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Published: Thursday, 5/13/2010

Greece's newest odyssey

ATHENS - For a man whose country's wobbly finances have kept the world on edge for months, the Greek prime minister, George Papandreou, evinces an Obama Zen-like calm.

He is just back from meeting fellow European Union leaders, who decided to try to stave off a Greek meltdown and an EU crackup with a show of overwhelming force - committing nearly $1 trillion to support the economy of any ailing member state. But Mr. Papandreou makes clear he knows the deal with the EU was not your garden-variety bailout for budget cuts.

Greece's entire economic and political system will have to change for Greeks to deliver their side of this bargain.

Mr. Papandreou says he is ready and so, too, he insists, is his country: "People say to me, 'Change this country - go ahead and change it.' People realize that it needs change. You don't want to miss this opportunity."

How Greece performs will affect not only Greeks, but also the value of the euro and the whole 27-nation EU. The EU is the world's most opaque and boring organization. But it also is America's not-so-identical twin and the world's largest economy.

It is, in fact, "the United States of Europe," and, in my view, two United States are better than one. If this one over here fractures, it will affect everything from how many exports America has in the next year to how many allies America has in the next war.

I asked Mr. Papandreou what it was like to be hunted by the electronic bond herd for six months.

"Because of the 2008 crisis, all the market players have become much more risk-averse, so they are on a hair trigger," explains the center-left prime minister, who was voted in by a large majority in October to fix this mess.

Today's market players are "like an animal that has been wounded, and so it recoils at the slightest motion. So any rumor about you can become a self-fulfilling prophecy."

Comparing bond players to living beasts may be unfair to beasts, he suggests. These markets "are not even human anymore. Some of these things are computerized, and they just go into automatic mode" when they see a hint of trouble.

Greeks have been living under this market scrutiny for so many months, he added, that today "every Greek from age 3 to 93 knows what a 'bond spread' means. 'What's the spread today? Are they widening?' People had never heard about this before," and it created a paralyzing uncertainty. "Should I buy, consume, save, invest, take my money out of the country?"

The only way to end the uncertainty was with an unprecedented commitment by the EU to backstop Greek debts, and with an unprecedented commitment by Greece to put its economy on a strict diet - set by the International Monetary Fund - with quarterly budget targets that Athens has to meet to receive additional support.

"Now we will have a respite," Mr. Papandreou said, so the Greek government can begin "the deep changes … the small revolution" in how this country is governed. There will be particular emphasis on changing the incentive system here from one that focused way too many Greeks on getting a lifetime government job to one focused on stimulating private initiative.

The cabinet already has approved increasing the average retirement age for public-sector workers from 61 to 65. Average public- sector wages have been cut 20 percent, and pensions 10 percent. The value-added tax was raised from 19 percent to 23 percent, and there's been an excise-tax increase of about 30 percent on gasoline, alcohol, and tobacco.

The number of municipalities is proposed to shrink from 1,000 to 400 and public-owned companies from 6,000 to 2,000 to save money and red tape. So far, the deficit is down 40 percent from last year.

But Mr. Papandreou says that to sustain these wrenching reforms, Greeks must become stakeholders in the process. That will only happen, he argues, if there is a sense of "justice" - Greeks want to see big tax cheaters and corrupt officials prosecuted - and if the people feel their leaders have a vision. "We need to give this country a dream - where we are going," so the sacrifices make sense.

"We're going to bring in best practices from Europe and around the world to reform this country," Mr. Papandreou says. "It is difficult, and there will be protests, and people will feel bitter, but it will be one of the most creative times Greece has gone through."

Can Greece have a civic revolution? The odds are long, but you won't need to consult the IMF to determine the answer. Just watch Greek young people. In six months, if you see them migrating, then short Greece.

If you see them sticking it out here, though, it means they think there is something worth staying for. You might even want to buy a Greek bond or two.

Thomas L. Friedman is a columnist for the New York Times.



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