The Other Damage Greece’s Government Is Doing

Greece mostly attracts attention these days for the difficulty it’s experiencing negotiating new terms with its creditors. But that’s only half the story. Over the past four months an economy that had barely managed to grind into first gear last year has shifted back into reverse.

The European Union’s spring economic forecast, released this week, now predicts Greece’s economy will grow by a mere 0.5% this year. Only three months ago the EU expected Greece to expand by 2.5% in 2015. Because this economic contraction weighs on tax receipts, the International Monetary Fund now expects Athens will run a fiscal deficit before debt service this year. Even if the government succeeds in its negotiating aim to set a target primary surplus of 1.5% instead of 3% for 2015, it would take significant further fiscal retrenchment to meet it.

Such a downturn was far from inevitable. Investing in Greece had always been difficult, even before the crisis that began in late 2009. The sclerotic bureaucracy, the corruption, the ever-shifting tax rates and the constant danger of judicial deadlock meant that Greece had some of the lowest foreign-direct-investment rates in the eurozone. The crisis, and above all the threat of a Greek exit from the common currency, made this considerably worse.

But the governments in office between 2009 and 2014 declared themselves committed to making Greece an attractive destination for investment. Laws were passed and regulations were repealed that made it somewhat easier to start a business, or to get the necessary licenses to build a factory or a warehouse. There were measures to speed up judicial proceedings and to limit frivolous claims that needlessly held up investment projects. These were victories at the margins compared to the scale of the problem, but at least things were moving in the right direction. The result was a growth rate that finally turned positive last year, to 0.8%, after years of steep contractions.

In contrast, the new left-wing Syriza party government views private and foreign investment as, at best, a necessary evil. This helps explain why negotiations with creditors have broken down. When Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis took office in late January, there was widespread international support for easing Greece’s primary-surplus target and providing some further debt relief—provided Athens demonstrated a commitment to continued reforms to improve the investment climate. The refusal of Messrs. Tsipras and Varoufakis to engage seriously on reform has been the biggest sticking point, though things seemed to have improved in the past couple of weeks as the finance minister and his team have been sidelined from the negotiations.

Instead, and consistent with its pre-election stance, Syriza has committed to blocking the gold-mining operations of Canada-based Eldorado Gold in the north of Greece—the biggest foreign direct investment in the country during the crisis—by any legal means possible. Minister for Shipping Theodore Dritsas announced even before he was sworn in that the privatization of the Piraeus Port Authority wouldn’t proceed, though it now seems to be moving ahead. Even the €1.2 billion ($1.35 billion) deal with Germany’s Fraport and their Greek partners for the lease and operation of Greece’s 14 regional airports, universally viewed as the first successful privatization of the crisis era, has been questioned.

Plans to open up the electricity industry to meaningful competition in generation and retail distribution have been halted. A law passed in October last year to cut red tape and simplify investment procedures in the logistics industry remains unimplemented because the necessary ministerial decrees have yet to be issued.

More worrying still, in the long-run, are the policy developments in education. True to his stated view that “excellence is a stain” because it creates burdens of expectation on the best and a sense of failure in the rest, Education Minister Aristides Baltas has moved to undermine meritocracy in the pupil selection process for Greece’s model and experimental public schools. He has also cancelled English-language undergraduate courses in Greek universities, set to begin later this year. That program, if expanded, could have attracted large numbers of foreign students to the country and served as a much-needed cash injection—€3,000 per head annually for non-EU students—for Greece’s struggling institutions of higher education.

On some fronts, the new government, under considerable pressure from its creditors, now is expected to let major projects like the port of Piraeus privatization and the airports deal move ahead. But those appear to be grudging concessions to political and economic reality rather than a decision by Syriza’s leaders to change course in favor of pro-investment policies.

This is an enormous opportunity missed. Less beholden to powerful local business interests, the Syriza government could, in theory, enjoy far more success than any of its predecessors in crafting economic policies that create a level playing field rather than favoring one interest group or another. Lacking a significant export base, Greece can hope to grow in the next few years only by creating an institutional framework conducive to large inflows of foreign investment. This, to put it mildly, isn’t a Syriza priority, and Greeks are already paying the price.

Mr. Palaiologos, a journalist at Kathimerini newspaper in Athens, is the author of “The Thirteenth Labour of Hercules” (Portobello Books, 2014).