Greece's troubled government - An Aegean fog

From the Economist :

Tourism, which employs one in five Greeks, is suffering, partly because of a strong euro. The number of foreign holidaymakers on Greek beaches this summer may fall by 15-20%, say hoteliers. The British are heading for Turkey, where a weak pound is partly offset by a falling lira. Bookings by Russians, the fastest-growing market last year, are sharply down. “If there's a surge in late bookings, there's a slim possibility we can break even,” says Nikiforos Lambrinos, a hotelier on Crete, glumly.

After 15 unbroken years of growth at around 4% a year, Greeks are not used to belt-tightening. But Mr Papathanasiou cannot offer even a modest fiscal stimulus. The cost of financing a public debt standing at 94% of GDP has risen since Greece's credit rating, like Spain's and Portugal's, was downgraded in January. The budget deficit is already over the theoretical ceiling of 3% of GDP for euro-area countries.

A record of fudging budget numbers gives Greece little credibility in Brussels. The European Commission has demanded more reforms to keep the deficit below 3% in 2010. Mr Papathanasiou has already announced unpopular measures, including a wage freeze for civil servants and a one-off tax for high earners. More spending cuts are on the way. But structural reforms such as modernising the health-care and pension systems remain stuck.

The gloomy atmosphere is taking its toll on Costas Karamanlis, the prime minister, and his conservative New Democracy party. Last month Mr Karamanlis marked his fifth anniversary in the job by telling a journalist he felt “exhausted” and might step down if New Democracy loses the election that may come next year or even sooner. With only a one-seat majority in parliament, the party trails the opposition Socialists by over seven points, say polls.

Corruption scandals still beset the government. This week a former director of Greece's competition watchdog was convicted of bribe-seeking. A former minister, Aristotle Pavlidis, is accused of involvement in a bribery scandal over subsidised ferry routes. Mr Pavlidis, who insists he is innocent, has resisted pressure to resign from parliament. Disgruntled conservatives fear that, as Mr Karamanlis and his government focus on anarchists and fiscal discipline, their grip on power is slipping.

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