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Greek official: Financial restructuring on track

By Howard Schneider

It has been a curious evolution in Europe, with socialist parties in places like Greece and Spain emerging as the arch-defenders of fiscal prudence and budget cutting.

But as Greek education minister Anna Diamantopolou notes, there was not much choice.

"We were one step from catastrophe" in the spring, when bond markets turned on the country and demanded credit-card level interest rates because of doubts that the government in Athens would be able to pay its bills, she said. The skepticism spread to other highly-indebted countries as well, and before it was over the International Monetary Fund had teamed with the European Union to establish a nearly $1 trillion fund to backstop European governments and banks.

It was enough to restore confidence, but left governments throughout Europe with lots of heavy lifting to restructure their economies, cut their deficits, and rewrite a social contract that had provided plentiful government employment, generous pensions and sometimes easygoing work rules.

The fund, in conjunction with the EU, provided Greece with emergency loans to give the government of Prime Minister George Papandreou a three-year window to enact a long list of agreed-to reforms. Greece is now several months into the process, and so far has passed muster with the IMF - with this year's budget deficit on target, and investors expressing at least a small degree of trust when a recent issue of short-term Greek treasury bills was heavily oversold.

But Diamantopolou said the coming months will be key. Some of the reforms are only now starting to take hold - disrupting the lives of people who work in previously protected trades, and opening heavily regulated industries to more competition. Regional elections scheduled for next month are being trumpeted by the opposition as a referendum on Papandreou's program, and the prime minister has been campaigning hard on the need for reform to continue.

The urgency created by the financial crisis has, Diamantopolou said, been a chance for the country to do things that arguably should have been done a long time ago. For example, recent pension reform let the school system shed more than ten percent of its teachers without any increase in class size - there was that much fat in the system.

It also is allowing her to push forward with an overhaul of how Greek universities are run. She called the current model "politicized" - with university administrators elected by and answerable to faculty and students. She wants to create governing boards that, she argues, will provide a broader perspective in appointing university leaders.

If it sounds like a mere shuffling of the bureaucracy, Diamantopolou said there is substance behind it. She is in the U.S. primarily to visit Silicon Valley and learn how universities, the financial community and private companies interact, in hopes of replicating that kind of energy in Greece.

There is even money on the table now to try to lure Greek-born PhDs back to down -- 150,000 euro grants, funded by the European Union, for postdoctoral students who agree to return home to pursue advanced research. The hope, she said, is that those same researchers will stay in their native land and start opening companies - and build a stronger private sector.

"This isn't just one change or one reform," she said. "We've had to change everything at the same time."

By Washington Post Editor  | October 15, 2010; 2:46 PM ET
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