BUSINESS

Context is vital in the recovery debate

NICK MALKOUTZIS

TAGS: Analysis, Economy

Speaking to his party’s lawmakers last week, New Democracy leader Kyriakos Mitsotakis tried to pick apart the government’s narrative about Greece turning the corner. In doing so, he raised some interesting points of debate.

The conservative chief’s speech to ND’s parliamentary group coincided with a 48-hour media blackout due to a journalists’ strike and his comments did not receive the coverage they normally would. The general gist of Mitsotakis’s message was that Prime Minister Alexis Tsipras cannot genuinely claim that an economic recovery is under way when the majority of Greeks are in dire financial straits.

“Today’s Greece is not a normal country given that its citizens cannot pay their taxes and social security contributions,” he said, according to reports.

This raises an interesting practical and philosophical question about what actually constitutes a recovery. For instance, Greece’s economy is due to grow this year and next, but will Greeks really feel better off by the end of 2018 than they have done over the last few years? Probably not.

Also, can you really say that a country has exited its crisis when almost 100 billion euros is owed in taxes and just over 30 billion euros of social security contributions are overdue? Combined, these come to the equivalent of around three-quarters of Greece’s annual GDP and it does, indeed, seem far-fetched to consider that the country is out of the woods while this volume of debt is hanging over businesses and individuals, while also being absent from public coffers.

It is perfectly legitimate to raise these concerns. Firstly, Greek politicians have a duty to ensure that they and their opponents do not blow smoke in the eyes of an electorate that has been promised many things over the last few years that were never feasible.

However, opinion polls suggest that having been duped repeatedly, Greeks are less inclined to believe the stories of imminent success spun by their leaders. An opinion poll carried out by the University of Macedonia for Skai TV indicated that at the end of September just 8.5 percent of Greeks believed their financial situation would improve in the coming 12 months. In comparison, 50.5 percent said that things were set to get worse.

Furthermore, just 6 percent of respondents said they were convinced by the pledges Tsipras made at the Thessaloniki International Fair last month. Mitsotakis also struggled to inspire strong belief, with 19.5 percent saying that they bought into his message.

In economic terms, questioning the fundamentals as Greece heads from a depression to a period of some kind of growth also serves to add some context to the discussion. A gradual uptick in Greece’s gross domestic product will not lead to a sudden turnaround in people’s lives. Greeks have fallen such a long way during this crisis that it will take years for the wounds to heal.

The Hellenic Statistical Authority recently published its annual household budget survey, which showed that the average monthly household expenditure in 2016 came to 1,392.03 euros, which was down by 2 percent or almost 30 euros compared to a year earlier. But the real shock comes when this is compared to the figure for 2008, before the crisis began, when Greek households were spending an average of 2,120 euros per month.

It is inconceivable that a fall of this magnitude can be reversed in a short period of time. This context is important to understanding what Greece’s immediate future holds and it is certainly incumbent upon all of the country’s decision makers to be clear about this when they are addressing the people who have suffered, and continue to suffer, the effects of this downward adjustment.

However, it is also important to be aware of context when we are examining the other factors that are likely to act as a drag on Greece’s growth prospects, such as the mountain of debt that corporations and individual taxpayers have amassed at tax offices and social security funds.

A few days ago, some alarming numbers emerged regarding overdue social security contributions, which reached a total of 30.5 billion euros at the end of the third quarter (Q3). This represented a rise of around 7 billion euros compared to the previous quarter.

There are two qualifiers that need to be considered, though. Firstly, the government is in the process of consolidating social security debt and the sudden jump in the amount owed has mostly to do with the fact that between Q2 and Q3 this year, arrears owed by around 378,000 self-employed Greeks were added to the total that is being monitored by the Center for the Collection of Social Security Arrears (KEAO). In other words, this debt was not newly created. It already existed and was simply added to other outstanding payments. Likewise, 8 billion euros of this total debt is a result of penalties and surcharges.

The other factor that has to be taken into account is that some 24 billion of the entire 30.5-billion-euro social security debt was created before 2010. While the crisis has undoubtedly been terrible for employment and social security, the problems the system has experienced stretch much further back than the period Greece has been under a program.

There are two lessons we can take from this. The first is to appreciate that emerging from the crisis does not mean just overcoming the mistakes of the last couple of years, or even since the first bailout was signed in 2010, but also tackling the problems bequeathed to us by the much more prosperous Greece of the past. The impact of this false prosperity and the state failing to perform some of its basic functions, such as collecting taxes or social security contributions, are still being felt today.

Should Greece exit its program in a timely and convincing manner, the lingering effects will still have to be tackled. And this brings us to the other point, which is that nobody is in a position to suggest that there will be a flick of a switch next year that will allow Greece to suddenly put a number of serious economic problems behind it. A huge pile of unpaid debts, for instance, will still be there.

The truth, though, is that there is no immediate remedy for this. Moving the elephant out of the room takes time. Only when Greece has a growing economy and rising employment can these debts, along with other issues, be addressed. Even then, though, it will require a step-by-step process that will be slower than most politicians would like to admit.

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