizers activated in European economies necessitates heavier US government spending to extend a safety net to the weak, uninsured and unemployed. On the contrary, Southern eurozone economies have developed welfare states and social insurance systems, have limited economic policy autonomy, and face all the constraints of operating under the instituted governance framework of the single currency and the provisions regarding public deficit and debt. Eurozone economies are subject to theofreaty obligation treating their national economic policies ‘as a matter common concern’of(FEU art. 121, par.1), are forced to comply with the need for greater and closer economic policy coordination and cohesion within the eurozone, as well as a political agreement to reduce public deficits especially applied to the South. Tus the full range of circumstances suggests caution when comparing European with US economic policies. Still, the above-described contrast has tended to undermine the persuasiveness and conceptual clarity of the Greek economic adjustment and fiscal consolidation programme. 267

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Tat points to a broader irony of the Greek economic crisis. In the economies of the US, the UK, Iceland, Ireland, spreading to continental Europe, the global crisis in its initial stage in 2008 emerged as a crisis of an advanced, high-tech, globalized, overleveraged, toxic banking sector. From the financial sector the crisis then spread to the public sector, as governments rushed to bail out their banks and confront the credit crunch by stimulating the economy; fiscal deficits grew to offset private sector deleveraging, turning private sector debt into public debt. 15 In contrast, the Greek crisis was overwhelmingly a crisis of an over-indebted public sector, which then spilled over to an otherwise healthy Greek banking sector, subsequently burdened by the rapid depreciation of its sovereign debt portfolio. Tus, in its global dimension, the crisis was a case of market failure and regulatory failure, whereas in Greece it was most ostensibly a case of government failure. Te latter was merely exacerbated by the easy money conditions that prevailed in the eurozone, breeding external over-indebtedness and current account deficits in the South, mirroring the growing external surpluses of the competitive eurozone North. In its global dimension the crisis was a matter of ‘mad money’ ‘casino (Strange, 1986/1997;having 1998),failed whiletoin the Greek caseand it was mostcapitalism’ visibly a matter of politicians exercise sound fiscal management. Tus, with some simplification, 2009 was a watershed in two ways: for the global economic paradigm it signified a shift away from the unfettered finance of the ‘neo-liberal’ era, while for Greece it signified the year of bankruptcy (in every meaning of the word) of the over-indebted, incapable of collecting tax revenues, clientelistic and corrupt, statist political economy model of the last thirty years. Te deflationary measures and reforms introduced by the 2010 Memorandum and the 2011 Medium-erm Fiscal Strategy were denounced by the left-wing opposition as well as the ND party, which voted against both and the resulting legislation. Te government’s programme confronted a populist public discourse rushed more to brand ‘anti-social’ neo-liberal measures. Te that opposition thanthe everreforms resortedasto a familiar anti-reform argument pattern, employed in the past against even the most moderate of reforms, namely the ‘slippery slope’ argument. Tus even pragmatic policy reforms that are obviously sensible (such as pension reform) are deliberately politicized, provoking disproportionately intense reactions, by being denounced as the ‘first step’ or the ‘crucial step’ or the ‘last step’, or, in any case, as a vital part of a process towards a complete subjection of society to market imperatives or a ‘demolition of the social welfare state’. 268

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Moreover, the populist reaction merged with nationalistic reflexes, srcinating from the left and right extremes of the political spectrum, censuring the Memorandum as a violent encroachment upon the country’s national sovereignty, hyperbolically denouncing the ‘neo-colonialist’ troika and the country’s coming under a new foreign ‘occupation’. Prime Minister Papandreou explicitly conceded a partial loss of sovereignty when announcing the country’s resort to the EU/IMF mechanism, provoking a demagogic outburst on the part of nationalistic segments of the opposition. Yet the polemic argument against the ‘surrender’ of national sovereignty was disingenuous because it presented the end-result of a combination of past choices as the cause, instead of the effect of antecedent circumstances that it actually was. By failing to effectively curtail its public debt/GDP ratio while it still had the chance to do so, Greece had brought itself to a condition of extreme dependency on its lenders and the whim of global money markets. Te forced adjustment that ensued was merely a result of the transfer of power from the heavily indebted borrower to its creditors that had occurred throughout the preceding period. Finally, a note on the extremely adverse socioeconomic context. In its first year, 2010, the adjustment programme enlisted significant success in meeting most targets (notably reducing the public deficit by five percentage points), earning the acclaim of international organizations (e.g. International Monetary Fund, 2010; European Commission, 2011: 15). At the same time, the Greek economy was contracting rapidly, sinking into deepening recession for 2009, 2010 and 2011, with a negative growth projection for 2012 as well. Te official unemployment rate in 2011 was galloping above 16%. Te progress of fiscal consolidation in 2011 decelerated markedly, aggravated by the recession which suppressed tax revenues and raised social outlays. Austerity programmes in Europe and the decline of global demand in the second half of 2011 were undermining the eurozone periphery’s effort to exit recession through export-led growth. Te painful mix of

recession and layoffs, income losses, and structural reforms affecting various occupational categories one after another, were all leading the Greek society to its knees. Angry demonstrations and violent clashes with the police were becoming the order of the day in 2011, an ‘indignant citizens’ movement was gathering pace, the organized refusal to pay taxes or fees to government was spreading, being adopted by the parties of the left, and the government’s popularity was in free fall. While the dire economic conditions underscored the deep structural problems of the Greek economy that necessitated reform, they also created 269

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an increasingly adverse socio-political environment. Te harsh fiscal consolidation (austerity measures totalled about 8% GDP in 2010) contributed to locking the economy in a vicious cycle of recession/ decline of public revenues and a rise of social expenditure/ inability to curtail the public deficit/ further economic destabilization (Pagoulatos, 2012). o a certain extent, the 2010 deflationary programme16 stretches the limits of conventional wisdom regarding economic adjustment and structural reforms: they should be implemented in good not bad times, when economic welfare increases citizens’ confidence about their future, when funds are available to finance reform transition and implementation costs, and to compensate losers. Tis is even more so in the case of reforms entailing the intergenerational redistribution of resources, such as pension reform; they require the confidence of citizens in their future and a reasonable degree of trust in their government. Te public debt should have been tackled during the time when the economy was growing at an average 3.5% GDP per annum, not in a recession. Fiscal consolidation should take place at the upswing not the downswing of the economic cycle. Te public sector should be restructured and downsized underasconditions or moderate and not high unemployment. However, we know, of thelower prolonged complacency that had preceded the 2010 moment of truth had failed to generate the sense of crisis and political urge to reform. Tings should have happened differently, but they did not.

Conclusion Greece’s 2010 debt crisis, financial rescue and ensuing conditionality gave crucial impetus for the speedy enactment of far-reaching fiscal consolidation and structural reforms that would not have been made possible without the external constraint. Te Memorandum also provided for the adoption of single market legislation, such aswas in the liberalization of closed professions. Te 2010–11 conditionality wide and encompassing, though many areas (such as higher education—a bold reform of which was, however, legislated in August 2011) remained outside its purview. In other areas, important reforms were advanced in 2010–11 which should be attributed to the new government’s autonomous political commitment, forming part of its 2009 electoral programme: most importantly ‘Kallikrates’, a major decentralization of state powers, streamlining regional and municipal government, followed by far-reaching restructuring of public 270

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administration; reforms to promote greater transparency in government and political life. Tese latter cases of institutional reform correspond to displacement (Streeck and Telen, 2005) resulting from the severe discrediting in the 2009–10 crisis of the entire post-1974 metapolitefsi political party system and state institutions. Tis chapter has provided an overview of some of the constraining and facilitating political economy factors surrounding the 2010 Greek adjustment programme that followed the country’s recourse to the EU/IMF bailout mechanism. We have examined the programme in the framework of external conditionality, shedding light on the latter’s strengths and weaknesses. We have discussed the role of political actors and the tension, inherent in any democracy, between reform intentions and political calculus. o summarize some of the arguments made, a crisis context can re-prioritize political preferences. Te Greek politico-institutional system allows for a powerful executive that should normally tend to facilitate reforms; the 2010 adjustment programme empowered the ‘core executive’ even further. Te modality of reform policy defined the limits of the implementation problem. Teaspect timing, sequencing and packaging of policies was crucial, and so was the of policy learning. ypically of advanced political economies, the reforms in Greece unfolded amidst intense distributional conflict, shaped by the institutional arrangements of the status quo. Reform remains a political project where potential losers need to be convinced, compensated, circumvented, defeated or offset by the build-up of a pro-reform coalition among potential reform beneficiaries. In that sense, the government’s effort to engineer encompassing reform coalitions, even by way of juxtaposing certain particularistic groups to the general public interest, was an important element of reform strategy. However, the government’s investment in a demonstration effect of standing up to specific groups did not mean that it would be willing to

take onof allbargaining interest groups at once; reform politics also prominently involves the art and compromise. Notably, even externally-induced reform whose time has come requires a public legitimizing discourse: that was clear and straightforward, summarized in the dilemma ‘measures or bankruptcy’. However, the discourse of necessity was also backed by a discourse of appropriateness. Most importantly, reform unfolded against the backdrop of important macro-structural developments of the last few decades, culminating in the recent period. Tese generated institutional friction, demonstrating outdated institutional 271

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structures as incapable of meeting contemporary needs. Overall they nurtured the mature need and demand for reform, facilitating conditions for its domestic acceptance, but also generating formidable tensions. owards the end of the second year of the adjustment programme in 2011, the surrounding obstacles, implementation weaknesses and sociopolitical resistances were all emerging with great forcefulness. Te reform and adjustment momentum was eroded, as the deepening recession was swallowing fiscal consolidation efforts, leading to target slippage. Te programme’s implementation was undermined by the wavering of certain government ministers (as exhibited in the reluctance to close down public sector entities, to substantially open up closed professions, and to privatize), combined with omnipresent bureaucratic obstacles and resistance (in tax collection and court delays), and the adverse market conditions (exhibited in the low market prices offered for the privatization programme). All such conditions created a toxic policy mix, testing the extreme limits of the government’s socio-political viability.

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APPENDIX A DAA AND SOURCES

Te growth rate of GDP was taken from the IMF WEO Data (2008). Te following eleven indicators for reforms are used to measure the effect of structural policies: •

REF_BAS: Annual growth rate of Bank Assets, measuring the increase in credit capacity.

Source: Statistical Bulletin Bank of Greece (1990—2008). For 2008, the third-quarter stock was used to avoid the downward effect of the global economic crisis. •

REF_BRA: Number of bank branches operating in the country per billion euro of GDP in constant 2000 prices. It measures the expansion of banking activity in Greece relative to real economic activity.

Source: Bulletin of Hellenic Bank Association (2008). For 2008, provisional estimate. •

REF_LEN: Annual growth rate of loans to enterprises.

Source: Statistical Bulletin, Bank of Greece. For 2008, the third-quarter stock was used to avoid the downward effect of the global economic crisis. REF_RDB: Reduction in General Government gross debt (D) expressed as percent of GDP (Y): •

REF_DB = – [(D/Y) – (D

/Y–1)]

–1

(3)

Source: Eurostat (2008). For 2008, Budget Report (2009). •

REF_PUB: Balances in all public utilities as they are published in the annual Budget Report. As most of public utilities in Greece were suffering 273

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chronic deficits, the improvement in their balances was seen as a major quantifiable target in the business plans and a pre-condition for implementing privatization policy. Tey are expressed as percentages of GDP.

Source: Budget Reports, various issues. •

REF_NNG: Te reduction in new loan guarantees issued by the Ministry of Finance on behalf of public utilities. Expressed as the negative of new loans as percent of GDP, so that an increase denotes improvement in public utility finances.

Source: Budget Reports, various issues. •

REF_PR: Privatization revenues expressed as percent of GDP.

Source: Data are recorded by the relevant authority in the Ministry of the Economy for the years 1998–2008. For the years 1990–97 the amounts displayed in Savva-Balfousia (2006) were used. •

REF_QRE: Score measuring the quality of the regulatory framework.

Source: World Bank Global Indicators, (2008). •

REF_COR: Control of corruption index. A value of 100 corresponds to the complete eradication of corruption.

Source: World Bank Global Indicators, (2008). •

REF_CH: Ratio of direct taxes paid by corporations to those paid by households. Household tax revenues are proxied by the personal tax.

Source: Budget Reports, various issues. •

REF_DI: Ratio of direct taxes to revenues from indirect taxes.

Source: Budget Reports, various issues.

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APPENDIX B A BRIEF CHRONOLOGY OF SOCIAL SECURIY IN GREECE, 1930S–2010S

Period

Landmarks

Keycharacteristic

Inter war

League of Nations

Formulation of the ‘IKA

Period

Committee proposes version of Czech system. Law 5733/ 1932 leads to fall of two governments (E.Venizelos and A. Papanastasiou).

vision’, the model of development for social protection in Greece.

1934 Popular Party passes Law 6298 ‘On Social Insurance’, after compromise.

ased on (a) IKA as pole of attraction and (b) gradual absorption of pre-existing funds.

1937 IKA begins opera1950s

tions in December. IKArestartedby Law1846/51 Compulsory deposits of fund surpluses to the bank of Greece (Law 1611/50). First reports outlining need for reform. 275

Gradual implementation and spread of the post-war model.

Implementation of decisions taken in the 1930s.

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1960s

1962 Farmers’ Fund (OGA) set up. 1964 Decision not to levy contributions in OGA. 1966 Public Power Corporation disaffiliates from IKA. 1970 L. Patras’ reform collapses.

Start of revisions to and departures from IKA vision. First intimations of difficulties of reforms.

1970s

1972/3—Te system faces the challenges of inflation. Pensions’ erosion. Emphasis on social role of minimum pension. Expansion at the intensive margin (setting up of auxiliary fund EEAM L

Search for a social role of the social insurance system. Ad hoc solutions tamper with central philosophy of social insurance. Overall reform forgotten.

1980s

1990s

276

997/79). Acceleration of rises in minimum pensions. Large deficits in Funds from 1980. Direct grants from state to cover deficits and circumvent budget constraint of pension providers. Emergency measures 1990/2, motivated by public finance. N2084/92 offers new lease to the system. Permanent changes preannounced for the future. 1996 EKAS is the first means tested benefit. 1997 Spraos Report shocks public opinion.

Search for structural changes to correct current deficits. ‘social insurance impasses’ and reform difficulties.

‘Solution of pension problem’ becomes a permanent issue in political economy. Beginning of awareness of demographic deterioration. Old age poverty becomes concern.

APPENDIX B

2000s

2010s

(a)2001/2PASOK attempt: GAD projections/ Giannitsis Debacle/ Reppas’ Law 3029 (2002) announces future meas-

‘Reform by Instalments’ entrenched.

ures. (b) 2006 derivatives scandal leads to 2007/8 ND attempt: ILO Projections ordered/ Law 3665 deals with administrative issues.

bond holders new persona in drama.

Public finance derailment dictates reform ‘from above’.

‘roika’ (IMF, ECB, EC) oversees implementation.

Law 3863/10 embodies Memorandum. Further changes preannounced for 2011 (some conditional on attaining viability target).

‘Ostrich-interventionism’ EMU entry Europeanizes problem. International

Step increase in retirement age, but grandfathering protection for those retiring to c 2015. ‘New system’ gradually after 2015.

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NOES

2. HE PARADOX OF NON-REFORM IN A REFORM-RIPE ENVIRONMEN: LESSONS FROM POS-AUHORIARIAN GREECE 1. I owe this formulation to Haridimos soukas. 2. Anonymous personal interview with former minister of ND, Athens, 27 April 2009. 3. Anonymous personal interview with former minister of PASOK, Athens, 6 April 2009. 4. Anonymous personal interview with formerND minister, Athens, 30 April 2009. 5. Originally, a similar provision was included in the constitutional reform of 2001 and became part of the Greek Constitution. Law 3021/2002 dealt with the details of the constitutional provision. It was the amendment of the latter law in the beginning of 2005 (Law 3310/2005) which clashed with EU legislation and was soon cancelled by immediate subsequent legislation (Law 3345/2005), passed in October of the same year. 6. I owe this point to Haridimos soukas. 7. Anonymous personal interview with former Minister of ND, Athens, 30 April 2009 8. Anonymous personal interview with former Minister of PASOK, Athens, 8 April 2009. 3. ASSESSING REFORM CAPACIYIN GREECE: APPLYING POLIICAL ECONOMY PERSPECIVES 1. Te 2011 Report placed Greece at 29th, just above urkey. 2. Across both indices, the highest ranked nations were the Nordic states. Political nirvana was found in Norway. Germany, the UK and France ranged across the centre of the scale, from good to bad in that order. 3. Each country panel comprised both foreign and domestic specialists; the combination being conceived as a check. Featherstone was one of those involved for

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Greece. Te construction of the education component, for example, involved quantitative data on relative levels of education spending; provision in schools and further and continuing education; as well as educational attainment in the PISA tests which provide a basis for international comparison. Te panel of specialists was then asked to supplement this quantitative element with an evaluation in response to the question: ‘o what extent does education policy in your

4. 5. 6. 7.

country deliver high-quality, efficient and equitable education and training?’ Similarly, the component on labour market policy combined comparative data on a range of employment levels and then asked the panel: ‘how effectively does labour market policy in your country address unemployment?’ Te following sections draw extensively on the discussions in Featherstone and Papadimitriou (2008). We are indebted to the review offered in Hall and Soskice (2001). Matsaganis et al. argue that it should be seen in the context of other flanking measures (Matsaganis et al., 2003). Tey contest, however, the notion that in general the systems of all four states are more generous than those found elsewhere in the EU.

4. REFORM HA! GREECE’S FAILING REFORM ECHNOLOGY: BEYOND ‘VESED INERESS’ AND ‘POLIICAL EXCHANGE’ 1. Tere are in fact two facets to this: on the one hand, a paradox of continuing reform activism in the presence of continuing reform failures (persistence in the contestation between presumably conflicting interests); on the other, a paradox of continuing reform failures despite reform activism (failures in the adoption and institutionalization of new ideas). 2. In this context, reforms are understood as ‘deliberate changes to the structures and processes of public sector organisations with the objective of getting them (in some sense) to perform better’ (Pollitt and Bouckaert, 2000: 17). 3. Concepts such as ‘state corporatism’ (Schmitter, 1977), ‘Napoleonic tradition’ (Peters, 2008), ‘state capitalism’ (Schmidt, 2002), ‘Latin model’, ‘Sultanic state’, have been used to capture aspects of these characteristics, which have been historically observed mostly in countries of ‘late development’ in the semi-periphery (Mouzelis, 1986). 4. Te literature is too large to do any justice to it here. 5. o capture this malaise, different authors have used terms such as low ‘policy capacity’, low ‘reform capacity’ or referred to distinctive ‘reform trajectories’ and ‘reform paths’. 6. For a similar argument see Weimer, 1998 and James and Jorgensen, 2009. 7. Yet, the concept of EBPM itself has been criticised for being used without any substantiation or as a policy legitimization instrument. See House of Commons, 2006: 45–62.

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pp. [–] NOES 8. Defra is the UK government department responsible for policy and regulations on the environment, food and rural affairs (see, http://www.defra.gov.uk). 9. For example, its director is directly appointed by the government. 10. A similar conclusion has been reached by one of the worlds’ leading experts on labour market institutions, Prof. Stephen Nickell; see Monastiriotis, 2005. Tis stands in some distance from evaluations of the Greek labour market by international organizations that characterise Greece as a rigid labour market with many institutional bottlenecks and inefficiencies (see for instance OECD, 2007—for a critical view on this see Seferiades, 2003). 11. See, for example, http://media2.feed.gr/pegasus/Multimedia/pdf/koukiades_ id454441.pdf. 12. Te signs for the non-adoption of the committee’s proposals were evident even a year earlier, while the committee was still working on its proposals: responding to reports in the media that the committee will propose a significant rise in pensionable age, the then Minister for Employment, Mr Savvas sitouridis, declared that ‘there will be no change, in relation to the existing legislation, on … pensionable age, national insurance contributions, or pensions’–what was later coined by the then prime minister as ‘the three Non’. 13. Te centre was set up in 1959 with the explicit aim of advising the government on economic policy. 14. ΤΕΔΚΝΑ —Τοπική Ένωση Δήμων & Κοινοτήτων Νομού Αττικής; ΚΕΔΚΕ — Κεντρικής Ένωσης Δήμων και Κοινοτ ήτων Ελλάδας; ΕΝΑΕ Ένωση Νομαρχιακών Αυτοδιοικήσεων Ελλάδος. 15. We are grateful to Sotiris Zartaloudis for drawing our attention to this example and providing us with his very detailed information on this. 5. ENACING REFORMS: OWARDS AN ENACIVE HEORY 1. For a more elaborate account of representational and non-representational (here called enactive or performative) theories in organizational and management research, see soukas (1998). For purposes of clarification, the term ‘enaction’ ‘connotes the performance or carrying out of an action’ (Tompson, 2007: 13). Te associated term ‘enactive theory’ indicates, among other things, an approach to theorizing for which, first, ‘a cognitive being’s world is not aprespecified, external realm, represented internally in the brain, but a relational domain enacted or brought forth by that being’s autonomous agency and mode of coupling with the environment’, and secondly, ‘experience is not an epiphenomenonal side issue but central to any understanding of the mind, and needs to be investigated in a careful phenomenological manner’ (Tompson, 2007: 13; see also Varela et al., 1991). In other words, enactive theorizing privileges interactivity and process as well as meaning and context.

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2. In a long letter to Kathimerini (23/7/2010), a state secondary school teacher, and chairman of a local trade union of teachers (ELME, Corinthos prefecture), says, among other things: ‘teachers reject performance appraisal not because they are afraid of it, but because they do not trust it. Because they doubt whether meritocracy, about which everyone talks but no one means, will at last be implemented in our country’. 3. For detailed arguments making the case for enactive (or reflective-performative) theorizing from a Wittgeisteinian and Heideggerian perspective respectively, see Shotter and soukas (2011b) and Sandberg and soukas (2011). 4. Te scholar most visibly associated with the term ‘actionable knowledge’ is Chris Argyris (see 2003, 2004). For him a theory generates actionable knowledge to the extent it informs practitioners to design actions that can be implemented. Tis is a cognitivist understanding of actionability that privileges intentionality, causality, and deliberate action (for a critique and an alternative, see Yanow and soukas, 2009). However, in this chapter a theory is regarded as ‘actionable’ not in a cognitivist but in a Wittgesteinian-phenomenological sense, namely to the extent a theory reveals to practitioners their grammars of action, so that practitioners may potentially re-orientate themselves to crucial aspects of their contexts (see Sandberg and soukas, 2011; Shotter and soukas, 2011a, 2011b). 5. Te ‘tacit’ vs. ‘explicit’ knowledge the associated ‘subsidiary’ notions vs. ‘focal’ofawareness, derived from Polanyiand (1962), are furtherterms developed in a management context in soukas (2003). 6. Tis argument closely resembles similar approaches in systemic family therapy (see Watzlawick et al., 1974; soukas, 2005b; Dallos and Drapper, 2000). 7. In numerous board decisions and press releases, OLME has, throughout the 2000s, persistently argued against performance appraisal, associating it with a ‘neo-liberal’ project (see, for example, http://olme-attik.att.sch.gr/files/annprelme/ eisigisi20042010.pdf) 8. For an account of process explanations, what they achieve and how they are developed, see Langley and soukas (2010) and Van de Ven and Poole (2005). For juxtaposition between outcome and process explanations, see soukas and Knudsen (2002). 9. Te institutionalized mistrust between citizens and authorities in Greece is well captured by the Austrian journalist Günter Müller, who, following a violent demonstration on the 5th May 2010 in downtown Athens against severe austerity measures, resulting in the deaths of three bank employees and repeated chanting of ‘thieves’ in front of the House of Parliament, noted: ‘What impressed me is the lack of trust of the Greeks towards their governments. alking to several people of different ages and occupations, I noted two common elements: common anger towards and common mistrust of their government. May be this is the most important difference between Greeks and Austrians: Austrians trust political authority and submit themselves to it. By contrast, Greeks, obviously

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because of corruption scandals and cheating that come from the political system, separate themselves from politicians, as if the latter took power arbitrarily rather than having been elected by the people!’ ( o Vema, 9/5/2010). 6. MARKE REFORMS IN GREECE, 1990–2008: EXERNAL CONSRAINS AND DOMESIC LIMIAIONS 1. For a detailed account of fiscal stabilizations for Greece and their recurrent failures see Christodoulakis (1995, 1998). 2. Tis explains, for example, the political comeback of leftwing parties in Eastern Europe in the late 1990s and the popularity of leashing out against the ‘oligarchs’ in Putin’s Russia. 3. In a 300-seat Parliament, 292 voted in favour of EMU. 4. A noticeable exception was the two-year collective agreement on wage moderation reached between trade unions and industrialists and supported by government and opposition as a necessary step against inflation. 5. Agreement with the union was reached only after underwriting the employees’ pension scheme by the state budget and earmarking proceeds from IPO to finance the digitalization of the antiquated network of Greek elecom. 6. After 1994, the government has underwritten the deficits of the social security funds and provides a shield to the underfunding of pensions either through stateguaranteed loans or direct fiscal transfers. 7. Te so-called ‘fiscal audit’ changed the way that military spending was recorded in the deficit from the ‘delivery-base’ according to which payments are recorded at the time of actual installation, to the ‘order-base’ in which payments augment the deficit at the year that equipment is ordered. By doing so, the newly elected government moved all future burdens to the deficits of the past. Although the European Union in 2007 made the delivery principle mandatory for its member-states, the Greek government refused to apply this rule retroactively; for a detailed analysis of the ‘fiscal audit’ see Christodoulakis (2006). 8. In 2007, GDP figures were adjusted upwards and retroactively. Te debt to GDP ratio reported here take this revision into account, although first-differencing makes the revision effect negligible anyway. At the time of writing the present chapter, there was yet another debate about the validity of Greek statistical data. In particular, a cross-currency swap that took place in July 2001 had the effect of removing part of the debt equal to 1.2% of GDP into a stream of deficitincreasing payments, according to the Eurostat rules of the time. It is not clear how debt counting for year 2001 will finally settle, but the effect of a possible reclassification will only marginally affect the correlations reported here. 9. Christodoulakis and Skouras (2009) establish that fiscal revenues in Greece follow an electoral cycle.

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10. o reduce the widespread practice of frequent changes in the management of public utilities, in 1996 the government introduced a compensation clause for dismissals, amounting to dismissed managers receiving most of the salaries they would receive until the expiration of their contract. However, such compensations were so lucrative compared with their previous income levels that managers found it more profitable to be laid off than seek continuation of their contract. 11. By analogy, bleak growth prospects make protectionism and closed-shop practices more widespread as witnessed by how advanced economies are responding to the global economic crisis of 2008–09. 7. HE PENSIONS MERRY-GO-ROUND: HE END OF A CYCLE? 1. Demographic projections underlay the prediction. Tat ‘closing of the window of opportunity’ of 2007 was postponed by immigration flows. See inios, 2003 for details. For the Spraos Committee and its reception see Featherstone et al. 2001 2. A further vignette may add to the flavour. In March 2009 an experts’ group on public administration (‘Axiotis’ Group 2008) ranked the twenty-six ‘most press-

3.

4. 5. 6.

7.

ing and feasible reforms’ facing Greece. ‘Social insurance reform with social sensitivity’ scraped in at number twenty-five, just above ‘Recycling of refuse’—presumably due to its infeasibility. Sapir 2006 ranks EU member welfare state performance in terms of equity and efficiency. Te Mediterranean states scores low on both. Tis could mean that those welfare states do not represent alegitimate choice between conflicting goals, but simply reflect political inability to move from suboptimal positions to unambiguously better outcomes. Te Appendix provides a chronology of social insurance in Greece in tabular form. For an impassioned account of the passage of the law and the compromises that led to it, see salikis (2008). Also Agallopoulos (1955). Such a system of pension finance (known in French as systéme de repartition, which is the source for the Greek διανεµητικό σύστηµα) pays for current pensions out of current contributions, in contrast to pre-funded systems which accumulate resources to finance anticipated future liabilities (Barr and Diamond, 2010). In social insurance systems, expanding coverage leads to an immediate increase in contributions, which is transformed into greater expenditure as new pensioners gradually claim the new benefits. In such ‘immature’ systems there will be current operating surpluses even if the long-term (actuarial) balance is heavily negative.

284

pp. [–] NOES 8. Borrowing the terms from David Ricardo, the extensive margin would involve the spread of social insurance in the population—the intensive addition of new layers of protection. Te end of the extensive margin came in 1998 with the payment of contributions by farmers. Te edges of the intensive margin were explored by auxiliary pension coverage, separation payments within occupational groups, whereas consolidation of protection between occupational groups also led to a widening of rights. 9. inios 2011a relates how Greek accounting standards allowed public enterprises to hand out pension privileges, to justify them as social policy and hence to evade any notion of budget constraint for pensions. 10. Te practice of diverting social insurance surpluses to industry was within the spirit of the time (inios, 2008). Nevertheless, a more transparent mechanism would have better served both social insurance and industrial investment. 11. For example, one way to avoid incomes policies was to secure pension privileges or contribution holidays for favoured groups. Civil servants, for instance, were excused from their contributions completely in 1952. Bank employees’ contributions were paid by employers as a result of collective bargaining in the 1980s. Both privileges were rescinded by Law 1902/90. For a review of the period see Kazakos, 2001 12. A half-hearted attempt was ditched so as not to disturb military pension privileges (Sotiropoulos, 1999). For an analytical overview of the 1955–1980 period, see inios, 2008. 13. Under Law 2084/92 that actuarial reviews were obligatory for every fund every five years. 14. A ballooning of pension deficits was expected in fifteen years, and hence it was easily shrugged off as too distant to worry about politically. Yet these well publicized long-term threats were exactly the kind of input that can set off nervous bond investors (inios, 2010a). 15. Notably by the publication of analyses, e.g. the IMF in 1992, and the OECD in 1998 and 2007. Te EU Open Method of Coordination (OMC) is also part of this process forcing the examination of the system as a whole. Yet the warnings of the OMC reports did not prevent the debt crisis, though they did prepare the Commission to adopt a more activist stance as part of the troika (inios, 2012). 16. Meaningful changes, when these occurred, were presented as independent of pension reform: means testing in 1996 was a (regrettable) necessity imposed by austerity. Changes to banks’ pensions in 2005 (Law 3371/05) were presented as a banking matter forced by International Accounting Standards, ducking issues raised about the limits of state guarantees (inios, 2011a). 17. Featherstone and inios, 2006, relate how the interests of key actors (government, unions, employers, finance, the policy community, cadres of pension

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funds) lead to a policy logjam. Te possession of an electoral system with a strong parliamentary majority is not sufficient to guarantee that change can occur (riantafyllou, 2006). Matsaganis 2007 looks at the role of unions. Mossialos and Allin (2006) look at the related issue of health care reforms. An analysis of public attitudes (O’Donnel and inios, 2003) uncovered a large dose of path dependence on how those are formed. 18. Tis analysis of pensions concurs with Monastiriotis and Antoniades’ (2009) general view that it is the quality of reforms that is largely to blame for their failure, and not vested interests. 19. Tis remark was widely cited in the Greek press on 27/3/07. For a discussion of the period see Kazakos, 2011. 20. For example, in the televised debate on 21/9/09, the leader of the party about to win singled out as unacceptable only the length of time necessary for pension awards (three months). 21. Alas, this is not a necessary condition. In this cruel world, once questions are raised, they also have to be answered. 22. Given that 70% of all IKA pensioners receive the minimum pension, the system collects revenue as social insurance and pays out benefits as a welfare system. Tis provision acts as a potent evasion incentive, as contributions made and twenty-three yearsof lead the same pension (inios, 2010a). 23. over Tesefifteen projections formed the basis theto2002 EPC projections of expenditure to 2050. Tey were updated to form the basis of the projections (CEC 2009), which served as a measure of sustainability in 2010. 24. Giannitsis 2007 states that his 2001 proposals attempted to stay within the parameters of the current system; he further states that this is no longer a feasible option. 25. Once received, and consistent with the model proposed in this chapter, these projections were ignored and not discussed by anyone from either the government or the opposition. 26. Social insurance, with roots in the ‘Bismarck model’, builds entitlements on employment related contributions. Social welfare, with roots in the ‘Beveridge model’, pays out directly on the basis of ‘need’. Modern systems possess elements of both and address both need and income replacement (Barr and Diamond, 2010). 27. inios 2010a puts the case for a fresh start. For OECD reforms see OECD, 2007, ompson, 2009. 28. For a summary of the pension reform see IMF 2010b: 11. inios (2010a) provides an early analysis of the post-crisis situation and the 2010 reforms. See also Matsaganis, 2010. Kazakos (2011) provides a general picture. 29. Indeed, the coincidence of raising the retirement age in Germany, combined with the central role of Germany in negotiations, virtually guaranteed the drastic raising of retirement ages.

286

pp. [–] NOES 30. Greece received stabilization loans in similar circumstances in 1985 and 1990. Conditionality was evaded by the simple expedient of not drawing the second tranche of the loans (Kazakos, 2001). However, expectations for eurozone members in 2010 were far higher. 31. Article 11 of Law 3683/10 is an escape valve: if the law’s effects prove below the mark, additional measures would be taken in 2011. 32. One week after voting for the Memorandum of Understanding (Law 3845), the Ministry of Employment released a far weaker draft, in direct contradiction of the Memorandum. Te draft was withdrawn; the episode remained a striking example of the lack of ‘ownership’ of proposed reforms. 33. A reminder of the 1980s Tatcherite mantra ‘INA’—‘Tere is no Alternative’? 34. Te papers and proposals of the members of the ‘social dialogue committee’ have been published (Stergiou and Sakellaropoulos, 2010). Tey reveal that the actual reform passed was far from their thoughts, while quantification is almost completely absent. 35. For example, that a year may contain 400 days or more—in the context of gradual increase of retirement ages. Or a provision that women who bear children at the age of forty-eight are entitled to earlier retirement. 36. inios 2010b advocates such a ‘2 ½ phase strategy’. See also Nektarios, 2008. 37. Such as the possibility to include periods to of mothers study andofchild rearing as pensionable periods; new regulations pertaining underage children may actually reduce retirement ages for women in their forties and fifties. 38. Te author posed (in an electronic blog) a number of ‘impertinent questions’ in March 2011 which were never answered.—inios 2011b 39. Giuseppe di Lampedusa, 1957, Te Leopard.

8. PREREQUISIES O HE REVIVAL OF PUBLIC HEALH CARE IN GREECE 1. For an earlier attempt to develop such an understanding, see Matsaganis (1996; 1998). 2. In the 2007 version of OECD Health Data the share of public spending on health in Greece in 2000–05 estimated 43–47%. the 2009 version it was revised to 58–60%. For awas discussion, seeatSiskou et al.In(2008). 3. Te other countries were Austria, Belgium, Denmark, France, Germany, Italy, the Netherlands, Spain, Sweden and Switzerland (see www.share-project.org). 4. Alternatively, the Euro Health Consumer Index 2008 summed up its findings for Greece as follows: ‘Doctors rule. Some improved outcomes, but still too many out-of-pocket (and under-the-table) payments. E-health—never heard of?’ See Björnberg & Uhlir (2008: 16). 5. Te term was used in the report to the minister of health of an international committee of experts chaired by Brian Abel-Smith (1994).

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6. Zone defence by Petros Markaris (pp. 282–283 in the English edition: Harvill Secker Publishers, 2006). Te srcinal was published in Athens in 1998. Markaris made the point about crime fiction being the nouveau roman social at a presentation of the Greek edition of Te Mangiabarche mystery by Massimo Carlotto (Athens, 9 March 2006). 7. When the BMJ published an article entitled ‘Arabian nights: 1001 tales of how pharmaceutical companies cater to the material needs of doctors’ by Giannakakis & Ioannidis (2000), its authors (professors of medicine at Ioannina) were formally reprimanded by their local medical association for casting the profession in an unfavourable light. According to press reports, this was done on the instigation of the Greek Medical Association’s secretary (http://news.kathimerini.gr/4dcgi/_w_articles_world_2_05/03/2009_306287). 8. ountas et al. explained that ‘a rather astonishing illegal practice is the billing of social funds by some private providers, mostly doctors and diagnostic centers, for health services which have never been provided since the lack of computerized archives and medical records makes it difficult to exercise control over billing’ (2005: 175). 9. On 16 December 2009 a socialist MP noted that while the real cost of a stent (a wire mesh tube to prop open an artery that has been cleared using angio€

10.

11.

12.

13.

288

€

plasty) is below 5,000, the price paid by sickness funds exceeds 40,000 (http:// news.kathimerini.gr/4dcgi/_w_articles_economy_2_17/12/2009_383910). Mossialos et al. (2005b) analysed deliveries in one private and two public hospitals in Athens in 2002, and found the caesarean section rate at 53.0% and 41.6% respectively. Private insurance coverage, Greek ethnic background, and the risk of inconvenient timing (from the obstetricians’ perspective) increased the likelihood of caesarean section delivery. Earlier research by Matsaganis (2001) on clinical practices in four public and four private hospitals in the mid1990s uncovered a similar pattern as regards caesarean sections, and estimated that 59% of deliveries took place in private hospitals. In no other OECD country is the caesarean section rate as high as in Greece, even though it is on the rise almost everywhere: in 2006 it was 39.7% in Italy, 26.0% in Spain and 25.6% in the UK (OECD, 2009). On 19 November 2009 the minister of finance released a statement showing that out of 151 doctors with surgeries in the exclusive Kolonaki area in central Athens ninety-six reported annual taxable incomes below €30,000 (http://www. mnec.gr/el/press_office/Deltiaypou/articles/article1158.html). Amalia Kalyvinou described her daily mishaps in her aptly named blog (http:// fakellaki.blogspot.com), read widely by, among others, young doctors. Following her death, the latter staged a campaign under the slogan ‘Don’t accept a bribe. Don’t pay a bribe’ (see http://amaliasday.blogspot.com). For instance, in Sweden, ‘National politicians decided the aims of policy, government commissions of inquiry engaged experts who compiled available knowl-

pp. [–] NOES edge, Parliament turned the resulting proposal into law, a civil service agency implemented the policy and local authorities put it into effect. Te strong state model provided citizens with a reasonably clear idea of how public policies were—or should be—produced and implemented’. (Lindvall & Rothstein, 2006: 47). 14. According to Ferrera (1996: 30), ‘the weakness of state insitutions’ is one of the distinctive traits of the Southern European model of welfare. Elsewhere in the same article Ferrera explains why the ‘peculiar collusion of public and private’ sets South European national health services in a different league from their British and Scandinavian counterparts. On corruption, clientelism, social policy and public administration in Greece see Sotiropoulos (2006) and García & Karakatsanis (2006).

9. EDUCAION REFORM IN GREECE: ASPECS OF POWER AND POLIICS 1. ‘Excess’ demand (soukalas, 1987) for access to university education, which exceeded supply significantly, reflected high levels of economic development achieved in the previous period, the rural exodus, urbanization and the signifi-

2. 3. 4. 5.

6. 7. 8.

9.

cant of living and educational standards. Tese social changes were enedrise by increased expectations for upward social mobility secured by thestrengthemployment of university graduates, especially in the public sector. Te five Centres for Higher echnical Education that operated in the large cities in 1974 were increased to eight in 1977 and eleven in 1981. See, among others, Bouzakis (1994). On the stance of opposition parties towards the educational reforms of the first post-1974 period, see Hondolidou (1987) and Vasilou-Papageorgiou (1996). Tese changes had formed part of the demands for democratization that were articulated by the student movements of the previous decade, culminating in the May 1968 protest in France. On the role of local societies see Lambrianidis (1993). See more in Voulgaris, 2001; Iordanoglou, 2003. However, during the two periods of New Democracy rule (1990–93 and 2004– 09) that followed, efforts were made to limit the participation of student blocs and their influence in the administration of universities. Te first attempt (1992) was repealed immediately upon PASOK’s 1993 return to power. Te second attempt (2007) was toned down under pressure from the student organization of New Democracy. Limiting the influence of student organizations was part of the planning of the short-lived (1989–90) ecumenical government but was not implemented. Te ventriloquist function of university administrations has been often expressed, especially with respect to policy issues affecting student interests such as the orga-

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nization of learning and study programmes, examination rules, rules of university life, duration of studies, regulation of professional rights of graduates, fees, free provision of course-books, protection of academic freedom and free expression of ideas within universities. Te power of student blocs is reflected in their treatment by the administrations as well as the state policy of upholding the academic asylum despite the constant incidents of violations and exercise of violence on university premises. 10. See Karamesini (2003: 80) and Lambropoulos and Psaharopoulos (1990: 174). Te decision to set up three new universities in different regions (Tessaly, Aegean, Ionian) during the first sub-period of the PASOK government should be considered as an outcome of the influence of local societies in the distributive arena of state policy. Te economic and fiscal conditions that prevailed during the second sub-period of PASOK (1986–1989) did not allow the essential development of the new foundations during that period. Teir development occurred during the beginning of the 1990s and accelerated from the late 1990s onwards. 11. Entry places for EI students rose from 26,754 in 1981 to 43,354 in 1989, while the respective number at the universities rose from 17,480 to 23,020. 12. Since the late 1970s OLME demands a single type of school in upper secondary education. OLME supports its position with socialand andintellectual ideologicallabour arguments, such as abolishing the division between manual and reducing social inequalities. It links this demand to prolonging compulsory education from nine to twelve years, with the inclusion of upper secondary education. OLME’s members are primarily graduates of university schools specializing in disciplines of general education (Ifanti, 1994). Te extension of mandatory education would result in increasing the number of teachers, augmenting their organization, and strengthening their bargaining power. Tepositions of OLME on technical and professional education led, in 1987, to the founding of OLEE, which is comprised of teachers of secondary technical and professional education with clearly different positions, orientation and demands from OLME and a competitive relationship between the two educational personnel organizations currently exists. 13. Tis pledge did not materialize. In 1997, this type of Lyceum was abolished, without clear justification. 14. From 75,206 in 1981 to 127,430 in 1989 to 167,622 in 1996 (Karamesini, 2003: 77). 15. Troughout the period examined here, the demands of the associations of ‘unappointed’ university graduates were further supported by the teachers’ associations’ demands for increases in the teaching force at schools, decreases in the rate of teachers–students per class, and reduction of teacher working hours. Te number of teachers increased throughout the period after 1974. In recent years, the rate of teachers–students in the Greek educational system is among the

290

pp. [–] NOES highest in the world (see OECD, 2007). Te increase in the number of teachers was accompanied by a reduction in their working hours. For teachers of secondary education, working hours dropped from 25–27 teaching hours per week in the early post-1974 period, to 21 hours. In primary education, working hours fell from 30–36 hours per week to 24 hours. 16. Te lack of institutions and procedures for the evaluation and accountability of educational personnel is not the result of public trust in their work, as is perhaps the case in other countries (e.g. Finland). In the Greek case, the lack of such procedures is the outcome of the power of teachers’ associations and their influence on state policy. Since the abolition of inspection procedures, six attempts have been made by different governments to introduce evaluation procedures for the educational personnel and schools (Zouganelis et Al., 2007; Charalambous and Ganakas, 2006). 17. Implementation of reforms put forward by the ND government was not followed up (e.g. evaluation) or was reversed (e.g. the student percentage in the election of university authorities, which had been halved by the ND government, was restored to 80% of the total faculty vote). 18. Te rise of the number of students choosing technical-professional education lasted until 2003. Its reversal coincides with the announcement of the ND’s

education programme before the 2004and elections. included a further reduction of examined courses in Lyceum the newTis reorganization of technicalprofessional education, through the abolition of EE that had been established with the 1997 reforms. 19. Following an administrative court decision on an appeal by the primary school teachers’ union (DOE) that the transfer of competencies for the organization and operation of education was against the constitutional provision of education as a state mission. 10. HE QUANDARY OF ADMINISRAIVE REFORM: INSIUIONAL AND PERFORMANCE MODERNIZAION 1. See the report of the World Economic Forum for 2009–10 (Kathimerini 9. 9.

2.

3. 4. 5.

2009) which argues that major problems for Greek competitiveness stem from the discrediting of institutions. Te term rationalization summarizes the perceived inadequacies of the Greek bureaucracy, namely fragmentation, disorder and lack of coordination and uniformity, contrary to the Weberian definition of bureaucracy. See Te Annual Report of ASEP, 1994 and the review of the decade 1994–2004 (www.asep.gr) and Eleftherotypia 19. 8. 2006. For the deficiencies of recruitment outside the ASEP procedures, see Ombudsman Special Report, 2007 www.synigoros.gr. Te most recent ‘regularization’ wave (2004) was a result of the EC Framework

291

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Agreement and the Directive 99/70/EC that was meant to rationalize contractual employment. 6. After the (early) elections on 4th October 2009, on the initiative of the new PASOK government, the whole of the public sector was brought under the scope of competence of ASEP (Law 3812). Centralization is enhanced in view of eliminating patronage practices. Tis puts a lot of pressure on this independent authority to satisfy time efficiency requirements. 7. Te 2010 census gave a figure of 768000 state employees. 8. See for example Laws 1586/86,2085/1992, 2190/1994,2683/1999, 3260/2004, 3528/2007. 9. One of the first initiatives of the new PASOK government led in 2010 to the introduction of regional self government, further merger of first tier local government and abolition of second tier local government (departmental level). 10. Laws 1735/1987, 1892/1990 and 2477/1997. 11. It is sometimes regretted that IndependentAuthorities were notopenly accepted as expressions of a ‘checks and balances’ political philosophy (see Featherstone, 2005: 236). However, they have de facto played this role, as proven on later occasions (mention of religion in identification cards, the illegal monitoring of communications etc.). 12. Te most eloquent example of this is the Organization and Management Unit of the Community Support Framework (1996) (MOD) created to provide necessary expertise for the management of the CSF. Other examples include the Cadastre (1995), Health Units Company (2004), School buildings organization (1998), Agro-tourism (2004), Football Betting (OPAP) (1999), Professional raining (2001), Employment Observatory (2001), raining Units (2000), Unification of the Athens Archaeological sites (1995) etc. 13. Among these was the merger affecting all research centres which provoked an outcry from the academic and scientific community. 14. International organizations, such as the OECD and the World Bank, rate Greece very low in terms of the business environment because of the excessive red tape involved. It has been estimated that it costs 6.8% of GDP according to a EU Commission report (o Vima 25. 11. 2007). 15. Te new government seems to be aware of such a need and seems to be taking steps in this direction. 11. POLICY IDEAS AND FOREIGN POLICY REFORM IN POS-COLD WAR GREECE 1. Prime Minister Simitis, Parliamentary Minutes (May, 1996: 5962–3). 2. Author’s interview with Costas Simitis, Nikos Temelis and Christos Rozakis. Te dominant impression in successive Greek governments since 1975 was that

292

pp. [–] NOES

3. 4. 5. 6.

urkey should be exclusively handled through military deterrence and the application of international law in the two countries’ differences. Simitis, Parliamentary Minutes (March, 1996: 4816–17). Ibid. Simitis, Parliamentary Minutes (May, 1996: 5969, and December 1996: 1672). Te mishandling of the Macedonian issue is a strong case in point. rapped by

an increasingly nationalistic public opinion and a lack of a coherent and longterm Balkan strategy, the Greek government in the early 1990s handled the Macedonian issue in a way that seriously damaged Greece’s international and European standing. See—among others—Nicolaides (1997: 73–78). 7. Te common view is that Europeanization involves the impact of the EU dynamics on national politics and policy-making, discourse, identities, political cultures and public policies. See Featherstone and Radaelli (2003). 8. Te most immediate consequence of ‘top-down Europeanization’ was Greece’s recovery from the traumas of its Balkan policy of 1991–95 and the subsequent rise of Greece’s credibility in the eyes of the international, mainly European, community by following a parallel process of ‘Europeanizing’ Greek foreign policy while pursuing domestic modernization. 9. Including at the time the ‘pillars’ of the PASOK modernizers camp in foreign

10. 11. 12. 13. 14. 15.

policy (i.e. Nikos Temelis, head of the prime minister’s office for strategic planning, and Christos Rozakis, deputy minister of foreign affairs) as well as Teodore Pangalos, minister of foreign affairs, George A. Papandreou, alternate minister of foreign affairs, and Yannos Kranidiotis, deputy minister for foreign affairs. It should be noted that none of the strategy ‘norm entrepreneurs’ that were interviewed had wholeheartedly included Foreign Affairs Minister Pangalos in the group of ‘the modernizers’ who inspired and designed Greece’s strategy vis-à-vis urkey. Needless to say, Pangalos was seen by urkish decisionmakers as being irreconcilably opposed to any improvement in Greek-urkish relations. His statement that ‘…a man can’t discuss things with murderers, rapists and thieves’, almost in the aftermath of the Madrid Declaration between Greece and urkey in July 1997, did not leave much room for constructive dialogue [Athens News Agency,Daily News Bulletin, 27 September 1997]. Interviews with Temelis and Simitis. Interview with Temelis. Based on interviews with Temelis, Simitis and Rozakis. See Simitis (1995: 161); also George Papandreou, ‘Isolation or a Historic Opportunity for urkey?’, o Vima, 21 December 1997. Simitis, Parliamentary Minutes, May 1996: 5962–3. For a detailed presentation of the rationale of the new strategy Greece should pursue, see the remarks made by Alternate Minister George Papandreou, Parliamentary Minutes (December 1997: 2840–2845).

293

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16. Obviously, at the epicentre of Greece’s thinking lies the assumption that the EU is not something ‘out there’ and that it can only affect national (i.e. urkey’s) policy makingafter its membership. On the contrar y, it is also in the preaccession process that Europeanization can be effective, mainly with regard to urkey’s democratization. For a theoretical treatment of this view see Irondelle (2003: 223). 17. Author interviews with Nicos Temelis and George Papandreou. 18. Te use of the terms ‘conditional sanctions’ and ‘conditional rewards’ is attributed to Couloumbis (1998: 11–17). 19. Phrase used by Simitis in an interview with the author. 20. After raising Greece’s credibility in the eyesof the European community, Greece had to make full use of the benefits stemming from its active participation in the exclusive EU club. Based on author’s interview with Temelis. 21. Tis point has been accepted and further verified by Simitis inan interview with the author. 22. See Lesser, Larrabee, Zanini and Vlachos-Dengler,2001; sardanidis and Stavridis, 2005: 217–239; Ioakimidis, 2001: 73–94; and 2000: 359–372. 23. See Keridis’ remarks, under the phrase ‘Te triumph of liberalism or where did realism go?’ in Idem, ‘Te Foreign Policy of Modernization: From Confronta-

24. 25.

26.

27.

294

tion to Interdependence’ sakonasof(ed.), , op. Modern Greek Foreign Policy cit., pp. 317–22. See also in theP.remarks Hercules Millas, a well-known expert on Greek-urkish relations, about the self-restraint demonstrated by the ‘permanently concerned over the Greek national issues’ segments of the Greek national culture in the aftermath of the Greek-urkish rapprochement (Millas, ‘Greece-urkey, Communication!’,o Vima, 17 July 1999). Author’s interview with Simitis. In the 2004 national elections only five of the MPs who had signed the ‘Document of the 22’ in the aftermath of the Madrid Declaration in July 1997 had been re-elected, with one of them, namely Stelios Papathemelis, being elected with the flag of New Democracy’s conservative party. See Karzis (2006: 139). It is also worth noting that according to the para-state nationalist and amateurish agents who invited the PKK’s leader Abdullah Ocalan to Greece, the invitation was made in response to a plea made by 180 Greek parliamentarians— including all the MPs of PASOK’s nationalist faction—who signed a memorandum asking the Greek government to officially provide Ocalan with political asylum. See Dokos and sakonas (2005: 278). See the arguments made by Simitis and Papandreou in the aftermath of the Helsinki summit, Parliamentary Minutes (December 1999: 2362–66, 2397– 99, 2402–3). See also Rozakis, ‘Why Helsinki is Positive for Greece and urkey’, Eleftherotypia, 14 December 1999. Te general impression in Greece’s domestic political scene was that New Democracy appeared abashed and fragmented in the aftermath of Helsinki with

pp. [–] NOES most of its prominent figures—including former prime minister and honorary ND Chairman Constantine Mitsotakis, as well as Stephanos Manos, Dimitris Avramopoulos and George Souflias—adopting a rather positive stance vis-à-vis Helsinki. See Yannis Politis, ‘Embarrassment and Different Assessments of the Helsinki Decisions by the Opposition’, a Nea, 13 December 1990; and Dora Dailiana, ‘Helsinki Drives New Democracy into the Corner’, Eleftherotypia, 13 December 1999. 28. See Karamanlis’ remarks, Parliamentary Minutes (December 1999: 2375–79). 29. See George Rallis [former Greek premier and honorary chairman of New Democracy], ‘Favorable Decisions Were aken at Helsinki’,Eleftherotypia, 19 December 1999; and Dora Bakoyannis (2000: 66). 30. See Karamanlis remarks in Parliamentary Minutes (December 1999: 2377–78). On the contradictions of Karamanlis’s intervention, see the remarks made by Papandreou in Parliamentary Minutes (December 1999: 2397–8 and2403–4). 13. HE POLIICAL ECONOMY OF FORCED REFORM AND HE 2010 GREEK ECONOMIC ADJUSMEN PROGRAMME 1. I am grateful to Kevin Featherstone, Vassilis Hatzopoulos, Chryssafis Iordano-

2. 3.

4.

5.

6.

7.

glou, Antonis Kamaras, Tomas Moutos, Dimitris Papadimitriou, Platon inios, Hari soukas, and the volume’s anonymous referee for comments on various parts of this chapter. For example, following the 2010 wage cuts, the annual salary of a university professor was reduced by some 15–20%. Te automatic wage/pension indexation to inflation was a fact of life since the 1980s, but was suspended during stabilization programmes, as in 1985–87 and 1990–92; the latter’s impact on real wage incomes was the harshest. So was the fiscal consolidation achieved during the first year: the budget deficit shrank by almost five percentage points, from 15.4% GDP in 2009 to 10.5% in 2010. Indicatively, the prime minister’s office under Costas Karamanlis had very few policy advisers. Even in the face of the 2008 economic crisis, the prime minister relied on one economic policy adviser without a proper ‘economic office’ in the prime minister’s office. Te Karamanlis doctrine of 2004–09 was that ‘the ministers are the prime minister’s advisers’ (cf. Papadimitriou and Featherstone, 2009). Following the June 2011 cabinet reshuffle, the Finance Ministry was upgraded even further, as the new finance minister also became vice-president of the government. Core executives include ‘all those organizations and structures which primarily serve to pull together and integrate central government policies, or act as final

295

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arbiters within the executive of conflicts between different elements of the Government machine’ (Rhodes, 1995: 12). 8. See postings of Manos Matsaganis on the summer 2010 social insurance reform, in http://manosmatsaganis.blogspot.com/. 9. For a preliminary, non-scholarly version of the argument see Pagoulatos (2009). 10. As often happens, policy practice failed to rise to the promise of its legitimizing rhetoric: a product of heavy compromises, the final pension reform text, though brave compared to previous attempts, fell short of any ‘change of paradigm’. 11. We stress unilateral. An organized debt restructuring in agreement with Greece’s creditors and EU partners would be a different issue, with notable benefits, especially after fiscal consolidation and structural reforms were under way. However, in 2010 it was still too early for such an option. 12. While deficit countries in the eurozone South should indeed curtail their deficits, a contractionary policy in Germany and the global economy would cancel the South’s attempt to exit the crisis through export-led growth, throwing the eurozone into a vicious circle. 13. See e.g. Akerlof and Shiller (2009) for a sweeping critique of the neoclassical economic orthodoxy. 14. And that’s not even to mention the failure of EMU authorities to react to the growing current account deficits within the eurozone (Katsimi and Moutos, 2011). 15. Tis was prominently the case in Spain, whose public borrowing crisis was not a function of fiscal mismanagement (quite the contrary) but a large private sector debt. 16. Te strategy of ‘internal devaluation’ was chosen as the only available option given the excessive fiscal and current account deficit and the lack of monetary and exchange rate policy instruments for restoring external competitiveness in the face of a 20–30% real exchange rate overvaluation (see Cottarelli et al., 2010: 9).

296

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