US embassy cable - 05ATHENS2439

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