VZCZCXRO0870
OO RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSL RUEHSR RUEHVK
RUEHYG
DE RUEHTH #1581/01 3001131
ZNR UUUUU ZZH
O R 271131Z OCT 09
FM AMEMBASSY ATHENS
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0891
INFO EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 04 ATHENS 001581 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON ELAB GR CH
SUBJECT: Greece: Government Manages to Suspend Port Strike, But For 
How Long and At What Cost? 
 
REF: 08 ATHENS 1635 
 
ATHENS 00001581  001.2 OF 004 
 
 
¶1.  (SBU) SUMMARY:  Confronting its first major challenge since 
taking office, Greece's new PASOK government negotiated a temporary 
suspension to a dockworkers' strike on October 17.  Latching onto 
PM Papandreou's pre-election promises to re-examine privatization 
agreements, dockworker unions at the port of Piraeus went on strike 
October 1, demanding that the government scrap a concession deal 
granted to the Beijing-based China Ocean Shipping Company (COSCO) 
Pacific.  COSCO is a shipping conglomerate scheduled to take over 
management of one of two existing cargo terminals on October 1 and 
to rebuild and manage a third terminal currently not used.  The 
tentative deal to suspend the strike, about which few details are 
known, ended a 16-day saga that had paralyzed Greece's busiest 
commercial seaport, cost businesses and the government tens of 
millions of euro in lost revenue, and stranded over 10,000 shipping 
containers. 
 
 
 
¶2.   (SBU) SUMMARY CONTINUED. On the surface, the suspension of the 
strike appears to be a win for the new government.  But it was not 
the decisive pro-business, pro-competition conclusion for which 
many affected business and potential investors had hoped, and it 
remains unclear what the government promised dockworkers to go back 
to work and whether it can deliver.  Despite the suspension of the 
strike, and depending on any further negotiations, the PASOK 
government will continue to face challenges placating the powerful 
dockworkers' union as well as other labor groups looking to exploit 
the government's pro-labor leanings.  More significantly, PASOK's 
apparently ambivalent approach to upholding the terms of the COSCO 
contract--signed by the previous government and approved by 
Parliament--raises fresh doubts over Greece's ability to attract 
and retain foreign investors in the midst of a global financial 
crisis that is forcing all to compete for a dwindling and 
increasingly risk-averse pool of foreign direct investment (FDI). 
In a battle that serves as a microcosm for the innate tensions in 
Greece between social democratic instincts and efforts to modernize 
and make the economy more competitive in order to attract much 
needed foreign investment, the victor remains elusive.    END 
SUMMARY. 
 
 
 
---------------------------------------- 
 
COSCO: A Controversial Privatization from the Start 
 
---------------------------------------- 
 
 
 
¶3.  (U) In November 2008, in the presence of former ND Prime 
Minister Kostas Karamanlis and visiting Chinese President Hu 
Jintao, COSCO and the Piraeus Port Authority (OLP) signed a 
landmark 4.3 billion euro (6.4 billion USD) port privatization deal 
granting COSCO up to a 35-year concession to manage one of two 
existing terminals and to rebuild a third terminal at Piraeus, 
Greece's largest port, near Athens, and the top container port in 
the eastern Mediterranean.  (See reftel for Greek and Chinese 
perspectives on the deal.)  Under the terms of the contract, 
COSCO's Greek subsidiary was granted, after a transition period, 
the right to manage all shipping transactions at terminals II and 
III.  In exchange, COSCO promised to: a) retain for the time being 
all employees that currently work at the two terminals it will 
oversee (approximately 600 out of OLP's current Piraeus workforce 
of 1,500); b) invest millions of euro to upgrade the terminals' 
container-handling capacity, more than doubling the port's current 
capacity, thus creating 1,000 new jobs; and c) reserve 10 percent 
of new hires for the qualified children of current unionized OLP 
employees.  OLP, in turn, would retain exclusive control over the 
operations of terminal I.  In the view of the Athens Chamber of 
Commerce and Industry (EBEA), this landmark deal was a win-win for 
all parties.  For the GoG, which managed to achieve a major 
agreement prior to the onset of the financial crisis in Greece, the 
privatization and resulting expansion of port capacity was seen as 
helping to create greater role for Greece in Mediterranean shipping 
and transport.  Export and import businesses and consumers hoped to 
benefit from increased port competition, which would decrease 
processing fees and reform the inefficient and corrupt offloading 
process, bringing down shipping costs and the cost of consumer 
goods over time.  For labor in general, the deal maintained 
intergenerational job security and provided the possibility of new 
jobs. 
 
ATHENS 00001581  002.2 OF 004 
 
 
¶4.  (SBU) Dockworker and port authority employees' unions, which 
had been calling intermittent complete and partial strikes and 
refusing to work overtime and weekends since the government 
announced the international tender for the port's operations in 
early 2008, immediately criticized the deal in November and 
continued to refuse to work overtime or weekends.  Coinciding with 
the negative effects of the global economic crisis on shipping 
worldwide, strike action resulted in the Piraeus port suffering the 
biggest decline in container traffic among the world's 100 busiest 
ports,  caused several major shipping companies to temporarily 
forsake Piraeus for the Greek port of Astakos and other European 
ports, and increased the cost of transported consumer goods as a 
result of higher transport and processing costs.  While no specific 
statistics are available, EBEA indicated to DepEconCouns that many 
Greek export businesses were forced out of business as a result of 
delays and increased costs. 
 
 
 
---------------------------------------- 
 
Dockworker Unions:  A Powerful, Corrupt Monopoly 
 
---------------------------------------- 
 
 
 
¶5.  (SBU) The Dockworkers' Union and the Federation of Greek Port 
Personnel (OMYLE) have long held a labor monopoly over the 
operations of Greece's two major ports in Piraeus and in 
Thessaloniki.  Controlling exclusive contracts with the Piraeus 
Port Authority (OLP), the unions have reaped substantial financial 
benefits, with ironclad job security, guaranteed hiring privileges 
for the children of union members, and annual dockworker salaries 
in the range of 90,000 to 140,000 euro (135,000 to 210,000 USD), 
once overtime and other benefits are factored in--far above the 
average Greek yearly salary of 32,280 USD (National Statistics 
Services of Greece, data for 2008).  According to union contacts, 
EBEA, and media reports, dockworkers also benefit from systematized 
corruption, manipulating the customs processing bureaucracy to 
expedite the containers of shippers who pay an extra fee--or 
holding up imports for those who refuse.  All of this translates 
into what EBEA describes as the most expensive port in Europe in 
terms of fees and costs for shipping companies, importers, and 
exporters.  Privatization and competition would change all this and 
lessen opportunities for rent-seeking behavior.  Post's union 
contacts described the COSCO deal as threatening long-established 
dockworker salary levels and inter-generational job security, as 
OLP will need to cut costs in some way in order to stay competitive 
with the COSCO-operated terminals.  Union officials noted that 
while they traditionally wield powerful influence within PASOK, 
they were willing to fight any government seeking to reduce their 
benefits. 
 
 
 
---------------------------------------- 
 
PASOK as Candidate vs. PASOK as Government 
 
---------------------------------------- 
 
 
 
¶6.  (SBU)  During the run-up to October domestic elections, PASOK 
party leader (and current prime minister) George Papandreou and his 
team played to traditional PASOK constituencies, such as the 
dockworkers and labor unions, by criticizing the COSCO and other 
privatization deals signed by the New Democracy (ND) government and 
promising to re-examine and potentially renegotiate them once in 
office.  This populist rhetoric was seized on by the dockworkers' 
union as a sign of support for their cause, and the union announced 
a strike days before the October 4 election, forcing the issue to 
the forefront of the PASOK agenda. 
 
 
 
¶7.  (SBU) After PASOK's electoral victory, PM Papandreou directed 
Louka Katseli, his new Minister of Economy, Competitiveness and 
Merchant Marine, to deal with the dockworkers.  Katseli, who is, 
according to many Embassy contacts, sympathetic to labor causes, 
was initially criticized in the press and by businesses for her 
early handling of the crisis and was seen to have failed to take a 
decisive, firm position with the unions.  (NOTE: At one point, 
Papandreou announced that he would transfer the task of negotiating 
between COSCO and the unions from Katseli to the Deputy Minister of 
the Ministry of Infrastructure, Transportation, and Networks, but 
 
ATHENS 00001581  003.2 OF 004 
 
 
at least publicly, Katseli appeared to remain in the drivers' seat. 
END NOTE.)  Katseli made general announcements to the press that 
the GoG was "in negotiations" with the parties and had started 
talks "on a new basis" but provided few details.  Katseli 
repeatedly stressed the importance of the shipping sector and of 
turning Piraeus into a Mediterranean hub to Greece's economy, but 
failed to mention the importance of strategic agreements such as 
the COSCO deal in achieving this goal. 
 
 
 
---------------------------------------- 
 
The Business Perspective: Enforce the Contract! 
 
---------------------------------------- 
 
 
 
¶8.  (SBU) COSCO's position on the strike, according to press 
reports, was that it was willing to "discuss" issues of "mutual 
benefit" but only after dockworkers returned to work.  EBEA told 
DepEconCouns that under the terms of COSCO's contract, COSCO was 
entitled to damages of 1.5 million euro per day for any delays in 
the implementation of the contract but had decided not to exercise 
the penalty clause pending timely resolution by the GoG.  EBEA 
officials also said that COSCO and Greek and international 
export-import businesses were increasingly frustrated by the 
government's failure to force the strikers back to work.  As a 
result, on October 16, EBEA filed a lawsuit to declare the strike 
illegal, citing as a precedent a 2008 court case that ruled the 
2008 dockworker strike actions "illegal and abusive" and prohibited 
future repetition of the same actions for the same reasons and 
demands (i.e., to force the government to abrogate the contract 
with COSCO).  EBEA President Constantine Michalos said that it was 
an "embarrassment" and a "dereliction of duty" that the government 
did not go to court on its own.  The following day, likely due to 
the lawsuit and Katseli's verbal assurances against layoffs and 
guarantees to expand hiring privileges for dockworkers' children, 
the union agreed to suspend the strike and return to work.  Press 
reports indicated that the strikers agreed to return to work to 
allow for discussions with COSCO, and that the first stage of 
COSCO's operations to take over the privatized terminals has been 
delayed from October 1 to November 2.  It remains unclear what the 
dockworkers were promised and what COSCO is willing to negotiate. 
 
 
 
---------------------------------------- 
 
Costs and Consequences 
 
---------------------------------------- 
 
 
 
¶9. (SBU) The series of intermittent strikes at Piraeus, culminating 
in the most recent work stoppage, has further exacerbated the 
impact of the global financial crisis on port revenues.  According 
to EBEA officials, the port lost 500,000 euro (750,000 USD) a day 
during the recent 16-day strike.  EBEA also calculates that the 
loss of public revenues (from taxes and levies) amounted to 3 
million euro (4.5 million USD) per day.  These losses do not 
include the financial impact on local industries from delayed or 
cancelled deliveries and exports, estimated by the Association of 
Attica and Piraeus Industries (SBAP) to be 5 million euro (7.5 
million USD) per day.  Other, less easily quantifiable losses 
include the effect on export-reliant Greek businesses that have 
already suffered in the financial crisis.  EBEA told DepEconCouns 
that they expect this strike to deal the death knell to dozens of 
these businesses as the people and companies they supply will make 
permanent moves to other suppliers in other, more reliable 
countries.  Some press reports indicated that the 10,000 containers 
stranded at the port contained items such as food and medicine that 
already may have perished.  Perhaps the most difficult cost to 
quantify is the loss of credibility and harm to Greece's and 
PASOK's reputations, as the lack of decisive action highlights for 
potential investors the challenges of doing business in Greece and 
a potential lack of contract enforcement. 
 
 
 
¶10.  (U) According to the World Bank's "Doing Business 2010" 
survey, Greece is ranked last overall among OECD countries for ease 
of doing business.  Compared to all countries worldwide, Greece's 
ranking for ease of hiring and firing workers fell 12 spots, to 
147th in the world.  Transparency International's 2009 Global 
 
ATHENS 00001581  004.2 OF 004 
 
 
Corruption Barometer reported that 18 percent of Greeks reported 
that they or their family members had paid a bribe in the previous 
12 months--placing Greece in the same company as countries such as 
Nigeria and Belarus. 
 
 
 
---------------------------------------- 
 
COMMENT: PASOK: Caught Between Rhetoric and Reality 
 
---------------------------------------- 
 
 
 
¶11. (SBU) While the strike's suspension may at first glance seem to 
be a victory for the government, the strike and the GoG's handling 
of it underscore how the party is caught between its pro-labor, 
socialist-leaning ideals, and the practical measures it must 
implement in order to reform and restart the Greek economy. 
Papandreou came to power promising many things to many people.  He 
promised PASOK's traditional labor union constituencies that he 
would reexamine and potentially renegotiate privatization deals. 
He promised the average Greek citizen that his government would 
improve daily life and make government more transparent and 
accountable.  He promised markets that PASOK would implement 
structural reforms and make Greece more business-friendly.  Moving 
forward, however, it will be increasingly difficult for PASOK to 
try to please all these constituencies.  In its worst financial 
crisis in over 70 years, Greece's economy has slowed substantially 
and its structural flaws have been further exposed.  Most Embassy 
contacts consider Papandreou to still be in his post-election 
honeymoon period, but reality will soon catch up with him. 
Papandreou will have to take decisive, bold action to convince 
citizens, laborers, and investors alike that Greece is serious 
about structural reforms, that their contractual rights will be 
respected, and that Greece is a reliable investment partner. 
Absent such action, PASOK may doom Greece to a slow 
half-recovery--or worse.  END COMMENT. 
Speckhard