PM AT THESSALONIKI:"RE-INVENTING THE GREEK STATE

UNCLAS SECTION 01 OF 03 ATHENS 002439

SIPDIS

E.O. 12958: N/A
TAGS: PGOV GR ECON
SUBJECT: PM AT THESSALONIKI:"RE-INVENTING THE GREEK STATE
AND SEEKING ECONOMIC GROWTH"

REF: ATHENS 1494


1. (U) Summary: At his September 10 speech at the
international trade fair in Thessaloniki, the Greek
equivalent to an annual State of the Union address, Prime
Minister Kostas Karamanlis revealed the two main axes of his
administration's policies: "Re-inventing the state" and
"seeking economic growth" Within this context, Karamanlis
enumerated the key issues facing the public and private
sector as Greece looks to the future, as a nation, a member
of the EU, and as a part of the international community as a
whole. The evening before, Karamanlis outlined his goals for
northern Greece, which centered on a "Strategic Development
Plan" in the high-tech sector.


2. (SBU) Summary Continued: Karamanlis' speeches, which
were general in nature, did not break new ground, but neither
did they walk away from the GoG's commitment to key economic
reforms. Karamanlis announced no new public spending goodies
for the voters (as had been traditional for this speech) and
pledged no obeisance to the "European social model." In fact
the speech was frank in acknowledging that "difficult and
unpleasant decisions" lay ahead. The PM also explicitly
posed Finland, Ireland and Denmark as economic policy models,
explaining that reforms in these countries had yielded
"astounding results." The key, as always, will be whether
the PM can retain sufficient support both public and
political, to implement the reforms. End Summary.

Re-Inventing the State
--------------


3. (U) The Prime Minister stuck to his well-known themes of
structural reform, fiscal rehabilitation, and an end to
government handouts. Karamanlis limited any suggestion of
social rewards to a vague suggestion that general tax relief
might be possible in 2007. The PM underlined efforts to
re-invent the state and focused on the rehabilitation of the
public sector, particularly of public enterprises in the
utility sector. He emphasized the GoG,s decision to enhance
supervision and introduce corporate management principles to
all public sector enterprises in order to promote efficiency.
He was firm that newly hired personnel in public enterprises
would no longer enjoy permanent employment status (following
the example of the recently introduced labor scheme in the
Telecommunications Organization (reftel)). Karamanlis
stressed the need to bring government spending under control,
but mentioned few specifics other than restraint of defense
spending. According to the PM, this spending, which totaled
4.1 percent of GDP in the period 1999-2003, will be limited
to 2.96 percent from 2005-2006.


4. (U) Despite his firmness on labor issues, however, he
avoided any specifics on the much needed social security
reform, only referring to "future solutions" following a
dialogue with social partners.

Economic Growth
--------------


5. (U) Karamanlis also unveiled the GoG's privatization
program for the next year. The government intends to sell
shares of the Athens International Airport, the Postal
Savings bank, and various state-owned ports. (GoG will
maintain 30-35% ownership of each however.) He also
reiterated the opportunities offered by the establishment of
joint ventures between public and private sector companies in
major projects in the country such as public/private
partnerships in the natural gas and oil sectors (DEPA natural
gas trunk pipeline to Italy and the proposed
Burgas-Alexandropoli crude oil Bosphorus bypass).



6. (U) Regarding the future of ailing national carrier
Olympic Airlines, Karamanlis tried to prepare public opinion
for a possible closure of the company adding, however, that
"no employee will find himself on the street."

Press and Labor Reaction
--------------


7. (U) The Prime Minister's speech at the opening of the Fair
as well as the press conference that followed on Sunday
received extensive press coverage with the pro-government
papers focusing on his realistic appraisal of the country's
economic problems and the opposition papers decrying his lack
of sensitivity for lower-income families and the absence of
any sort of relief measures.

8. (U) Greek labor unions showed their disapproval of the
government's policies by staging protest rallies throughout
the events in Thessaloniki during the weekend (reftel).
Although expected, Karamanlis' announcement of the abolition
of lifetime employment for newly-hired personnel in public
enterprises has led the labor unions to protest the
government as "anti-labor," criticism certain to continue in
the coming weeks. The opposition in its entirety sharply
criticized the Prime Minister, accusing him of breaking
pre-electoral promises and forcing lower-income Greeks to
bear the brunt of new austerity measures.
Northern Greece: New Opportunities
--------------


9. (U) The Thessaloniki Trade Fair was also an opportunity
for the Prime Minister to re-connect with his base in
northern Greece. In addition to his keynote speech on the
national economy, the PM focused his address the prior
evening on a strategic vision for northern Greece, a region
of growing geopolitical and economic importance on the
frontline of EU enlargement and Greek investment in the
Balkans. He cited the upgrading of the Macedonia-Thrace
Ministry and the transfer of trans-border EU Inter-regulatory
Programs office to Thessaloniki as evidence of his concern
for the region.

Northern Greece: New Strategies
and Commercial Opportunities
--------------


10. (U) Karamanlis said a "Strategic Development Plan" for
northern Greece focused on technology, innovation and
competitiveness would be announced by year's end to include
an innovation zone in Thessaloniki (under discussion for more
than a year),and announced the creation of an "International
University for Southeast Europe." Northern Greece is poised
to become an international energy hub, the PM noted, with the
construction of the B-A oil pipeline; Greece-Turkey-Italy gas
pipeline; and interconnection of electrical grids, totaling
1.5 billion euros in investment, and with the establishment
of the "Energy Community of SE Europe." The Prime Minister
also gave a status report on major public works in northern
Greece: completion of the Egnatia highway by 2008; completion
of bids for the Thessaloniki metro, airport runway extension
and other projects; long-delayed funding for expansion of the
Thessaloniki Port and the establishment of an international
logistics center; enhancement of the railway network; and
environmental projects, among others. Karamanlis recommitted
himself to implementation of the national strategy for
regional development as a basic priority and announced the
expansion of citizen service centers in northern Greece,
restructuring of the Thessaloniki police and hospital
modernization.

Reactions to the Northern Greece Plan
--------------


11. (U) Local media reaction was mixed, with predictable
headlines in opposition press. Most of the PM's program for
northern Greece was not new and he did not commit to firm
timetables for infrastructure works but committed to stay the
course. Northern Greece business leaders credit the Prime
Minister for steering regional development in the right
direction, focusing on technology and innovation and Balkans
investment, despite some disappointment with the new
development law, which does not include any additional
investment incentives for northern Greece.

Comment
--------------


12. (U) While the PM did not break any new ground in
Thessaloniki, he also did not retreat from ND,s core
economic plan: limiting new social expenditures and
privileges, increasing revenues, and continuing privatization
efforts. Unlike the preceding government, Karamanlis also
did not use the Trade Fair to bolster public support with
concessions to politically influential groups such as labor
unions. Instead, he presented a pragmatic picture of
Greece's current economic difficulties and some of the pain
that EU-mandated austerity measures have in store for the
country. Embassy believes that the PM certainly has a
coherent vision, but many challenges lay ahead in converting
Greece's bureaucratic and statist economy to a mediterranean
version of Ireland.


13. (U) This is a joint Athens/Thessaloniki telegram.
RIES