FOCUS: Greece Eyes EUR1.5B Savings From Local Government Reform
By Nick Skrekas and Alkman Granitsas Of DOW JONES NEWSWIRES
ATHENS (Dow Jones)--Plagued for years by a bloated bureaucracy, Greece is banking on a radical overhaul of local government that will slash thousands of public-sector jobs, cut red tape and potentially save the debt-strapped country EUR1.5 billion a year, according to the country's interior minister.
Starting Jan. 1, Greece's Socialist government will implement its long-promised Kallikratis reform--named after one of the two architects of Athens' Parthenon temple--that will abolish two-thirds of the country's 1,000-odd municipalities and dozens of district governments.
"With the Kallikratis law there will be savings of EUR1.18 billion a year as assessed by the Finance Ministry's General Accounting Office, and we hope it could be as high as EUR1.5 billion," said Interior Minister Giannis Ragkousis in an interview with Dow Jones Newswires.
But critics say Ragkousis is biting off more than he can chew.
"I think this reform will cause chaos and it has a one-in-a-million chance of saving costs," said George Kyrtsos, a leading political commentator and editor of the City Press newspaper. "It will take years for this new systemic reform to work, and it sounds like a political bluff because, historically, similar reforms have been tried before and failed."
Greece is struggling to fix its public finances after narrowly avoiding bankruptcy in May with the help of a EUR110 billion loan from the International Monetary Fund and European Union. The country was teetering on the brink and after it disclosed a EUR30 billion hole in its budget for 2009, equal to about 13% of gross domestic product.
Under the agreement Greece reached with the IMF and EU, Athens is targeting at least EUR500 million a year in savings through reforms of local government for the next three years, a goal that Ragkousis calls conservative.
Greece's central government transfers some EUR6 billion annually--about 8% of central government outlays--to support local governments, a sum that makes up about 60% of their income.
When the plan comes into effect, Athens will reduce the current 76 regional and prefectural authorities to just 13, and the current 1,034 municipalities will be consolidated into only 325.
Just as importantly, about 6,000 enterprises owned by local governments--things like local waterworks companies and regional development boards--will be scaled down to just 1,500. The move is intended to slash thousands of patronage jobs that weighed heavily on public finances.
"This means about 25,000 senior executive positions--largely political appointments that are well paid--will be abolished," said Ragkousis.
Over just six years the 45-year-old Ragkousis, a development economist by training and one-time restaurateur, has rocketed through the ranks of the Socialist party. The former mayor of the Aegean island of Paros, Ragkousis was hand-picked by Prime Minister George Papandreou to become what some observers say is the second-most powerful man in the Greek cabinet, after the prime minister himself.
Ragkousis said the reforms go beyond cutting costs, and will boost transparency, curtail excessive local government hiring and, for the first time, assert effective audit control over hundreds of municipalities that have operated for years without any real oversight.
For example, Greek local governments currently owe creditors some EUR2.7 billion in outstanding loans--a figure that was previously unknown. The sum is small, but it still hurts in a country burdened by more than EUR300 billion in public-sector debt, equal to roughly 125% of gross domestic product.
Under the reform plans, a specially constituted administrative court will have to approve all spending by local governments, and the central government will vet all hiring decisions--reducing the nepotism and vote buying that have been rife at the local level.
"All the decentralized authorities, elected prefectures, municipalities and their local enterprises will not be able to spend one euro without prior approval," Ragkousis said.
From March of next year, all local governments will also have to post their decisions on the internet for citizens to view, to ensure more openness and transparency. "There are several levels of control here," Ragkousis said.
This isn't the first time a Greek government has tried to exert better control over Greece's local authorities-usually with only limited success. As far back as 1831, the year after Greece gained independence from the Ottoman Empire, the country's first governor, Ioannis Kapodistrias, was assassinated after trying to rein in the power of local chieftains.
More recently, in 1998, Greece reduced the number of municipalities-nearly 6,000 at the time-to just over 1,000. But the plan, ironically named after Kapodistrias, led to sporadic violence around the country as residents of various local communities resisted plans to abolish their municipalities and, in some cases, merge them with rival villages and towns.
Both local government workers, who number around 94,000, and loc government heads have expressed opposition to the Kallikratis plan. The union representing those workers, POE-OTA, has already staged one nationwide protest over fears the program will lead to mass layoffs.
Likewise, local mayors fear that the Kallikratis plan will be costly to implement even as the central government cuts back on spending. "We have our reservations, although we are not entirely against the plan, nor entirely for it either," said Dimitris Kalfopoulos, spokesperson for the Central Union of Municipalities and Communities of Greece. "We have our doubts about how much the plan can be implemented."
The main concern, said Kalfopoulos, is money, "because the local governments will be taking on many more responsibilities but with much less funding available."
But Ragkousis said the plan will save local government money--not add to their costs. "We expect that by the end of 2011 a majority of municipalities will be in surplus and have funds for new works, social programs and investments."
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Ipotesi sulla riforma degli enti locali.
