Greece: Government Manages to Suspend Port Strike, But For

UNCLAS SECTION 01 OF 04 ATHENS 001581

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PGOV PREL ECON ELAB GR CH
SUBJECT: Greece: Government Manages to Suspend Port Strike, But For
How Long and At What Cost?

REF: 08 ATHENS 1635

ATHENS 00001581 001.2 OF 004



1. (SBU) SUMMARY: Confronting its first major challenge since
taking office, Greece's new PASOK government negotiated a temporary
suspension to a dockworkers' strike on October 17. Latching onto
PM Papandreou's pre-election promises to re-examine privatization
agreements, dockworker unions at the port of Piraeus went on strike
October 1, demanding that the government scrap a concession deal
granted to the Beijing-based China Ocean Shipping Company (COSCO)
Pacific. COSCO is a shipping conglomerate scheduled to take over
management of one of two existing cargo terminals on October 1 and
to rebuild and manage a third terminal currently not used. The
tentative deal to suspend the strike, about which few details are
known, ended a 16-day saga that had paralyzed Greece's busiest
commercial seaport, cost businesses and the government tens of
millions of euro in lost revenue, and stranded over 10,000 shipping
containers.




2. (SBU) SUMMARY CONTINUED. On the surface, the suspension of the
strike appears to be a win for the new government. But it was not
the decisive pro-business, pro-competition conclusion for which
many affected business and potential investors had hoped, and it
remains unclear what the government promised dockworkers to go back
to work and whether it can deliver. Despite the suspension of the
strike, and depending on any further negotiations, the PASOK
government will continue to face challenges placating the powerful
dockworkers' union as well as other labor groups looking to exploit
the government's pro-labor leanings. More significantly, PASOK's
apparently ambivalent approach to upholding the terms of the COSCO
contract--signed by the previous government and approved by
Parliament--raises fresh doubts over Greece's ability to attract
and retain foreign investors in the midst of a global financial
crisis that is forcing all to compete for a dwindling and
increasingly risk-averse pool of foreign direct investment (FDI).
In a battle that serves as a microcosm for the innate tensions in
Greece between social democratic instincts and efforts to modernize
and make the economy more competitive in order to attract much
needed foreign investment, the victor remains elusive. END
SUMMARY.



--------------

COSCO: A Controversial Privatization from the Start

--------------




3. (U) In November 2008, in the presence of former ND Prime
Minister Kostas Karamanlis and visiting Chinese President Hu
Jintao, COSCO and the Piraeus Port Authority (OLP) signed a
landmark 4.3 billion euro (6.4 billion USD) port privatization deal
granting COSCO up to a 35-year concession to manage one of two
existing terminals and to rebuild a third terminal at Piraeus,
Greece's largest port, near Athens, and the top container port in
the eastern Mediterranean. (See reftel for Greek and Chinese
perspectives on the deal.) Under the terms of the contract,
COSCO's Greek subsidiary was granted, after a transition period,
the right to manage all shipping transactions at terminals II and
III. In exchange, COSCO promised to: a) retain for the time being
all employees that currently work at the two terminals it will
oversee (approximately 600 out of OLP's current Piraeus workforce
of 1,500); b) invest millions of euro to upgrade the terminals'
container-handling capacity, more than doubling the port's current
capacity, thus creating 1,000 new jobs; and c) reserve 10 percent
of new hires for the qualified children of current unionized OLP
employees. OLP, in turn, would retain exclusive control over the
operations of terminal I. In the view of the Athens Chamber of
Commerce and Industry (EBEA),this landmark deal was a win-win for
all parties. For the GoG, which managed to achieve a major
agreement prior to the onset of the financial crisis in Greece, the
privatization and resulting expansion of port capacity was seen as
helping to create greater role for Greece in Mediterranean shipping
and transport. Export and import businesses and consumers hoped to
benefit from increased port competition, which would decrease
processing fees and reform the inefficient and corrupt offloading
process, bringing down shipping costs and the cost of consumer
goods over time. For labor in general, the deal maintained
intergenerational job security and provided the possibility of new
jobs.

ATHENS 00001581 002.2 OF 004



4. (SBU) Dockworker and port authority employees' unions, which
had been calling intermittent complete and partial strikes and
refusing to work overtime and weekends since the government
announced the international tender for the port's operations in
early 2008, immediately criticized the deal in November and
continued to refuse to work overtime or weekends. Coinciding with
the negative effects of the global economic crisis on shipping
worldwide, strike action resulted in the Piraeus port suffering the
biggest decline in container traffic among the world's 100 busiest
ports, caused several major shipping companies to temporarily
forsake Piraeus for the Greek port of Astakos and other European
ports, and increased the cost of transported consumer goods as a
result of higher transport and processing costs. While no specific
statistics are available, EBEA indicated to DepEconCouns that many
Greek export businesses were forced out of business as a result of
delays and increased costs.



--------------

Dockworker Unions: A Powerful, Corrupt Monopoly

--------------




5. (SBU) The Dockworkers' Union and the Federation of Greek Port
Personnel (OMYLE) have long held a labor monopoly over the
operations of Greece's two major ports in Piraeus and in
Thessaloniki. Controlling exclusive contracts with the Piraeus
Port Authority (OLP),the unions have reaped substantial financial
benefits, with ironclad job security, guaranteed hiring privileges
for the children of union members, and annual dockworker salaries
in the range of 90,000 to 140,000 euro (135,000 to 210,000 USD),
once overtime and other benefits are factored in--far above the
average Greek yearly salary of 32,280 USD (National Statistics
Services of Greece, data for 2008). According to union contacts,
EBEA, and media reports, dockworkers also benefit from systematized
corruption, manipulating the customs processing bureaucracy to
expedite the containers of shippers who pay an extra fee--or
holding up imports for those who refuse. All of this translates
into what EBEA describes as the most expensive port in Europe in
terms of fees and costs for shipping companies, importers, and
exporters. Privatization and competition would change all this and
lessen opportunities for rent-seeking behavior. Post's union
contacts described the COSCO deal as threatening long-established
dockworker salary levels and inter-generational job security, as
OLP will need to cut costs in some way in order to stay competitive
with the COSCO-operated terminals. Union officials noted that
while they traditionally wield powerful influence within PASOK,
they were willing to fight any government seeking to reduce their
benefits.



--------------

PASOK as Candidate vs. PASOK as Government

--------------




6. (SBU) During the run-up to October domestic elections, PASOK
party leader (and current prime minister) George Papandreou and his
team played to traditional PASOK constituencies, such as the
dockworkers and labor unions, by criticizing the COSCO and other
privatization deals signed by the New Democracy (ND) government and
promising to re-examine and potentially renegotiate them once in
office. This populist rhetoric was seized on by the dockworkers'
union as a sign of support for their cause, and the union announced
a strike days before the October 4 election, forcing the issue to
the forefront of the PASOK agenda.




7. (SBU) After PASOK's electoral victory, PM Papandreou directed
Louka Katseli, his new Minister of Economy, Competitiveness and
Merchant Marine, to deal with the dockworkers. Katseli, who is,
according to many Embassy contacts, sympathetic to labor causes,
was initially criticized in the press and by businesses for her
early handling of the crisis and was seen to have failed to take a
decisive, firm position with the unions. (NOTE: At one point,
Papandreou announced that he would transfer the task of negotiating
between COSCO and the unions from Katseli to the Deputy Minister of
the Ministry of Infrastructure, Transportation, and Networks, but

ATHENS 00001581 003.2 OF 004


at least publicly, Katseli appeared to remain in the drivers' seat.
END NOTE.) Katseli made general announcements to the press that
the GoG was "in negotiations" with the parties and had started
talks "on a new basis" but provided few details. Katseli
repeatedly stressed the importance of the shipping sector and of
turning Piraeus into a Mediterranean hub to Greece's economy, but
failed to mention the importance of strategic agreements such as
the COSCO deal in achieving this goal.



--------------

The Business Perspective: Enforce the Contract!

--------------




8. (SBU) COSCO's position on the strike, according to press
reports, was that it was willing to "discuss" issues of "mutual
benefit" but only after dockworkers returned to work. EBEA told
DepEconCouns that under the terms of COSCO's contract, COSCO was
entitled to damages of 1.5 million euro per day for any delays in
the implementation of the contract but had decided not to exercise
the penalty clause pending timely resolution by the GoG. EBEA
officials also said that COSCO and Greek and international
export-import businesses were increasingly frustrated by the
government's failure to force the strikers back to work. As a
result, on October 16, EBEA filed a lawsuit to declare the strike
illegal, citing as a precedent a 2008 court case that ruled the
2008 dockworker strike actions "illegal and abusive" and prohibited
future repetition of the same actions for the same reasons and
demands (i.e., to force the government to abrogate the contract
with COSCO). EBEA President Constantine Michalos said that it was
an "embarrassment" and a "dereliction of duty" that the government
did not go to court on its own. The following day, likely due to
the lawsuit and Katseli's verbal assurances against layoffs and
guarantees to expand hiring privileges for dockworkers' children,
the union agreed to suspend the strike and return to work. Press
reports indicated that the strikers agreed to return to work to
allow for discussions with COSCO, and that the first stage of
COSCO's operations to take over the privatized terminals has been
delayed from October 1 to November 2. It remains unclear what the
dockworkers were promised and what COSCO is willing to negotiate.



--------------

Costs and Consequences

--------------




9. (SBU) The series of intermittent strikes at Piraeus, culminating
in the most recent work stoppage, has further exacerbated the
impact of the global financial crisis on port revenues. According
to EBEA officials, the port lost 500,000 euro (750,000 USD) a day
during the recent 16-day strike. EBEA also calculates that the
loss of public revenues (from taxes and levies) amounted to 3
million euro (4.5 million USD) per day. These losses do not
include the financial impact on local industries from delayed or
cancelled deliveries and exports, estimated by the Association of
Attica and Piraeus Industries (SBAP) to be 5 million euro (7.5
million USD) per day. Other, less easily quantifiable losses
include the effect on export-reliant Greek businesses that have
already suffered in the financial crisis. EBEA told DepEconCouns
that they expect this strike to deal the death knell to dozens of
these businesses as the people and companies they supply will make
permanent moves to other suppliers in other, more reliable
countries. Some press reports indicated that the 10,000 containers
stranded at the port contained items such as food and medicine that
already may have perished. Perhaps the most difficult cost to
quantify is the loss of credibility and harm to Greece's and
PASOK's reputations, as the lack of decisive action highlights for
potential investors the challenges of doing business in Greece and
a potential lack of contract enforcement.




10. (U) According to the World Bank's "Doing Business 2010"
survey, Greece is ranked last overall among OECD countries for ease
of doing business. Compared to all countries worldwide, Greece's
ranking for ease of hiring and firing workers fell 12 spots, to
147th in the world. Transparency International's 2009 Global

ATHENS 00001581 004.2 OF 004


Corruption Barometer reported that 18 percent of Greeks reported
that they or their family members had paid a bribe in the previous
12 months--placing Greece in the same company as countries such as
Nigeria and Belarus.



--------------

COMMENT: PASOK: Caught Between Rhetoric and Reality

--------------




11. (SBU) While the strike's suspension may at first glance seem to
be a victory for the government, the strike and the GoG's handling
of it underscore how the party is caught between its pro-labor,
socialist-leaning ideals, and the practical measures it must
implement in order to reform and restart the Greek economy.
Papandreou came to power promising many things to many people. He
promised PASOK's traditional labor union constituencies that he
would reexamine and potentially renegotiate privatization deals.
He promised the average Greek citizen that his government would
improve daily life and make government more transparent and
accountable. He promised markets that PASOK would implement
structural reforms and make Greece more business-friendly. Moving
forward, however, it will be increasingly difficult for PASOK to
try to please all these constituencies. In its worst financial
crisis in over 70 years, Greece's economy has slowed substantially
and its structural flaws have been further exposed. Most Embassy
contacts consider Papandreou to still be in his post-election
honeymoon period, but reality will soon catch up with him.
Papandreou will have to take decisive, bold action to convince
citizens, laborers, and investors alike that Greece is serious
about structural reforms, that their contractual rights will be
respected, and that Greece is a reliable investment partner.
Absent such action, PASOK may doom Greece to a slow
half-recovery--or worse. END COMMENT.
Speckhard