Prime Minister George Papandreou addressed the nation on 2 February 2010 and announced a sweeping package of austerity measures that deserve credit for their candor. For once during the past five years a Greek prime minister delivered the bitter medicine without any attempt to sugarcoat the magnitude of the problem and the common effort required.
The effect of the proposed fiscal policies is clear : there is absolutely no room for new domestic initiatives. The state’s coffers are empty. At a time of economic crisis, when deficit spending would be needed to stimulate growth, the Greek government has its hands tied behind its back. Moreover, the European Commission is now looking over its shoulders.
Papandreou will need all the help he can muster from a recalcitrant Greek public and a political system prone to confrontation instead of compromise. Trade unions, in particular in the public sector, need to become part of the solution and talk about cutting generous entitlement programmes. The option of selected tax increases cannot be treated as a ’no go area’ by members of the governing PASOK party. Finally, reaching across the aisle and attempting to form a national anti-crisis pact with members of the opposition is an act of political necessity, not weakness !
Papandreou cannot be held responsible for the exorbitant fiscal deficit. But like it or not, the prime minister now owns this deficit. He must tailor its solution and cannot be seen as wavering on the deficit reduction objective. A multi-year programme, not stop-gap measures, is the order of the day. Greece urgently needs to reform its nearly bankrupt pension system. At the same time, it requires comprehensive tax reform, including new sources of tax revenue and instruments to widen tax compliance.
Papandreou must show political acumen and leadership. This will require tenacity in the face of mounting social protests and entrenched special interests. Decisive and binding decisions to confront the challenges at hand are necessary. The government must establish new alliances, hold its ground and above all explain to an unconvinced population why it is necessary to urgently change course.
It is essential for Prime Minister Papandreou that the economic and fiscal crises do not deteriorate into a wider political crisis the country cannot afford.
