Papa’s Got a Brand-New Bag

Greece’s new interim prime minister, Lucas Papademos, was due to teach a class at Harvard this upcoming spring semester. The subject: "The global financial crisis: policy responses and challenges." For Greece’s sake, let’s hope its new professor-in-chief knows what he’s talking about.

Papademos spent 25 years working as a central banker — so he should be used to dealing with worrying statistics. But even this bespectacled, mild-mannered economist might be daunted by the numbers he has inherited — and the mountains of red ink that will dominate his premiership. On Thursday, Nov. 10, a few hours before the 64-year-old economist accepted the invitation from an increasingly confused and desperate George Papandreou to succeed him as Greece’s premier, the European Commission published a report on the Greek economy that made painful reading. Greece’s public deficit is expected to reach 8.9 percent of GDP this year, while the economy is forecast to contract by 5.5 percent, capping off a third consecutive year of recession.

Most shockingly, public debt is predicted to soar to 198.3 percent of GDP — almost double what it was in 2008 and by far the largest margin in Europe. In another ominous twist of fate, Greece also announced its August unemployment figures on Thursday. The jobless figure climbed to 907,953, or 18.4 percent, which means that about 1,000 jobs have been lost every day over the last year. Even Papademos won’t be able to hold on to his job for very long — early elections are due to be called toward the end of February. But is 100 days enough time to lay the foundations for an economic recovery?

"The country is at a crucial crossroads…. The course ahead will not be easy, but I am confident that the problems can be solved," said Papademos on Thursday. It was an attempt to provide some optimism at the end of almost two weeks of intense political bickering that culminated in his selection to head Greece’s first coalition government since 1989. Greeks watched with interest, but the depressed state of the economy means that few will see the glass half-full until growth and employment figures improve. The interim administration has the reluctant backing of the previous ruling party, the PASOK socialists, plus the tepid support of the conservatives of New Democracy and the ultranationalists of the Popular Orthodox Rally (LAOS). Papademos retained PASOK officials in key ministries in a bid to provide some continuity for structural reforms, but New Democracy’s concern that a strong presence in the transitional government would damage its popularity at next year’s elections means that there are only six conservatives among the administration’s 49 members.

Papademos’s first task will be to assure his counterparts in the eurozone that Greece has regained political stability, which was undermined by PASOK’s internal divisions, attacks on its policies from opposition parties, and growing anti-austerity protests. He will also have to convince them that Greece is committed to the euro and will work with its partners to implement the terms of two bailouts, worth a combined 240 billion euros. Greece’s future in the eurozone was put in serious doubt by Papandreou’s surprising decision two weeks ago to call a public referendum on the terms of the country’s latest round of financial assistance. The initiative (which the prime minister eventually backed away from) enraged Germany and France, panicked markets, set Greek politicians against each other, and triggered Papandreou’s downfall.

It is no coincidence that in his statement on Thursday, Papademos said he aims to set Greece on a course to ensure its continued membership with the single currency. "I am convinced that Greece’s continued participation in the eurozone is a guarantee for its stability," said the former vice president of the European Central Bank. As governor of the Bank of Greece between 1994 and 2002, Papademos was one of the architects of the country’s entry into the euro. Critics argue that Greece became part of the eurozone based on questionable economic policy — and even more questionable economic statistics — and that Papademos must share some of the blame for this. But it looks like that will be a debate for another time. For now, the man who helped take Greece into the euro wants to make sure he is not the one who has to take it out.

His immediate priority will be to secure the next loan installment from the European Union and the IMF bailout agreed to in May. If Athens does not receive the 8 billion euro tranche by mid-December, by the government’s own admission it will no longer be able to pay its debts.

And with the threat of a disorderly default removed from the table — at least for now — Papademos and his team will have to begin negotiating the nuts and bolts of the next bailout. The outline of the deal between Greece and its eurozone partners on Oct. 26 foresees Athens’s receipt of another 130 billion euros in loans from the EU and IMF, with private holders of Greek bonds accepting a 50 percent haircut. To continue to receive the loan payments, however, Greece will have to continue implementing structural reforms, including a new tax system and the liberalization of dozens of closed industries. In certain policy areas, such as privatization of state assets that include public utilities, ports, and the railway company, the government has until 2015. Although there is some room to negotiate how Greece achieves its targets, the adoption of a new loan agreement will largely bind Papademos’s government — and the one that succeeds it — to a policy of strict austerity and structural reforms aimed at ensuring that the government is not spending more than it collects in revenues.

Despite the ravaged state of the Greek economy and the public anger, Papademos will not concentrate on trying to convince Europeans for an immediate letup in the austerity forced upon Athens, but will instead try to argue for better terms once Greece is able to prove that it can balance its budget, says financial expert and Skai radio presenter Babis Papadimitriou. "The terms of the bailout are unlikely to change," he says. "If Papademos can have an impact on anything, it will be to convince the Europeans to give Greece a little more room to maneuver once it manages to produce a primary budget surplus and after the bilateral lending from eurozone countries ends in 2014.

"His task will be to convince the Europeans and the Greek politicians that the agreed program is realistic, can be implemented, that it won’t destroy Greek society, and that it should be signed so we can all move on," says Papadimitriou.

Papademos, who studied at the Massachusetts Institute of Technology and had been teaching a course on the global financial crisis at Harvard University before being called to lead the Greek government, is a well-respected figure within European institutions. His appointment was greeted positively by EU officials and international markets — and even in Athens. "At least for 10 years now, faith in politics and institutions has been eroded," says Dimitri Sotiropoulos, a professor of political science and public administration at the University of Athens. "With a figure like Papademos, there is an opportunity for the political system to regain the trust and respect of citizens."

Thus far, the technocratic Papademos has tried to keep out of Greece’s partisan political scene. But though he plays well with European technocrats, the political bruisers and an austerity-weary public at home may not be so welcoming. For all his knowledge of economic issues, Papademos is the unelected leader of a government that has the halfhearted support of two deeply troubled parties in PASOK and New Democracy. When it comes to passing more unpopular austerity measures, this democratic deficit could become a key rallying tool for his opponents.

Papademos might, however, succeed where his predecessor failed by taking his message directly to the people, rather than allowing the political parties to act as the filter. "People close to Papademos, such as his ministers, will have to manage to do something the previous government failed to, which is to adequately communicate its achievements," says Sotiropoulos. "Bypassing the usual representatives, such as the unions … he can give a voice to less-represented sectors of society, such as the unemployed, self-employed, young and skilled migrants who are ready to pack up and go."

While at the European Central Bank, Papademos developed a reputation for shunning the spotlight and letting his superiors do the talking. That will have to change for the next three months or so. It seems that at this late stage in his career, Papademos might have to rely on words as much as he has on numbers to carry out his task of pulling Greece from the depths of its economic crisis.