US embassy cable - 05ATHENS2684

UNCLAS SECTION 01 OF 02 ATHENS 002684 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, GR 
SUBJECT: GREEK INDUSTRIES CHIEF ON THE ILLS THAT PLAGUE THE 
GREEK ECONOMY 
 
 
This cable is classified Sensitive but Unclassified.  It 
should be treated accordingly and not used for Internet 
distribution. 
 
1.  (SBU)  Summary.  The Ambassador met October 11 with 
Federation of Greek Industries (SEV) Chair Ulysses 
Kyriacopoulos to discuss the state of the Greek economy. 
Although the SEV Chair was broadly supportive of PM 
Karamanlis' rhetoric at the Thessaloniki trade fair, but he 
was critical of the government for how it was actually 
implementing its economic policies.  Whether it be 
containment of public sector wages, tax policy, or employment 
policy, Kyriacopoulos did not hesitate to give the government 
bad marks.  End Summary. 
 
------------------------------ 
Thessaloniki Economic Speeches 
------------------------------ 
 
2.  (SBU)  Kyriacopoulos repeatedly praised PM Karamanlis's 
Thessaloniki Trade Fair economic policy speech, noting that 
an SEV-drafted speech would not have looked much different. 
He stated, however, one concern: the PM's promise to keep in 
government employ the entirety of Olympic Airlines staff, 
regardless of performance level.  This set a bad example for 
other public sector workers and highlighted the very 
different working conditions between the public and private 
sectors.  The SEV Chair was far less complimentary about 
PASOK leader Papandreou's corresponding Trade Fair speech, 
calling it too long, too general, and not "punchy."  He 
admitted having liked the opposition leader's stress on the 
importance of education, however.  Kyriacoupolos noted he 
would have advised Papandreou to push much harder now for 
educational reform; assuming he ever became PM, Papandreou 
would benefit tremendously from having tried to get change 
going now, rather than waiting.  This was a lesson PM 
Karamanlis was learning now vis-a-vis pension reform, which 
was taking much longer than the PM had expected. 
 
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The Economic and Business Climate: Bad 
-------------------------------------- 
 
3.  (SBU) Kyriacopoulos was unimpressed regarding the state 
of economic policy.  The government had just "let the 2004 
deficit go" in the hopes that it was easier to blame previous 
PM Simitis rather than make any fundamental changes.  This 
year's deficit could reach almost as high as 2004, in view of 
the EC's reluctance to approve the use of debt securitization 
in either 2005 or 2006.  Kyriacopoulos said he was in any 
case extremely sceptical that FinMin Alogoskoufis would be 
able to collect all the revenues upon which the 
securitization was based.  The deficit problem was just a 
symptom of a larger disease: "The Greek government is not 
able to reform itself."  Kyriacopoulos pointed to the problem 
of labor reform.  FinMin Alogoskoufis' promise to keep wage 
growth in the public sector to 2.5% (which really meant 3.5% 
in view of the automatic increase in personal wages as 
employees moved up the career ladder) was just a small 
beginning.  What about cutting the actual size of the public 
sector?  Kyriacopoulos saw no movement on that front: 
"There's the same number of ministries with the same number 
of workers."  He savaged the GoG's plans to "reinvent 
government" as full of hot air: "What are they talking about? 
 "New Ethics;" "New R&D"  It's nothing."  A true reinvention 
would result in a much leaner and more agile body of workers 
who actually worked.  It would eliminate bureaucracy, create 
clear rules, reform land use regulations, etc. 
 
4.  (SBU)  The SEV Chief also savaged current GoG tax policy, 
particularly with respect to tax audits.  Noting that the 
budget contained an item "Tax Collections from Previous 
Years," valued at approximately 2.5 billion Euro, 
Kyriacopoulos explained that the GoG pressured government tax 
collectors to make the "quotas" necessary to bring in this 
amount of revenue.  This meant that almost any tax audit 
turned up discrepancies, which were usually of an entirely 
unpredictable nature.  As a result, businessmen had literally 
no idea what their effective tax rate would be from one year 
to the next.  This was particularly difficult for foreign 
companies potentially interested in investing in Greece to 
understand.  Moreover, the SEV Chief noted, the real problem 
vis-a-vis tax collection was exposing the black economy, 
something the GoG had not focussed on adequately. 
 
5.  (SBU)  To provide examples of the need for urgent labor 
reform, Kyriacopoulos outlined the Greek Government's legal 
rights to appoint up to 8% of the work force of a 
private/private company employing more than 50 people.  At 
least 4% of the work force should be handicapped, and the GoG 
had the right to decide who those 4% should be.  The other 4% 
should be made up of children of large families and Greeks 
who had fought in the resistance.  Once again, the GoG had 
the right to decide who these people were.  As Kyriacopoulos 
admitted, the GoG rarely exercised this right, but that it 
could do so added a large degree of unnecessary uncertainty 
to corporate planning.  This was typical, he felt, of the 
current state of how businesses operated in Greece. 
 
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SEV's Image Has Suffered under ND 
--------------------------------- 
 
6.  (SBU) Kyriacopoulos said SEV's image had actually 
suffered under the New Democracy government.  It had 
maintained good relations with the Simitis government, which 
had actually used some of the organization's ideas.  Under 
the current government, however, the press (which 
Kyriacopoulos maintained was in the pocket of PASOK) was 
claiming that "economic policy is run out of Zenophontos 
street (SEV's address), with the government simply 
implementing SEV policies." 
 
RIES