How Papandreou fell in a spiral of decay and disappointment

 

EUROPEAN DIARY:GEORGE PAPANDREOU’S exit was quick in the end, his fate set finally by the catastrophic decision to call a referendum on the Greek bailout.

The sharpened blades were already out for him. The wonder was only that he survived for so long.

For months the word from Athens was that he was doomed, with only the mode and the timing of his departure remaining in question. He was prime minister for little more than two years, two wearing years of tumult and woe. Besieged in cabinet, vilified on the streets, harried in Europe, the news was never good.

In showdown after showdown in Brussels with his masters, Papandreou often conveyed a sense of dread. He would appear sheepish and drawn.

In his rhetoric, however, he would calmly cast his mission as leading an urgent national renewal. Yet the mood in Athens always seemed nearer to rebellion than reform.

When the bailout pact was made 18 months ago, there was some hope for a time that a bout of external policy direction and supervision would jolt the state into action in the manner of an electric prod.

But drift soon set in. Whatever progress was made came too slowly, and there was not enough of it. Targets were missed, rescue loans were delayed, recession deepened. As the debt crisis spread, the outlook worsened steadily.

A few things stand out, among them the contemptuous, uncompromising anger of anti-austerity protesters in Greece.

Venom is the word. Mention Papandreou and they would raise their eyes to heaven.

They castigated him for being out of touch with ordinary folk, for doing bad deals with his lenders, for his clunky command of the Greek language, for not confronting tax evaders.

But their anger was not confined to the prime minister. To report on a national strike was to hear bitter complaints about the entire political class and the rampant, ingrained corruption in Greek public affairs.

Papandreou acknowledged the corruption scourge early on, telling his EU counterparts in a key summit meeting that the country was riddled with the problem. It was a signal moment. There were many others.

In May last year three bank officials – two women and a man, all in their 30s – were killed when rioters set fire to their bank branch in downtown Athens. Papandreou was visibly shaken.

At the time the protests looked like they might spiral out of control, but the deaths seemed to pull things back from the brink.

Still, the force of public hostility at the austerity drive sapped the unity of his cabinet and the will of the Pasok socialist party to proceed with the most painful cuts. It was a self-reinforcing spiral of decay. Progress proved elusive on the reform front. The failure to execute promised policies seriously weakened Papandreou. He had nothing at all to show for the domestic strife he was enduring and his international standing plunged.

In Europe, however, two fundamental principles remained sacrosanct, at least until they were abruptly dropped.

The first was that Greece would never default on its mountainous national debt, the second that it would never leave the euro. Each of these duly fell by the way.

Europe went for “default light” in July with an initiative designed to bring about a “voluntary” 21 per cent reduction in the country’s privately held debt. Something altogether more severe would follow.

A fortnight ago, EU leaders adopted a plan for a 50 per cent debt “haircut” with another dire austerity campaign attached. Papandreou, by then on his last legs, called the referendum.

The blunder triggered an overwhelming show of force from Berlin and Paris. For the first time, euro zone leaders raised the prospect that the country might actually leave the single currency. Not only did this reflect their exasperation at Greece’s failure to put its house in order, it was also a fair measure of the disquiet and anxiety that now surrounds Italy.

Priorities have shifted. There was a time when the EU authorities would say that Greece could not leave the euro because it was important that the country – for all its faults – remained a beacon of relative stability in the Balkan region generally. There’s little scope now for that kind of thinking. Athens is no longer the focus; people simply want the problem to go away.

Greece is a minnow in euro terms, as are the other bailout recipients, Ireland and Portugal. Italy is something else altogether. The third largest country in the single currency is saddled with voracious requirement for new debt to keep repaying existing bonds as they mature. This means Italy and its wayward prime minister Silvio Berlusconi survive only at the mercy of markets.

That does not bode well for Berlusconi, whose grip on power seems ever more tenuous. Even as he pledged yesterday to go on and on, expectation intensified that he would soon be forced to go the way of Papandreou. As the debt crisis expands radically, the casualties are piling up.