August 30, 2019 / 7:52 AM / 3 months ago

Breakingviews - Dixon: Greek PM makes good but not perfect start

ATHENS (Reuters Breakingviews) - When Kyriakos Mitsotakis met German Chancellor Angela Merkel in Berlin yesterday, the new Greek prime minister was able to point to a list of quick wins since taking office last month, including lifting capital controls. But he has also made errors. To change the country for good, he’ll have to learn from them.

Greece's Prime Minister Kyriakos Mitsotakis shakes hands with German Chancellor Angela Merkel during a news conference after their meeting in Berlin, Germany, August 29, 2019.

First, look at what Mitsotakis has achieved since winning the election convincingly. He came into office with a clear plan and moved fast. He appointed some talented ministers, often choosing technocrats from outside his centre-right New Democracy party.

Not only has the government this week scrapped capital controls. It is unblocking investment projects, notably the redevelopment of the vast site of the old airport in central Athens. It has embarked on an ambitious project to simplify the state by linking up its cat’s cradle of databases. And it is restoring law and order to the universities, which were previously a no-go area for police.

There had been worries that Greece would this year fail to deliver the primary budget surplus of 3.5% of GDP that it had promised creditors as part of its bailout programme. But by subtly tightening public spending without cutting official budgets, Mitsotakis should now hit the target without any drama.

Business confidence has risen and the yield on 10-year government bonds is below 2%. All this marks an astonishing change from the Greece of 2015 when the country was on the edge of bankruptcy and Yanis Varoufakis, the former finance minister, was fighting with euro zone governments and the International Monetary Fund.

As a result, Mitsotakis had a good story to tell the German chancellor, his most important creditor. He will want her help in persuading the euro zone to relax the country’s fiscal straightjacket from next year so that he can cut income and corporate taxes. That should give the economy a further boost, which in turn should make the country’s still-humongous debt burden easier to carry.

Merkel won’t want to change the fiscal targets themselves. But she might just go for an alternative idea: Allowing Greece to count as revenue the profits that the European Central Bank has made from buying the country’s bonds. That’s expected to be worth about 0.8% of GDP next year, enough to fund the tax cuts the Greek prime minister wants to make.

So much for the good news. But Greece needs more than quick wins. The country is bedevilled by corruption, the judiciary has been politicised and some of its institutions are rotten.

Some pundits say nothing can be done as such bad practices are part of Greece’s DNA. This is nonsense. When Greeks go abroad they often flourish in efficient and modern institutions. Even so, it won’t be easy to change the culture that lies behind the bad practices. On this score, Mitsotakis has made a few missteps.

One was appointing a man who doesn’t have a degree recognised by the Greek state as head of the country’s security services, despite a law saying this is necessary. Mitsotakis’ response is to change the law so that his candidate can take the job.

Another mistake was the way he got rid of the head of the Greek competition authority, a woman who advised the previous prime minister. She may well have been the wrong person for the job. But she was removed by changing the law in a way that looks like interference in a supposedly independent authority.

The problem with these incidents is that Mitsotakis has prioritised quick wins over establishing general principles. If he wants to create strong institutions, he should run a government based on sensible principles that apply to all.

Yet another misstep was appointing only two women to his cabinet. It’s true that there aren’t many female parliamentarians in his party, and that Greece in general suffers from a macho culture. But he could have tried harder.

Happily, it’s not too late to remedy this error. One option would be to appoint a minister for women and put her in the cabinet with a brief to tackle the whole range of practices that prevent women playing a bigger role in public life and the economy.

There’s one more worry about the new government. The flip side of appointing technocrats is that they can so easily be out of touch with both members of parliament and the broader public. Their comfort zone is discussing policy reforms with other wonks. 

When things get tough, as they surely will, there is a risk that the government will be branded as remote cosmopolitan elitists and rejected by the body politic. To guard against this, ministers should make a conscious effort to get outside the Athens bubble.

The ancient Greeks noted that hubris often precedes nemesis. Mitsotakis has made an impressive early start. He would be wise to understand that even he makes mistakes.

Breakingviews

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