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ATHENS -- Just over a year ago the conservative New Democracy party was swept into power in Greece, ending the Socialists' almost uninterrupted 24-year run in office. Since then, little has changed.

New Democracy last March won a sizeable majority, and a mandate, to take on the country's immense economic problems, claiming 165 seats in the 300-seat legislature. Greece suffers from a public deficit of over 6%, double-digit unemployment, a large and corrupt public sector and a totally dysfunctional incentive structure. High social security contributions and restrictive labor laws prevent businesses from hiring new workers. A myriad of regulations and red tape discourages businessmen from setting up new enterprises -- as does rampant corruption.

Those problems cry out for free-market remedies, such as liberalizing the labor market, reducing the size of the public sector, privatization and outsourcing. Yet Costas Karamanlis's ND government isn't tackling any of these needed reforms. Far from it, this "pro-market" party didn't challenge Greece's statist economic regime. During the campaign, Mr. Karamanlis promised to expand the public sector by creating 50 new regulatory bodies...

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