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FM AMCONSUL THESSALONIKI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0367
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHIK/AMCONSUL THESSALONIKI 0409

UNCLAS SECTION 01 OF 03 THESSALONIKI 000063 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EUR/SE 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EAIR PREL MK RU GG GR
SUBJECT: PM KARAMANLIS:  STAY THE COURSE ON REFORMS, NO EARLY 
ELECTIONS, DELINK GEORGIA CRISIS AND RUSSIA ENERGY 
 
THESSALONI 00000063  001.2 OF 003 
 
 
¶1.  (U) SUMMARY:  In his annual speech on economic policy at the 
Thessaloniki Trade Fair, PM Karamanlis promised to continue 
implementing the GoG's reform agenda, despite the global 
economic crisis and lack of public enthusiasm.  Greece needs to 
reform its ineffective public sector, further reduce the budget 
deficit, and implement the GoG's new tax measures, he noted.  In 
the traditional press conference that followed, the PM defended 
several ministers accused of unethical behavior and ruled out 
early elections or a cabinet re-shuffle.  On the Russia/Georgia 
crisis, Karamanlis asserted the same distinction he had after 
the EU Summit between moving forward with energy pipeline deals 
with Russia and Greece's support for Georgia's territorial 
integrity and other Alliance and EU positions.  He also said he 
saw no willingness from Macedonia to resolve the name issue and 
that he saw no reason to change Greece's position not to 
recognize Kosovo.  END SUMMARY 
 
ENERGY AT TOP OF AGENDA 
 
¶2.  (U) On September 6, at the 73rd annual Thessaloniki 
International Trade Fair, Greek Prime Minister Kostas Karamanlis 
gave his annual address on the government's economic policy, 
emphasizing that Greece faces serious challenges but is "moving 
in the right direction" and must continue systemic reforms. 
Greece's international energy agreements (TGI, 
Burgas-Alexandroupoli, South Stream) will help increase revenues 
and jobs.  Reforms have helped Greece avoid the EU's excessive 
deficit procedure, attract investment, achieve one of the 
highest economic growth rates in the Eurozone, as well as three 
percent wage growth.  "We all realize how dramatic things would 
have been today if we did not dare to take specific (not 
pleasant, but necessary) measures." 
 
NO CHANGE IN ECONOMIC POLICY, REFORM PROGRAM 
 
¶3.  (U) Karamanlis stressed that the GoG would stay the course 
on reforms he had promised during the last elections, despite 
"turbulent" global economic conditions (including the U.S. 
credit crisis) and some domestic resistance.  "I am determined 
to continue by intensifying reforms."  Karamanlis claimed that 
several economic indicators (e.g. GDP growth and declining 
unemployment) show Greece is doing well compared to other 
Eurozone countries and that the reforms are working.  The main 
axes of economic policy will remain unchanged:  sustainable 
fiscal consolidation, viable growth, social protection for those 
in need.  "Our first priority is continuing a fiscal 
consolidation program to eliminate deficits."  Another priority 
is to find solutions for ailing state-owned Olympic Airlines and 
the Hellenic Railways Organization, which cost taxpayers about 
2.7 million euro per day.  On Olympic, the GoG goal is a new, 
competitive airline, under the same name and logo, but without 
the current debts and problems, no private monopoly, no loss of 
jobs, and air connections with all the islands.  The government 
is also working hard to achieve a more fair tax system and to 
combat tax evasion. 
 
ECONOMIC GROWTH, WITH SOCIAL RESPONSIBILITY 
 
¶4.  (U) The GoG's economic policy focuses on ensuring high 
growth rates, including by attracting large investments, 
minimizing bureaucratic hurdles to doing business, de-regulating 
"closed professions" and promoting business through high-tech 
infrastructure, the PM stated.  At the same time, he pledged to 
ensure environmental protection, including through a National 
Land Register and promoting alternative energy sources.  The 
government also seeks to build a "viable social state", boosting 
employment while fighting inflation and maintaining a viable 
social security system.  The government will soon activate a 
National Social Cohesion Fund aimed at supporting the most 
needy.  The GoG will also adopt measures to protect consumers. 
Greece is addressing its most serious problem:  an ineffective 
public sector and its chronic weaknesses:  "overspending, 
bureaucracy and corruption."  The government has launched a plan 
to strengthen internal control mechanisms.  To improve 
government transparency, heretofore undisclosed "special 
accounts" controlled by ministries would be included in the 
national budget. 
 
REGIONAL LEADERSHIP, BASED ON EU-CENTRIC FOREIGN POLICY 
 
¶5.  (U) Karamanlis said Greece aims to exploit its geopolitical 
advantages, as a pole of stability and growth in southeastern 
Europe, a modern energy, transit, commercial and banking hub in 
the wider region.  The public works ministry is implementing an 
investment program, worth 18.5 billion euros, of which 40 
percent is earmarked for northern Greece.  Strategic agreements 
with global port operators for the ports of Thessaloniki and 
Piraeus, will change the ports' character and bring large 
investments, cutting transport costs and boosting public 
 
THESSALONI 00000063  002.2 OF 003 
 
 
revenues.  Major infrastructure projects in the Thessaloniki, 
including construction of a metro and renovation of the airport, 
are on track.  The GoG recently opened an International 
University in Thessaloniki.  Karamanlis said he supports a 
proposal to re-invigorate the Thessaloniki International Fair by 
moving it to new facilities outside the city.  On foreign 
policy, the EU remains central.  Greece favors a common 
immigration policy and a European coast guard.  "We support the 
European prospect of our neighboring countries, by making it 
clear that full respect of the principles, values and 
prerequisites of the EU, also means their full accession.  We 
have made it clear to neighboring Skopje that, in any case, 
primary importance was to establish good neighborly relations. 
Our credibility has been tested and our position is known:  a 
name with geographical determinant to be valid for all."  On 
Cyprus, Greece welcomes a restart of negotiations and urges 
Ankara to encourage the Turkish-Cypriot leadership to seek a 
functional, democratic and European solution for a united Cyprus 
without any occupation troops." 
 
PRESS CONFERENCE:  NO EARLY ELECTIONS, NO CABINET SHUFFLE 
 
¶6.  (U) Responding to questions at the traditional press 
conference at the Trade Fair on September 7, Karamanlis ruled 
out early general elections or a government re-shuffle.  The 
government won a strong mandate in September 2007 elections and 
has "much work ahead."  He defended ministers accused of 
unethical behavior, claiming "there are no cases of 
inappropriate behavior" and "accusations cannot have any 
validity until they are investigated by justice."  He rejected 
recent charges by main opposition PASOK of vote tampering by ND 
deputies during the May constitutional reform in parliament, 
 
GEORGIA, MACEDONIA, AND KOSOVO, 
 
¶7.  (U) Also in his press conference, in nearly the same terms 
used in his formal statement after the EU Summit, Karamanlis 
commented on key foreign policy issues and the economy: 
 
-- GEORGIA:  Karamanlis said Greece's position will remain in 
line with that of the European Union; he made no reference to 
NATO decisions related to Georgia.  Asked about statements 
attributed to EUR DAS Matt Bryza on Greece's decision to proceed 
with South Stream despite Russia's actions in Gergia, Karamanlis 
said: "There are two different things.  One is the government's 
responsible policy of dealing with the country's energy policy, 
for the present and the future."  Second, "there should be no 
confusion with the crisis that occurred, to the regret and worry 
of all, in the Caucasus area recently".  Karamanlis added that a 
fundamental principle of Greek foreign policy is that it does 
not recognize the solution of international disputes with 
violence, and places respect of territorial integrity as a 
matter of principle.  (NOTE: This was the second occasion that 
Karamanlis spoke publicly on the Russia/Georgia crisis, the 
first time being a week ago just after the EU leaders' summit. 
On both occasions he expressed Greece's support for the EU 
political objectives of maintaining Georgia's territorial 
integrity and providing humanitarian assistance.  At the same 
time, Karamanlis has also emphasized Greece's intention to move 
forward with its energy deals with Russia and the importance of 
not "isolating" Moscow.  On September 2, the Greek Parliament 
ratified the South Stream gas pipeline agreement with Russia. 
END NOTE.) 
 
-- MACEDONIA:  Karamanlis said he saw no willingness on the part 
of Skopje for finding a name solution.  "I see no move in 
positions, nor even the desire for a mutually acceptable name to 
be found."  He reiterated Athens' "absolutely clear" position of 
an international name that would contain a geographic 
determinant and be valid for everyone.  Greece supports FYROM's 
European prospects, provided that the name issue is resolved. 
 
-- KOSOVO:  On prospects for Greek recognition of Kosovo, 
Karamanlis said "we are weighing all the facts", adding that "at 
the present time, there is no reason to change our policy on 
this matter". 
 
-- TURKEY/CYPRUS:  In his speech, Karamanlis said Greece was 
working towards a full normalisation of Greek-Turkish relations. 
He also welcomed the "restart" of negotiations on Cyprus and 
asked that Ankara "encourage the Turk-Cypriot leadership to seek 
a functional, democratic and European solution for a united 
Cyprus without any occupation troops." 
 
-- MIDDLE EAST:  Karamanlis noted that Greece would be pursuing 
more initiatives to strengthen cooperation with Arab countries. 
 
-- ECONOMY:  The government's economic policy will focus on 
safeguarding Greece's gains and successes, such as the drastic 
 
THESSALONI 00000063  003.2 OF 003 
 
 
reduction of the fiscal deficit from 7.5 percent to 2.5 percent 
and unemployment from 11 percent to approximately 7 percent. 
The goal, he noted, was a further reduction of the deficit, 
gradually, "year by year", while maintaining its commitments for 
introducing a Minimum National Salary and to introduce 
legislation for the relief of citizens hurt by the international 
credit crisis.  On pensions, despite difficult fiscal 
conditions, the government had fulfilled all its commitments, 
such as increasing the farmers' pensions and the unemployment 
benefit.   He acknowledged that "nobody is pleased about [the 
government's] new tax measures, but the measures are necessary. 
 
OPPOSITION REACTION:  PM HAS LOST TOUCH WITH REALITY 
 
¶8.  (U) Commenting on the PM's speech, main opposition PASOK 
Spokesman George Papaconstantinou said it "empty of content", 
and proved that Karamanlis has completely lost touch with the 
reality.  He criticized Karamanlis for protecting corrupt 
ministers.  Communist Party of Greece (KKE) political bureau 
member Makis Mailis said "the working class" would continue to 
oppose the PM's pro-business, pro-EU path.  Coalition of the 
Left, Movements and Ecology (SYN) leader Alexis Tsipras said the 
speech revealed the PM's personal responsibility for the 
government's "heartless" policies.  Several labor unions 
demonstrating against the PM before and during his speech echoed 
opposition criticism, with some demonstrators carrying placards 
depicting Karamanlis as Marie Antoinette. 
 
MEDIA REACTION AND ATMOSPHERICS 
 
¶9. (SBU) Several journalists and other observers commented that 
the PM seemed uncomfortable and rushed while delivering his 
speech, despite the frequent applause and friendly audience. 
While at times the PM spoke forcefully and convincingly, his 
speech struck many as lackluster and downbeat.  During his 
September 7 press conference, the PM appeared defensive and 
uncharacteristically nervous, often apparently reading answers 
from prepared notes.  The absence of the traditional banquet 
accompanying the speech this year contributed to an undercurrent 
of malaise and economic decline. 
 
COMMENT 
 
¶10.  (SBU) For some, Karamanlis' "stay the course" message 
conveyed resoluteness in the face of adversity.  For many, 
however, the message translated as stubborn adherence to the 
status quo, including accepting a high cost of living and 
government corruption.  Though the speech managed to touch on 
the full range of economic challenges pre-occupying ordinary 
Greeks, it lacked a coherent vision and provided few detailed 
remedies or new ideas.  In addition, Karamanlis portrayed an 
almost truculent stance in support of his government's recent 
tax increases, which many believe are the government's panicked 
attempt to shore up a budget that was on the verge of busting 
the GoG's 2008 deficit target.  Public criticism has focused on 
the government's willingness to pass the "cost" onto the public 
through increased taxes, but unwillingness to make the hard 
policy decisions necessary to reduce expenditures.  Many of the 
initiatives he mentioned, e.g. the Thessaloniki metro, are 
long-standing promises he and his predecessors have been 
dangling for years.  To gain support for his reform agenda, 
Karamanlis will at a minimum need to match more words with 
deeds, including on government transparency, and demonstrate 
that the reforms produce not only impressive statistics but 
tangible benefits for ordinary citizens.  It is clear, however, 
that maintaining "reform" remains one of those rare issues that 
the PM has chosen to seek to advance.  Reform, however, in the 
PM's lexicon translates into small steps on the margins as 
opposed to broader efforts that could succeed in achieving solid 
results. 
 
¶11. (SBU) Embassy Athens Comment:  Karamanlis' foreign policy 
remarks, both in the speech and in the subsequent press 
conference, revealed little new in terms of Greek policy. 
Greece will continue to participate in negotiations to find a 
solution to the Macedonia name issue, but is awaiting more 
positive signals from the Macedonians that it can accept a 
solution comprised of a composite name with a geographic 
modifier that has a very broad scope of use. On relations with 
Russia, the PM annunciated what we are increasingly sensing as 
GOG policy -- and which we believe to be driven by Karamanlis 
himself:  that Greece would support the political positions of 
the EU to uphold Georgia's territorial integrity, while 
continuing business as usual with Russia on energy and other 
economic issues.  We will continue to express our concerns with 
this approach with GOG interlocutors at all levels.  We also 
note that this policy of Greece's having its cake and eating it 
too could become increasingly problematic as Greece assumes the 
role of OSCE Chair-in-Office in January, 2009. 
YEE