Cause and Effect in European Politics and Law

Will Greece Become a State Beside Only a Name?

Ralitsa Kovacheva, March 20, 2012

In the course of last year Greece was the most popular topic in European media. Sometimes it was due to tense late-night meetings of the European leaders,or to the European citizens` dissatisfaction with the need to pay Greek bills or the protests of the Greeks themselves against wage and pensions cuts.

What was lacking to make the picture complete was exactly what to be done to help the country exit the vicious circle of poor governance and large public expenditure, covered by even greater debt amidst a five-year economic recession. This issue became even more pressing, after Greece has been saved from disorderly default for a second time in two years, and private creditors have written off 100 billion euros of Greek debt. This gave some breathing space, needed by the Greek authorities to start repairing their country or even to rebuild it, as you might think while reading the report of the Task Force of the European Commission for Greece.

The Task Force started work last September with the task to provide technical assistance to the Greek government. It is headed by Horst Reichenbach, a German, formerly vice president of the European Bank for Reconstruction and Development. It consists of 45 experts from the Commission and the member states, 15 of whom are permanently based in Athens. The Task Force is providing assistance in several key areas (policy domains): budget and taxation; financial sector; cohesion funds and agriculture; business environment, public procurement and competition; labour market, public health, justice and home affairs; administrative reform, e-government, statistics; civil society and social partners. Experts from different Member States help in different areas, depending on where they have most experience and best practises, but it is not surprising that the key areas are dominated by representatives of France and Germany.

Perhaps greatest progress has been achieved in terms of EU funds absorption, the report shows. Absorption of funds under Cohesion Policy by the end of 2011 was 35% (of totally 20.4 billion euros, allocated for Greece under the current programming period), which is slightly above the EU average at this stage of the programming period. In the first months of 2012 the absorption rate has surpassed 40 percent, the Task Force`s head Horst Reichenbach said. The reason for this improved absorption is the European Commission`s decision to increase the EU`s co-financing rate to 95% and thus the EU funds for Greece reached 958 million euros. A list of 181 priority projects has been selected, which account for 56% of the money for the whole programming period.

The most important projects in terms of their size and expected impact are five concessions for 1,400 km of highways worth 3.2 billion euros. Work on four projects is interrupted due to the economic crisis, but according to the EC, if completed, the projects could provide 30,000 jobs and boost investment. Currently negotiations are under way between the Greek authorities and the concessionaires, where banks too will be involved later to ensure financial viability of the projects, Horst Reichenbach explained. Negotiations are expected to be completed by midyear.

The working group is also proud with the first "promising results" in tax collection - in 2011 almost 1 billion euros were collected in tax arrears, compared to an initial target of 400 million euros. Outstanding collectible tax arrears are estimated to amount to 8 billion euros. According to the first Task Force report from November 2011, however, the total amount of unpaid taxes is 60 billion euros. Pushed by journalists' questions, the Task Force head reluctantly explained that half of this amount could not be collected because of bankruptcies or other reasons. 30 billion euros are enshrined in the Greek tax archives, but their collection is uncertain because of lawsuits or other factors. Thus, the modest sum of 8 billion euros remains, which the Greek authorities expect to be able to collect. Along with the tax reform, a judicial reform is also taking place focused mainly on clearing the backlog of tax cases.

A serious challenge is the reform of public administration, moreover given the need to reduce its number and strengthen its capacity at the same time. France is the domain leader in this area, while Germany is providing assistance in terms of regional and local governance and decentralisation. The aim is "to improve the effectiveness, accountability and integrity of the administration and to simplify the administration's decision-making processes”. The report says it is needed to reduce “the number and variety of senior posts to establish a clearer hierarchical structure with simple and clear lines of command”.

One of the main priorities is to conduct a health care reform because some 6% of the overall GDP and over 11% of all public expenditure in 2009 are spent on health. One major reason for the enormous costs is pricing of medicines and the over-consumption of drugs - the consumption of antibiotics per capita and the number of physicians per capita in Greece are almost twice as high as elsewhere in the EU. As is clear from the report, the entire system is currently being reshaped - from health insurance funds to the introduction of e-prescriptions. Germany, meanwhile, has agreed to be domain leader of hospital management.

Among the goals of the Task Force is to implement the action plan of the Greek government on migration and asylum. Greece is facing serious problems with illegal immigration, especially on its border with Turkey, as Austria and Germany have threatened to restore their border controls if Greece does not solve the problem. The Task Force should assist the Greek authorities to absorb 234 million euros of EU money earmarked for dealing with the problem.

As the most important task for Greece, however, the Task Force head defined improvement of business environment to create conditions for investment and growth based on exports. According to a Greek survey, 60,000 enterprises are estimated to have closed since the start of the crisis to date. This number is forecast to double by the end of this year. Meanwhile, the number of new business start-ups is in sharp decline. This is not surprising, given some of the examples in the report. Customs control takes on average 20 days in Greece vs. 10 days in the EU on average. Exporters must complete complex and onerous paper-work, moreover all export documents have to be completed and handled manually by the exporters who may have to deal with 10 different ministries and 30 agencies.

Therefore the focus should fall on reducing regulatory and administrative barriers and facilitating exports, simplification and "professionalisation" of public procurement, elimination of regulatory barriers in key business sectors. First steps have already been made in terms of liberalisation of some regulated professions.

Horst Reichenbach estimated that the Task Force would continue its work in Greece for the next two years, but stressed that there was no deadline. He expressed confidence that the upcoming parliamentary elections would not undermine the work and the time until the elections would not be lost. Greek ministers are aware that time is pressing and they want to prepare the ground for the next government, Mr Reichenbach said. Though this argument did not sound very convincing, another reason brings far greater certainty: the second Greek package contains very strict deadlines for implement ion of the programme and the Greeks know that the success of the country depends on meeting these deadlines.