More Turmoil Looms for Troubled Greece : Europe: If Papandreou's convicted, supporters hint of violence. If he's cleared, premier will be undercut.

By WILLIAM D. MONTALBANO

Jan. 12, 1992 12 AM PT

TIMES STAFF WRITER

ATHENS — Troubled Greece, sick man of the prospering new Europe, is headed for a new round of political turmoil with an old cast of characters.

Former Prime Minister Andreas Papandreou, a sharp-tongued socialist, is maneuvering for a political comeback, warring with renewed vigor against conservative Prime Minister Constantine Mitsotakis, who drove him from office in 1990 amid charges of massive corruption during eight years of spendthrift rule.

On Thursday, a 13-judge court is scheduled to deliver its verdict on Papandreou and two of his former ministers after a 10-month trial. They are accused of masterminding a $200-million bank embezzlement.

Televised live, the trial riveted Greece with soap-opera intensity. And although more than 100 witnesses testified, the balance of their evidence, in the judgment of court observers, was circumstantial: The government failed to produce any smoking gun directly linking Papandreou to the scandal or to prove that he accepted a $400,000 bribe.

However it goes, the impending verdict spells trouble for someone.

Acquittal would be demoralizing for Mitsotakis’ followers and personally mortifying for him. Demands for Papandreou’s indictment were keystones of the Mitsotakis election campaign. In power, he has imposed stinging austerity to deal with a national economic crisis, for which he blames Papandreou.

Papandreou’s conviction on shaky evidence, on the other hand, could spill popular anger into the streets, his supporters warn darkly. Members of Papandreou’s Pasok party mutter that they may walk out of Parliament, effectively ending the legislative process in a chamber where Mitsotakis has a two-vote majority and there are many important national issues to discuss.

Papandreou has scornfully skipped his own trial, charging that it was more political than judicial, simply an attempt by Mitsotakis to destroy him and his party.

“I have not been interested,” Papandreou said in an interview.

But he was paying attention: “Every day for 10 months everybody watched television from 9 a.m. to 3 p.m. They saw that not one charge against me or the others have stood up. They have collapsed like a house of cards,” he said.

“We don’t threaten anybody, but there is now a sense of injustice; public opinion is the jury.

“If the decision of the court goes against common sentiment, this creates the danger of a national division of major proportions--not for one day, but for many years,” Papandreou said.

The flare-up of bitter partisan bickering--long a hallmark of Greek politics--nevertheless dismays Greeks alarmed at their country’s drift.

The latest struggle between two longtime rivals comes when Greece can least afford it. The country needs urgently to deal with its role in the radically changing and volatile Balkans and to confront an economic malaise that is ominously distancing it from its European Community partners.

Greece’s 18% inflation is four times the EC average, and the nation also suffers from the community’s highest public deficit. Its economy is stagnant; imports and sales are down, bankruptcies and unemployment are up. Investment is lacking. Surging Portugal has left Greece at the bottom of the EC economic ladder, 12th of the 12 in most categories.

One consequence is growing unrest among workers--many Papandreou votes are in this sector--as Mitsotakis attempts to privatize state industries, pare debt and slash the government’s alarming deficit to belatedly bring Greece into line with scheduled European economic and monetary unity.

Mitsotakis’ promised reforms soothe Greece’s nervous European allies, but the structural changes he seeks are long-term. His policies will not bear fruit quickly. No upturn at all is foreseen before the end of 1993.

“We are a long way from Europe: This will be a hard decade,” said Miltiadis Evert, who until recently was Mitsotakis’ chief of staff and is still a deputy in Parliament for Mitsotakis’ New Democracy party. “The question is not socialism versus capitalism but how to get where we need to go and which part of the population suffers most to reach it.”

The accusations against Papandreou stem from the largest financial scandal in Greek history, a $200-million assault on a bank owned by a young Greek entrepreneur named George Koskotas, who is in an Athens jail awaiting trial. Koskotas charges that Papandreou ordered state enterprises to deposit funds in his Bank of Crete and that government officials skimmed from the interest. He also says he paid a $400,000 bribe directly to Papandreou.

Koskotas was the government’s star witness at the trial, but his testimony was marked by discrepancies and, by most accounts, fell short of the damning documentation he claimed to have assembled.

Now, Greece holds its breath, waiting for the judges to rule. There is no appeal.

“The verdict is critical. How can Papandreou be the leader of a political party if he is condemned as guilty?” Evert asked. “But if he is guilty, there will be a strong political clash. If he is not guilty, there may be a feeling that politicians have covered up.”

In a rare conversation with an American correspondent, the 72-year-old Papandreou, working amber worry beads on a sofa in his living room, demanded elections as quickly as possible. Recent opinion polls show his Pasok party leading the government’s New Democracy by between 3% and 5%. Mitsotakis, who narrowly took office in 1990 after two failed attempts in 1989, says he will stay in power until his term expires in May, 1994.

Papandreou had heart surgery in 1988 and has been hospitalized with other ailments since, but he insists that he is ready to run.

“My doctors say there is no reason I couldn’t serve another term. I feel healthy. We are doing everything we can to pressure for elections,” he said, looking elegant and fit, if a trifle gaunt and perhaps half a size too small for his pink dress shirt knotted with a silk tie of red paisley.

“Greece is at one of its weakest moments in history. For almost two years the economy has gone from bad to worse,” he said. “Real income has fallen by 20% for industrial and agricultural workers. . . . The gap between rich and poor is more striking than at any time since I was a child.”

Many independent economists share Mitsotakis’ conviction that Papandreou’s eight years of massive public spending lies at the root of the current crisis, but few challenge Papandreou’s assertion that the new government’s stabilization program has meant a decline in real income.

A former Berkeley economics professor and big-league Yankee baiter who was Western Europe’s last assertively socialist prime minister, Papandreou argues that well-off Greeks, rather than the working classes, should bear the heaviest burden of economic sacrifice that is by now inevitable.

“Everything we ask for is imbued by this sense of imminent danger,” he said. “Greece must change course.”

Papandreou, first elected in 1981 on a platform to pull Greece out of NATO and the European Community, now supports Greece’s faltering quest for full integration into the free-market alliance: “We desperately need peace at home,” he said. “We need a social contract for four years. . . . All of us must make sacrifices. This is an emergency. We’re out of step with our European partners.”

And he is no longer railing against the North Atlantic Treaty Organization or Washington: “America is now the only superpower,” Papandreou said. “It would be foolish to have America on the other side. It is better to have it with us, and not against.”