ATHENS (Reuters) - Greece has a long history of promising reforms to its creditors and not delivering, and this time looks set to be no different.
The Greek parliament defied violent street protests and voted in even more austerity, but fully implementing the measures is likely to prove an impossible task given acrimonious political divisions and deep-seated social unrest.
The package including public sector layoffs, sharply cutting the minimum wage and already dwindling pensions, as well as widespread tax increases has unleashed indignant public anger and tested the will of Greek politicians.
After decades of using public services as political spoils, the Athens government must also take on the corruption and inefficiency they fostered before they can implement the reforms that creditors demand before releasing further funds.
“They probably won’t be able to implement everything and (April) elections make it more difficult,” ALCO pollster Costas Panagopoulos said.
The punishing austerity bill was needed to secure a fresh bailout and avert a messy default that would shake the euro zone and comes after two years of wage cuts and tax hikes that have plunged Greece into its worst recession in decades.
International lenders, the IMF and the EU, blame the failure of the rescue plan so far on slow implementation of structural reforms, such as the opening up of markets and professions. There is widespread skepticism because of a long history of missed targets.
“Past history does not give us a lot of hope,” said Diego Iscaro of IHS Global Insight.
“Every time Greece has to receive a tranche of the money we’re going to have the same problem. If they keep missing targets, sooner or later they won’t get the money. There is a chance this is just delaying the inevitable.”
Athens says the deeper than expected recession has put it behind agreed targets. Data on Tuesday showed the economy shrank 7.0 percent year-on-year in the fourth quarter last year, as the downward spiral quickened from 5.0 percent in the third quarter.
“Yesterday’s vote in the parliament may have saved the country temporarily from default, but the Greek economy is going bankrupt and the country’s political system is failing,” said Greek Commerce Confederation head Vassilis Korkidis.
Greece has repeatedly voted in measures and privatizations that have never materialized. It is proving a Herculean task.
The government has passed laws as many as three times to open up the legal and pharmaceutical professions to more entrants, aiming to make them more efficient and bring down costs, with no visible results, angering reformers as well as creditors.
The lucrative Greek cruise ship business, crucial to the key tourism sector, still suffers from restrictions two years after it was officially liberalized.
As a result far fewer of the big modern cruise liners moor at Greece’s picturesque ports and bays than for instance in Italy, depriving souvenir shops, cafes and restaurants ashore of armies of customers.
EU and IMF partners have voiced their exasperation openly, increasingly reluctant to commit another 130 billion euros to bail Greece out unless political parties clearly back the measures long term.
The three-month-old coalition government of technocrat Prime Minister Lucas Papademos, now backed by just the main two parties after the far right walked out refusing to vote for the austerity bill, does not have much time left with elections expected in April.
The conservative New Democracy party is set to win the vote but not outright, risking yet more political paralysis while parties argue over forming a coalition, or a repeat election if they fail. All this will make the political scene unstable for months to come and tough reforms even harder to implement.
New Democracy leader Antonis Samaras has openly criticized the deal, saying it only plunges Greece deeper into recession and has made clear he wants to renegotiate the terms, adding measures such as tax reductions and speedier privatizations.
Samaras, 60, believes the measures are self-defeating and will not turn the Greek economy around, a view increasingly shared among Greeks, especially small business owners who saw Sunday’s mayhem destroy their last hope of a recovery soon.
Many economic analysts say the only way Greece can improve competitiveness is to exit the euro and devalue its currency, doubting a bailout will be fully functioning by the end of 2012.
Labor and welfare reforms may take years to show results and an ambitious, 50-billion-euro privatization program has proved disappointing, with little prospect of reaching its full potential soon as investors keep away from crisis-hit Greece.
In a first test for parties, before Wednesday’s Eurogroup meeting called to approve the fresh bailout, Greek political leaders must give concrete assurances they will back the plan after the election and the government must come up with 325 million euros in cuts to secure aid.
Government officials said the expulsion of about 40 deputies who voted against the bailout from the two main parties was a good omen, cleansing parliament of the main opponents to the measures.
“Now we have a dress rehearsal of what the next, two-party government might look like,” said a government official, who requested anonymity. “With the expulsions, all the populist elements are gone and there is more hope reforms will be done.”
Sunday’s vote in favor of a new wave of austerity was a sign politicians realized they must make a serious effort to tackle the crisis, government officials say.
But the election may well produce another government which is hesitant to push unpopular reforms through.
“There is a risk of a huge swing towards fringe parties and the only way to stop that would be for the big parties to go back on the agreements they make and the assurances they have given,” said Ben May of Capital Economics.
A recent poll showed Socialist party supporters moving to other groups further to the left, its standing down to 8 percent from more than 40 percent in the 2009 election.
But politicians face widespread public anger, evident not just in the angry youths that burned or wrecked 93 buildings in Athens on Sunday night but increasingly among middle-class business people and civil servants who turn out to protest.
“They should have asked us before voting another round of awful austerity measures that will never get us out of the crisis,” said Persa Lissimakou, 31, a bank clerk, watching fire fighters put out the burning roof of a building. “It’s such a shame, especially for the people who worked here.”
Athenians held a candlelit vigil outside the historic Attikon theater building, dating to 1870, which went up in flames during the riot and shop owners picked up the pieces of destroyed and looted shops in the city centre.
Although the government has said it expects first signs of economic growth in late 2013, after five years of recession, unemployment has risen to record highs, the number of homeless and beggars on the streets of the capital visibly increasing.
During Sunday protests, police said the usual number of 300-500 black-clad youths that usually prompt the violence by attacking police with rocks and firebombs had swollen to 2,000.
With one out of two youths now out of a job and more and more families having to rely on one, trimmed down salary, social discontent is bound to become explosive.
“It’s not over yet. On the contrary, this was just the beginning and we will see more,” said Mary Bossis, professor of International Security at the University of Piraeus.
Additional reporting by Renee Maltezou; Writing by Dina Kyriakidou