Identifier
Created
Classification
Origin
08THESSALONIKI63
2008-09-10 07:06:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Consulate Thessaloniki
Cable title:  

PM KARAMANLIS: STAY THE COURSE ON REFORMS, NO EARLY

Tags:  PGOV ECON EAIR PREL MK RU GG GR 
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UNCLAS SECTION 01 OF 03 THESSALONIKI 000063 

SENSITIVE
SIPDIS

DEPT FOR EUR/SE

E.O. 12958: N/A
TAGS: PGOV ECON EAIR PREL MK RU GG GR
SUBJECT: PM KARAMANLIS: STAY THE COURSE ON REFORMS, NO EARLY
ELECTIONS, DELINK GEORGIA CRISIS AND RUSSIA ENERGY

THESSALONI 00000063 001.2 OF 003


UNCLAS SECTION 01 OF 03 THESSALONIKI 000063

SENSITIVE
SIPDIS

DEPT FOR EUR/SE

E.O. 12958: N/A
TAGS: PGOV ECON EAIR PREL MK RU GG GR
SUBJECT: PM KARAMANLIS: STAY THE COURSE ON REFORMS, NO EARLY
ELECTIONS, DELINK GEORGIA CRISIS AND RUSSIA ENERGY

THESSALONI 00000063 001.2 OF 003



1. (U) SUMMARY: In his annual speech on economic policy at the
Thessaloniki Trade Fair, PM Karamanlis promised to continue
implementing the GoG's reform agenda, despite the global
economic crisis and lack of public enthusiasm. Greece needs to
reform its ineffective public sector, further reduce the budget
deficit, and implement the GoG's new tax measures, he noted. In
the traditional press conference that followed, the PM defended
several ministers accused of unethical behavior and ruled out
early elections or a cabinet re-shuffle. On the Russia/Georgia
crisis, Karamanlis asserted the same distinction he had after
the EU Summit between moving forward with energy pipeline deals
with Russia and Greece's support for Georgia's territorial
integrity and other Alliance and EU positions. He also said he
saw no willingness from Macedonia to resolve the name issue and
that he saw no reason to change Greece's position not to
recognize Kosovo. END SUMMARY

ENERGY AT TOP OF AGENDA


2. (U) On September 6, at the 73rd annual Thessaloniki
International Trade Fair, Greek Prime Minister Kostas Karamanlis
gave his annual address on the government's economic policy,
emphasizing that Greece faces serious challenges but is "moving
in the right direction" and must continue systemic reforms.
Greece's international energy agreements (TGI,
Burgas-Alexandroupoli, South Stream) will help increase revenues
and jobs. Reforms have helped Greece avoid the EU's excessive
deficit procedure, attract investment, achieve one of the
highest economic growth rates in the Eurozone, as well as three
percent wage growth. "We all realize how dramatic things would
have been today if we did not dare to take specific (not
pleasant, but necessary) measures."

NO CHANGE IN ECONOMIC POLICY, REFORM PROGRAM


3. (U) Karamanlis stressed that the GoG would stay the course
on reforms he had promised during the last elections, despite
"turbulent" global economic conditions (including the U.S.

credit crisis) and some domestic resistance. "I am determined
to continue by intensifying reforms." Karamanlis claimed that
several economic indicators (e.g. GDP growth and declining
unemployment) show Greece is doing well compared to other
Eurozone countries and that the reforms are working. The main
axes of economic policy will remain unchanged: sustainable
fiscal consolidation, viable growth, social protection for those
in need. "Our first priority is continuing a fiscal
consolidation program to eliminate deficits." Another priority
is to find solutions for ailing state-owned Olympic Airlines and
the Hellenic Railways Organization, which cost taxpayers about
2.7 million euro per day. On Olympic, the GoG goal is a new,
competitive airline, under the same name and logo, but without
the current debts and problems, no private monopoly, no loss of
jobs, and air connections with all the islands. The government
is also working hard to achieve a more fair tax system and to
combat tax evasion.

ECONOMIC GROWTH, WITH SOCIAL RESPONSIBILITY


4. (U) The GoG's economic policy focuses on ensuring high
growth rates, including by attracting large investments,
minimizing bureaucratic hurdles to doing business, de-regulating
"closed professions" and promoting business through high-tech
infrastructure, the PM stated. At the same time, he pledged to
ensure environmental protection, including through a National
Land Register and promoting alternative energy sources. The
government also seeks to build a "viable social state", boosting
employment while fighting inflation and maintaining a viable
social security system. The government will soon activate a
National Social Cohesion Fund aimed at supporting the most
needy. The GoG will also adopt measures to protect consumers.
Greece is addressing its most serious problem: an ineffective
public sector and its chronic weaknesses: "overspending,
bureaucracy and corruption." The government has launched a plan
to strengthen internal control mechanisms. To improve
government transparency, heretofore undisclosed "special
accounts" controlled by ministries would be included in the
national budget.

REGIONAL LEADERSHIP, BASED ON EU-CENTRIC FOREIGN POLICY


5. (U) Karamanlis said Greece aims to exploit its geopolitical
advantages, as a pole of stability and growth in southeastern
Europe, a modern energy, transit, commercial and banking hub in
the wider region. The public works ministry is implementing an
investment program, worth 18.5 billion euros, of which 40
percent is earmarked for northern Greece. Strategic agreements
with global port operators for the ports of Thessaloniki and
Piraeus, will change the ports' character and bring large
investments, cutting transport costs and boosting public

THESSALONI 00000063 002.2 OF 003


revenues. Major infrastructure projects in the Thessaloniki,
including construction of a metro and renovation of the airport,
are on track. The GoG recently opened an International
University in Thessaloniki. Karamanlis said he supports a
proposal to re-invigorate the Thessaloniki International Fair by
moving it to new facilities outside the city. On foreign
policy, the EU remains central. Greece favors a common
immigration policy and a European coast guard. "We support the
European prospect of our neighboring countries, by making it
clear that full respect of the principles, values and
prerequisites of the EU, also means their full accession. We
have made it clear to neighboring Skopje that, in any case,
primary importance was to establish good neighborly relations.
Our credibility has been tested and our position is known: a
name with geographical determinant to be valid for all." On
Cyprus, Greece welcomes a restart of negotiations and urges
Ankara to encourage the Turkish-Cypriot leadership to seek a
functional, democratic and European solution for a united Cyprus
without any occupation troops."

PRESS CONFERENCE: NO EARLY ELECTIONS, NO CABINET SHUFFLE


6. (U) Responding to questions at the traditional press
conference at the Trade Fair on September 7, Karamanlis ruled
out early general elections or a government re-shuffle. The
government won a strong mandate in September 2007 elections and
has "much work ahead." He defended ministers accused of
unethical behavior, claiming "there are no cases of
inappropriate behavior" and "accusations cannot have any
validity until they are investigated by justice." He rejected
recent charges by main opposition PASOK of vote tampering by ND
deputies during the May constitutional reform in parliament,

GEORGIA, MACEDONIA, AND KOSOVO,


7. (U) Also in his press conference, in nearly the same terms
used in his formal statement after the EU Summit, Karamanlis
commented on key foreign policy issues and the economy:

-- GEORGIA: Karamanlis said Greece's position will remain in
line with that of the European Union; he made no reference to
NATO decisions related to Georgia. Asked about statements
attributed to EUR DAS Matt Bryza on Greece's decision to proceed
with South Stream despite Russia's actions in Gergia, Karamanlis
said: "There are two different things. One is the government's
responsible policy of dealing with the country's energy policy,
for the present and the future." Second, "there should be no
confusion with the crisis that occurred, to the regret and worry
of all, in the Caucasus area recently". Karamanlis added that a
fundamental principle of Greek foreign policy is that it does
not recognize the solution of international disputes with
violence, and places respect of territorial integrity as a
matter of principle. (NOTE: This was the second occasion that
Karamanlis spoke publicly on the Russia/Georgia crisis, the
first time being a week ago just after the EU leaders' summit.
On both occasions he expressed Greece's support for the EU
political objectives of maintaining Georgia's territorial
integrity and providing humanitarian assistance. At the same
time, Karamanlis has also emphasized Greece's intention to move
forward with its energy deals with Russia and the importance of
not "isolating" Moscow. On September 2, the Greek Parliament
ratified the South Stream gas pipeline agreement with Russia.
END NOTE.)

-- MACEDONIA: Karamanlis said he saw no willingness on the part
of Skopje for finding a name solution. "I see no move in
positions, nor even the desire for a mutually acceptable name to
be found." He reiterated Athens' "absolutely clear" position of
an international name that would contain a geographic
determinant and be valid for everyone. Greece supports FYROM's
European prospects, provided that the name issue is resolved.

-- KOSOVO: On prospects for Greek recognition of Kosovo,
Karamanlis said "we are weighing all the facts", adding that "at
the present time, there is no reason to change our policy on
this matter".

-- TURKEY/CYPRUS: In his speech, Karamanlis said Greece was
working towards a full normalisation of Greek-Turkish relations.
He also welcomed the "restart" of negotiations on Cyprus and
asked that Ankara "encourage the Turk-Cypriot leadership to seek
a functional, democratic and European solution for a united
Cyprus without any occupation troops."

-- MIDDLE EAST: Karamanlis noted that Greece would be pursuing
more initiatives to strengthen cooperation with Arab countries.

-- ECONOMY: The government's economic policy will focus on
safeguarding Greece's gains and successes, such as the drastic

THESSALONI 00000063 003.2 OF 003


reduction of the fiscal deficit from 7.5 percent to 2.5 percent
and unemployment from 11 percent to approximately 7 percent.
The goal, he noted, was a further reduction of the deficit,
gradually, "year by year", while maintaining its commitments for
introducing a Minimum National Salary and to introduce
legislation for the relief of citizens hurt by the international
credit crisis. On pensions, despite difficult fiscal
conditions, the government had fulfilled all its commitments,
such as increasing the farmers' pensions and the unemployment
benefit. He acknowledged that "nobody is pleased about [the
government's] new tax measures, but the measures are necessary.

OPPOSITION REACTION: PM HAS LOST TOUCH WITH REALITY


8. (U) Commenting on the PM's speech, main opposition PASOK
Spokesman George Papaconstantinou said it "empty of content",
and proved that Karamanlis has completely lost touch with the
reality. He criticized Karamanlis for protecting corrupt
ministers. Communist Party of Greece (KKE) political bureau
member Makis Mailis said "the working class" would continue to
oppose the PM's pro-business, pro-EU path. Coalition of the
Left, Movements and Ecology (SYN) leader Alexis Tsipras said the
speech revealed the PM's personal responsibility for the
government's "heartless" policies. Several labor unions
demonstrating against the PM before and during his speech echoed
opposition criticism, with some demonstrators carrying placards
depicting Karamanlis as Marie Antoinette.

MEDIA REACTION AND ATMOSPHERICS


9. (SBU) Several journalists and other observers commented that
the PM seemed uncomfortable and rushed while delivering his
speech, despite the frequent applause and friendly audience.
While at times the PM spoke forcefully and convincingly, his
speech struck many as lackluster and downbeat. During his
September 7 press conference, the PM appeared defensive and
uncharacteristically nervous, often apparently reading answers
from prepared notes. The absence of the traditional banquet
accompanying the speech this year contributed to an undercurrent
of malaise and economic decline.

COMMENT


10. (SBU) For some, Karamanlis' "stay the course" message
conveyed resoluteness in the face of adversity. For many,
however, the message translated as stubborn adherence to the
status quo, including accepting a high cost of living and
government corruption. Though the speech managed to touch on
the full range of economic challenges pre-occupying ordinary
Greeks, it lacked a coherent vision and provided few detailed
remedies or new ideas. In addition, Karamanlis portrayed an
almost truculent stance in support of his government's recent
tax increases, which many believe are the government's panicked
attempt to shore up a budget that was on the verge of busting
the GoG's 2008 deficit target. Public criticism has focused on
the government's willingness to pass the "cost" onto the public
through increased taxes, but unwillingness to make the hard
policy decisions necessary to reduce expenditures. Many of the
initiatives he mentioned, e.g. the Thessaloniki metro, are
long-standing promises he and his predecessors have been
dangling for years. To gain support for his reform agenda,
Karamanlis will at a minimum need to match more words with
deeds, including on government transparency, and demonstrate
that the reforms produce not only impressive statistics but
tangible benefits for ordinary citizens. It is clear, however,
that maintaining "reform" remains one of those rare issues that
the PM has chosen to seek to advance. Reform, however, in the
PM's lexicon translates into small steps on the margins as
opposed to broader efforts that could succeed in achieving solid
results.


11. (SBU) Embassy Athens Comment: Karamanlis' foreign policy
remarks, both in the speech and in the subsequent press
conference, revealed little new in terms of Greek policy.
Greece will continue to participate in negotiations to find a
solution to the Macedonia name issue, but is awaiting more
positive signals from the Macedonians that it can accept a
solution comprised of a composite name with a geographic
modifier that has a very broad scope of use. On relations with
Russia, the PM annunciated what we are increasingly sensing as
GOG policy -- and which we believe to be driven by Karamanlis
himself: that Greece would support the political positions of
the EU to uphold Georgia's territorial integrity, while
continuing business as usual with Russia on energy and other
economic issues. We will continue to express our concerns with
this approach with GOG interlocutors at all levels. We also
note that this policy of Greece's having its cake and eating it
too could become increasingly problematic as Greece assumes the
role of OSCE Chair-in-Office in January, 2009.
YEE