Greek government finds road to EMU strewn with thorns

Strikes and trade-union protests brought Greece to a standstill earlier this week with a nationwide display of anger against government fiscal reforms. The 24-hour general strike - backed by a range of unions from doctors to bus drivers - was called to oppose efforts to streamline Greece's economy and qualify for participation in the EMU from 2001.

And fears of a new round of unrest have been kindled with the opening of the budget debate in Parliament yesterday. However, the Prime Minister, Mr Costas Simitis, has vowed to stick to his austerity programme.

This week's strikes and protests came as the climax to weeks of protest against the government's plans to streamline various sectors of the economy as part of its drive to qualify Greece for economic and monetary union (EMU) in 2001.

In the frantic race to qualify, Mr Simitis and his government have tightened incomes' policy, pulled back welfare benefits and started selling off state companies. But they have remained adamant that the government will not change its plans.

The Simitis government "is not here to be popular but to do what needs to be done", one spokesman said, blaming the need for harsh measures on waste by previous governments. But ordinary Greeks are frustrated that they are being asked to sacrifice without seeing any discernible change.

For weeks, train drivers, customs officials, small business owners, teachers, taxi drivers and a host of others have staged their own protests, clogging city streets and, in the case of the customs officers, starving the country of petrol.

Both the President of the European Commission, Mr Jacques Santer, and a recent Morgan Stanley report believe the Greek economy is capable of meeting the criteria for joining EMU from 2001.

In a recent interview with the Greek newspaper, Ethnos, Mr Santer, said: "Greece's economy has made very satisfactory progress in recent years. If the programme is implemented, I think the government's goal of entering the euro zone in 2001 will be feasible . . . I think the Greek government has every likelihood of achieving its goal."

Inflation is widely regarded as the biggest hurdle to Greece's EMU entry, and the government's efforts are aimed at bringing inflation down from the current level of 4.7 per cent per cent to 2 per cent by the end of 1999.

Mr Simitis recently predicted that consumer price inflation would ease to around 4.1 or 4.2 per cent by the end of this year, lower than the original official projection of 4.5 per cent. Similar predictions have been made by the deputy governor of the Central Bank, Mr Panayotis Thomopoulos, who expects inflation to fall to 4.1 per cent year-on-year this month, before declining to 2 per cent for the end of next year.

As part of these efforts, the government has announced sweeping price restraint agreements with hundreds of firms and business associations. Under the agreements, Big Macs will cost no more next year than they do today. And the same restraint applies to a wide range of items from bread to air conditioners to designer clothes, according to the Development Minister, Dr Vasso Papandreou. Earlier last month, the government announced sharp cuts in taxation for cars, electricity, heating oil and petrol, and has promised not to increase the cost of public utilities next year.

The Governor of the Central Bank, Mr Loucas Papademos, remains optimistic that the inflation target will be met, and in support of his positive outlook has cited falling labour cost inflation, tight monetary policy, and administered price intervention by the government - Dr Papandreou's so-called "gentlemen's agreements" and lower indirect taxes.

However, he has warned that the goal should not be taken for granted, and he warns that the effect of the latest government measures "will only be temporary if not accompanied by the appropriate monetary policy".

Analysts have warned that Greece will be hard-pressed to meet its targets. The Morgan Stanley report by Mr Riccardo Barbieri warned that further progress on meeting all the requirements for EMU hinged on disinflation, the lack of global financial market contagion and the avoidance of a breakdown in social and political support for the government bid.

During Tuesday's strike, a small breakaway group of protesters hurled rocks and petrol bombs at the Finance Ministry in central Athens. There were no injuries or arrests and damage was limited to broken windows, and the action was blamed on anarchists.

But despite the optimism of Mr Simitis and his party colleagues in the Panhellenic Socialist Movement (Pasok), this week's strikes and protests, and increasing speculation about an early election next year, are severe warnings that social and political support for the drive towards EMU membership cannot be relied on.