European Community Nudges Athens Toward Making Reforms

WHEN a bureaucrat with the Greek Ministry of Finances recently took stock of his country's economic and political instability, he said, ``Greece has one foot in Europe and one foot in the third world. ``Fortunately,'' he concluded, ``we have the European Community to keep pulling us into Europe.''

Many Greeks are offended by a notion that the cradle of Western civilization needs to be tugged into Europe by anyone.

But there is a sense among many people in business and government here that the European Community is playing an important role in pushing Greece in necessary directions economically and politically.

In particular, they point to the EC's single market planned for 1992 and the transformation that it will inevitably require of the Greek economy.

``On many levels the Greek economy remains parochial and uncompetitive,'' says P.C. Ioakimidis, a special counselor on EC questions with the Greek Ministry of Foreign Affairs. ``But it has modernized as a result of joining [the EC], and that process will have to continue as 1992 approaches,'' he adds. ``It's a challenge, but also an opportunity.''

Experts say the changes will have to come in a myriad of areas, including taxation, economic development policy, industrial standards, the liberalization of capital movements, and government subsidies to industry.

In all these cases, the prospects of change can be unsettling. The Greek tobacco industry, for example, benefits from a number of government supports and says EC taxation laws would cause its demise.

To other observers, the required changes only spell trouble if important internal changes are not made.

In a recent speech to the British-Hellenic Chamber of Commerce Dimitris Chalikias, the governor of the Bank of Greece, said that unless Greece's huge public-sector deficits are ``drastically'' reduced, the country ``will be unable to keep pace with, much less benefit from'' the single-market development. Instead, he added, the liberalization of capital movements could subject the country to ``serious risks'' by reducing the government's ability to finance public deficits with private savings.

The EC has in many ways been a golden goose for Greece: It provides more than 15 percent of the country's capital-investment funding. Its subsidies account for 6 to 7 percent of the Greek gross national product (GNP), according to Dr. Ioakimidis.

There is growing concern here that attention - and resources - could be turned away from Greece as the EC becomes fascinated by changes taking place in Eastern Europe and desires to spur economic reform there.

Ioakimidis says that the community's heavy investment here gives it ``the right to intervene'' and to expect certain changes and improvements.

``Right now, Greece represents a problem for the EC,'' he says, ``because the country has been diverging from the rest of the Community'' in economic growth. Although Greece's per capita GNP was 58 percent of the EC average in the early 1980s, it is now 51 percent, he adds.

Ioakimidis says he expects the EC's Council of Ministers to ``pass judgment'' on the Greek economy once the country has a stable government.

He and other analysts here say, however, that any criticism will be taken better than in the past, because the Greeks generally support full EC participation.

In the meantime, Greece's new parliament was sworn in Monday, two weeks after elections that left the country without a government to deal with its economic and foreign policy woes.

President Christos Sartzetakis told reporters that despite differences among the main parties (the conservatives, socialists, and communists), every effort would be made to form a government and keep people from going to the polls for the third time this year. As of Monday, such efforts had failed.

Without a compromise, Mr. Sartzetakis must call an election, probably on Dec. 17.

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