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Stabilization & Disillusionment (1985-89)

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In 1985, Papandreou's government applied for a $1.75 billion loan from the EEC to address the widening foreign trade deficit (8.7% of GDP).[1] However, the EEC imposed the implementation of a "stabilisation programme" as a precondition for the loan. The stabilization package, implemented by Costas Simitis as minister of Finance, was based on a traditional incomes policy and included a 15% devaluation of the drachma, a reduction in borrowing, and a tightening of monetary policy, wages were no longer indexed to inflation, some tax exemptions were abolished, and incomes returned to pre-1980 levels.[1] In February 1986, Greece signed the Single European Act, which required the member states to deregulate and reduce state intervention in economic life towards the creation of a single market by 1992.[2] Simitis' policies had the intended outcome, with the inflation reduced from 23.01% in 1986 to 13.5% in 1988, and the Public Sector Borrowing Requirement fell to 13% of GDP in 1987 from about 18% in 1985. However, Papandreou was shaken by a widespread backlash with long-running strikes and demonstrations by farmers and major unions in early 1987.[3] With the elections approaching, Papandreou forced Simitis to resign from his ministerial position in 1987, and the reforms were abandoned.[4] Greece started to fall behind in economic rankings, and by the end of the decade, the Greek economy ranked last in terms of convergence with EEC goals, economic competitiveness, dependence on EEC and state subsidies, investment, inflation, and growth.[2]

During the 1987 Greek-Turkish crisis in the Aegean Sea, Papandreou threatened to sink the Turkish vessel if found in Greek waters.

In the summer of 1988, his premiership became increasingly surrounded by numerous scandals. The retired Karamanlis publicly described the situation as: "A boundless lunatic asylum," [5] while others refer to the events in 1989 as "dirty 89".[6]

Heart Surgery & Liani

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In August 1988, Papandreou (at age 70) underwent major heart surgery in London, but he refused to yield the reins of power. The operation and recovery lasted three months, leaving the Greek state and party without a leader.[7] The opposition described the situation as "government by fax."[8]

However, in London, it was revealed that next to him was not his wife but Dimitra Liani, an Olympic Airways steward. Soon after the revelation, Papandreou divorced his wife Margaret Chant and married Liani one month before the elections of June 1989. Liani became an influential 'gatekeeper' for Andreas' favor and was involved in appointments in the Prime Minister's Office.[7] The sudden elevation of Liani had negative effects on the operation of the government and caused discontent in PASOK.[9]

Koskotas scandal

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Early in the second administration, press reports on PASOK's corruption multiplied, with notable ones being the "Yugoslav corn scandal," "telephone tapping scandal," and "public utilities scandal."[10] However, Papandreou himself was implicated in the Koskotas scandal, which overshadowed all other PASOK's scandals. George Koskotas was the owner of the Bank of Crete and was accused of having embezzled large sums from the bank's clients. He fled to the USA, where he was arrested on 11 November 1988 in Massachusetts and was jailed in the US. In 1989, Time magazine published an article describing in detail the allegations.[11] He was extradited to Greece in 1991 for the trial. Koskotas alleged that Andreas Papandreou and other PASOK high functionaries had ordered state corporations to deposit funds (over US$200 million[vi] missing) with the Bank of Crete and had taken bribes from the stolen money. Koskotas claimed that on one occasion, he had delivered to Papandreou himself US$600,000 stuffed in a Pampers Diapers box.[12][13] Andreas Papandreou denied the story, accused the US of manufacturing this scandal to destroy him,[14] and even sued Time magazine. Nonetheless, Koskotas's accusations gained international attention. Several months after the arrest of Koskotas, six ministers (most notable by Costas Simitis[7]) resigned in protest of the corruption among the most senior members of PASOK,[15] demands a vote of no confidence against the government. Papandreou's trial began in Athens on 11 March 1991, but as a former prime minister, Papandreou exercised his constitutional right not to attend the trial. In January 1992, the Parliament-appointed tribunal of 13 judges of Supreme Special Court having heard over 100 witnesses and investigated 50,000 pages of documents over ten months, acquitted former Greek Prime Minister Andreas Papandreou of all charges against him with a 7–6 vote. During the trial, the deputy of the Prime Minister, Agamemnon Koutsogeorgas, who was also accused and a close friend of Papandreou, died from a heart attack after sentencing. Dimitris Tsovolas, former Minster of Finance, was sentenced to two-and-a-half jail years.[16] Koskotas was tried and sentenced to a 25-year prison term. When Karamanlis was asked about the verdict, he commented, "In democracies, prime ministers do not go to prison. They return home." by both reaffirming the court's decision and acknowledging its positive and negative effects.[17] The trial was characterized as the "trial of trials" and the most critical judicial decision since the Trial of the Six in 1922.[18]

Abuse of power

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Beyond the financial scandals, the public was getting worried about the government's assertions of arbitrary power. Andreas Papandreou used the national broadcasting organization as a public rela­tions agency. Unfriendly newspapers to PASOK were openly threatened by his ministers.[15] In 1989, it was revealed that the National Information Service, through the state telecommunications organ­isation OTE, had been bugging over 46,000 phones of politicians, journalists, businessmen, and lawyers and Andreas Papandreous used the information obtained for PASOK's purposes.[15][10] Six months before the 1989 elections, public appointments were bestowed on about 90,000 people as a way to gain additional votes.[5] The abuse of power continued when Papandreou changed the electoral law shortly before the June 1989 general elections, a move designed to prevent the absolute majority of a rival political party.[19][20] The result of this election law change was that it required three elections over nearly a year for the formation of a new stable government.

Lost power (1990-1993)

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In the June 1989 elections, PASOK's electoral percentage fell to 38%, owing much to the Koskotas scandal.[21] However, its political rival, New Democracy, led by Mitsotakis, with 43%, was unable to form a government because of Papandreou's last-minute change of the electoral vote law. The new law required a party to win 50% of the vote to govern alone, and New Democracy had come up just short of that threshold. New Democracy collaborated with the Synaspismos (radical left) to form a government, led by first under Tzannis Tzannetakis (2 July-12 October) and then Ioannis Grivas (12 October-23 November);[22] the participation of Synaspismos party (effectively following communist ideals) in the government marked the end of the militarized politics of the past since there was no reaction from the military. The coalition soon broke down. In the elections of November 1989 that followed, New Democracy got 46% of the vote but could still not produce a government. All three parties in Parliament entered a National Union government[23] under Xenophon Zolotas as a way out of the impasse and a "catharsis," i.e., investigation and trial of PASOK's corruption is completed. Zolotas resigned in April 1990 due to the further economic decline. In April 1990, Mitsotakis received sufficient (by one seat above the threshold) support to form a government, and Papandreou became the opposition leader.[24]

Constantine Mitsotakis initiated efforts designed to improve relations with the US, which Papandreou's anti-American rhetoric had damaged. In July 1990, a defense cooperation agreement was signed, which would regulate the operation of American bases in Greece for the next eight years.[25] Greece's airspace and naval support for the allied cause during the First Gulf War further improved the Greek–American relations. Mitsotakis also visited Washington, making him the first Greek prime minister to do so since 1964 by Papandreou's father.[26]

After eight years of Papandreou's rule and the instability caused by Papandreou's last-minute change of electoral law, the Greek economy was in dire condition, and Greece had a reputation nationally and in European circles as that of 'black sheep.'[27][28] Specifically, the economy was burdened by debt that had tripled in size, high inflation rates (20% the year they came to office), chronic primary budget deficits, and large government expenditures some intended to keep failed companies afloat.[29] This was also reflected in March 1992, when the EEC Monetary Committee produced a report sharply criticizing the Greek government's economic performance and misuse of EU funds.[30] Six weeks after taking office in April 1990, the Mitsotakis government introduced a programme of austerity by freezing public-sector salaries and pensions, cutting government spending across the board, and raising taxes on various goods, including fuel oil.[31] It also repealed the wage price index, keeping people's incomes high but fuelling inflation, which PASOK had introduced in 1982 and remained popular among wage earners.[29] This repeal caused wages and salaries to fall, reaching a 13% drop from 1990 to 1993, resulting in continuous strikes.[30] Certain areas, such as banking, were deregulated to attract capital.[30] Mitsotakis' government also sold or liquidated 44 companies controlled by the "Industrial Reconstruction Organisation," which was created by PASOK and was designed to assist failed firms in recovery.[32]

The Greek economy started to turn around due to Mitsotakis' economic policies towards meeting the Euro convergence criteria, but this was not enough to balance the rising frustration of the Greek voters with the austerity measures impacting their lives. Andreas Papandreou was campaigning by promising to bring back the good old days of the eighties and the Greek people voted in October 1993 the return of Papandreou to power.[33]

  1. ^ a b Koliopoulos, 2009, p. 167.
  2. ^ a b Liakos, 2023, p. 332.
  3. ^ Close, 2002, p. 158.
  4. ^ Featherstone, 2015 p. 142.
  5. ^ a b Close, 2002, p. 159.
  6. ^ Dimitris Kapranos (4 March 2003). "Greece's tradition of spectacular trials".
  7. ^ a b c Featherstone, 1995, p. 97.
  8. ^ Curtis, 1995, p. 80.
  9. ^ Featherstone, 1995, p. 113.
  10. ^ a b Garrard, 2006, p. 131.
  11. ^ Robert Ajemian (13 March 1989). "Scandals The Looting of Greece".
  12. ^ Cite error: The named reference Koscotas1 was invoked but never defined (see the help page).
  13. ^ Gallant, 2016, p. 290-291.
  14. ^ Gallant, 2016, p. 300.
  15. ^ a b c Close, 2014, p. 158.
  16. ^ Featherstone, 2015, p. 89.
  17. ^ Garrard, 2006, pp. 133-134.
  18. ^ Jones, 2011, p. 229.
  19. ^ Magone, 2003, p. 172.
  20. ^ Galland, 2016, p. 293.
  21. ^ Dobratz, 1992, pp. 167-180.
  22. ^ Liakos, 2023, p. 345.
  23. ^ Close, 2014, p. 159.
  24. ^ Koliopoulos, 2009, p. 170.
  25. ^ Gallant, 2016, pp. 300-301.
  26. ^ Koliopoulos, 2009, p. 171.
  27. ^ Cite error: The named reference Featherstone2005pp223-241 was invoked but never defined (see the help page).
  28. ^ Cite error: The named reference Tsoukalis1999pp65-74 was invoked but never defined (see the help page).
  29. ^ a b Gallant, 2016, p. 302.
  30. ^ a b c Koliopoulos, 2009, p. 175.
  31. ^ Liakos, 2023, p. 345.
  32. ^ Koliopoulos, 2009, p. 176.
  33. ^ Koliopoulos, 2009, p. 177.
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