Greece admits it is riddled with corruption

By Tony Barber in Brussels

George Papandreou, Greece’s prime minister, acknowledge to his fellow European Union leaders that the Greek public sector was riddled with corruption.

At an EU summit on Thursday night, The bloc’s 26 other national leaders sat in silence as Mr Papandreou delivered a short, blunt speech on Thursday night that said everything the rest of Europe had long known, or suspected, about Greek bureaucracy.

Greece is in the throes of the most serious fiscal emergency to strike the eurozone since the single currency’s launch in 1999. Mr Papandreou’s baring of the national soul capped a tumultuous week in which Greece’s creditworthiness was downgraded, its stock market plunged, the interest rate on its debt soared and even its survival in the eurozone was questioned.

José Manuel Barroso, European Commission president, praised Mr Papandreou’s determination to address the Greek economy’s problems, such as low business competitiveness and a public debt poised to rise far above the nation’s annual economic output.

“He recognised that there was a huge problem of corruption throughout the administration, including in public procurement,” Mr Barroso said.

“He spoke of a reduction in the levels of administration. Whereas there are four or five now, from regional to local level, he promised to suppress two of them, because they are expensive.”

Delegates at the EU summitsaid there had been little discussion of the Greek premier’s presentation, and most leaders – especially those of the 15 countries that share the euro with Greece – wanted to see more action and fewer words from Athens.

Jean-Claude Trichet, the European Central Bank president, told the European parliament’s monetary affairs committee on Monday that Greece’s troubles demanded “very difficult, very courageous but absolutely necessary measures”.

“Our basic problem is systemic corruption,” Mr Papandreou said in Brussels on Friday. “We intend to take harsh measures to root it out.”

However, he made it clear that Greece would not follow Ireland’s example and enforce drastic wage cuts.

“If we were at the edge of the abyss, we would cut wages in half. But we are not and we are fighting hard not to get there. We will protect wage-earners and pensioners.”

His unwillingness to specify cost-cutting measures disappointed market-watchers, aware that Greece is expected to record a budget deficit of more than 12 per cent of gross domestic product this year. Its public debt is projected at 113 per cent of GDP.

Mr Papandreou is expected on Monday to outline how he intends to slash the deficit to 3 per cent of GDP – under EU rules, the upper limit in normal economic times – over the next four years.

The underlying problem is, however, one of Greek credibility. Other eurozone countries were incensed in October when the newly elected socialist government announced that Greece’s public finances were far worse than previously claimed. The socialists blamed the misreporting on faulty statistics and the errors of the previous conservative government.

Copyright The Financial Times Limited 2009.