ECONOMICS : Hard Times Ahead in Greece--the Country Europe Left Behind

A conservative new broom sweeps busily through Greece these days, stirring hope, stress and controversy in the country that Europe left behind.

After eight months in power, the government of Prime Minister Constantine Mitsotakis--Mr. Establishment--is firmly launched on an ambitious agenda of political and economic reform. Its goal is to change Greece’s course after nearly eight years of free-spending, assertive socialism directed by former Prime Minister Andreas Papandreou--Mr. Autocrat.

The open question in a divided nation that has become an embarrassing economic tail-ender in the European Community, 12th among 12 in most categories, is whether Mitsotakis can persuade Greece to patiently endure the hard times that reforms demand. Under Papandreou, Greece lived beyond its means: One of his legacies, a foreign debt of $55 billion, is equal to a full year’s national output.

Austerity imposed during the next two years will see living standards fall, but not without unsettling domestic protest. Greeks still shudder at the memory of prolonged strikes by more than a million government workers that left Athens short of cash and electricity and long on uncollected garbage in last summer’s sweltering heat.

“We must take the tough measures now. If not, we will have nothing to show for our government in its third and fourth years,” said Miltiades A. Evert, Mitsotakis’ chief of staff.

A Draconian 1991 budget aims to reduce a government deficit that grew under Papandreou to nearly 20% of the Greek gross domestic product. Inflation, meanwhile, is projected at 23% for 1990, four times the European Community average.

Mitsotakis says he will fire tens of thousands of do-little bureaucrats, sell off featherbedded and inefficient state industries and--cutting close to the bone of his own middle-class support--crack down on the majority of Greeks who cheat on their taxes. Reviving a virtually bankrupt social security system means cuts in welfare benefits, including for openers an unpopular increase in the retirement age.

“We have inherited empty public coffers, crushing domestic debts and huge deficits . . . an economy without vitality, with unsound structures, undermined institutions, stagnant production and weak investments. . . . There is no room for compromise,” Mitsotakis told Parliament, where his New Democracy supporters hold a slim, two-seat majority.

The economic plan cheers outsiders such as the World Bank and Greece’s European partners, but it is anathema to Mitsotakis’ leftist opponents at home.

“Austerity is a political measure that hurts some more than others,” said Theodore G. Pangalos, a former Papandreou foreign minister. “This government favors small entrepreneurs at the expense of wage earners.”

Hoping to broaden his grasp if new elections are required before his four-year term is up, Mitsotakis has won parliamentary approval of a new election law. It is more favorable to unaligned nationwide parties, and to New Democracy, than the one under which Mitsotakis finally won power last April after three jousts with Papandreou at the polls in 18 months.

Ailing and afflicted in opposition, Papandreou is predictably scornful of what he calls the “unbelievable social arrogance” of the New Democrats.

“There is no doubt that social cohesion in this country is in great danger,” the former UC Berkeley economics professor warned recently.

Papandreou, 71, has been tarred by a $210-million bank embezzlement scandal that has reached into the highest level of his last government.

Two of his top lieutenants are in jail awaiting trial, two others have been indicted, and Papandreou faces three charges. Denouncing the legal maneuvering as a political vendetta, he is refusing to testify before a special investigator.

As Mitsotakis pushes Greece to the right, there is marked disarray among his opponents on the left. Greek Communists, whose party has fielded joint candidates with Papandreou’s at the local level, face grass-roots challenges over ideological underpinnings being abandoned almost everywhere else.

And Papandreou’s own unpredictable populism is openly questioned in the Pan-Hellenic Socialist Movement (Pasok) he founded in 1974. Many veteran Pasok leaders are sounding more centrist than socialist these days.

“Five years ago, ‘social democracy’ was a bad word for us in Pasok,” Pangalos said. “No more.”