A war in Iraq and the accompanying rise in the already high oil prices will no doubt deepen the global economic downturn, somewhat oddly increasing deflationary pressures. This third mini-recession will most likely be the worst. In two previous oil crises, at the end of the Vietnam War and when the Islamic revolution prevailed in Iran, rising oil prices had the opposite impact: They fueled inflation. There is no such danger for developed economies now. Greece, however, is an exception. The danger is already recorded in statistics, not just regarding perishables or other seasonal products affected by bad weather, but for the economy as a whole, including services where statistical control is especially inadequate. The basic reason for this difference is that Greece is in a different economic phase – with a high rate of growth of GDP, which the government cites to back its argument of a «strong economy» but which causes prices to rise. In the last analysis, Greek inflation is explained by the combination of excessive demand and inadequate supply. At the same time, due to the European single market, the excessive supply of capital and goods in the other developed economies is transferred to Greece, swelling the import bill and destroying jobs. However, this transfer has a minimal benefit to the consumer, not just because of high demand but because obstacles to competition on the whole remain intact. This state of affairs is maintained by the high profit margins, the black economy, corruption and government waste. And so, while growth is not evenly distributed throughout the economy, inflation seriously burdens those who work in those sectors that come under the strongest pressure. Inflation is the plague of the Greek economy and nothing seems capable of stemming it, for at least the next three years. The only hope is the apparent trend for households to put a brake on spending. The biggest danger is that the necessary correction will not take place in good time. Take the economy’s largest sector, services: It has been unjustifiably late in boosting productivity, losing year after year a very significant part of the additional wealth it could create, while inadequacies in the labor force, low standards in infrastructure, «national» suppliers and monopolies and inadequate education lead increasingly to more imports of services and lower national added value. Having lost the opportunity for a vertical industrial structure, Greece now appears ready to miss yet one more train – the potential for creation of services of high added value, which are tapped by multinational companies with presence in India or China which have a particularly competitive infrastructure and highly trained and mobile personnel in developed nations. Therefore, Economy Minister Nikos Christodoulakis’s recent call for more and more effective entrepreneurship – right or wrong – is equally distant from government policy and business practices. «I am convinced that private enterprise constitutes a guarantee for social cohesion, boosts productivity and offers equal opportunities to all, particularly the most productive segment of Greek society, the new generation,» he told the Federation of Greek Industries (SEV) last week. If only it were true! The overheating of the Greek economy when other developed economies are cooling down holds the prospect of yet another significant danger: In the next three to five years, it will come under a full-frontal assault of imported goods and services that will displace the domestically produced. More jobs will be lost, sending unemployment again above 10 percent, even larger sectors of production will lose in capital value and real incomes will drop. Instead of convergence with the European average, we are in for an unpleasant divergence. This is a much more likely development than the daily «propaganda» allows us to realize. Yet one more world recession will create even bigger obstacles to our meager exports and further reduce the stamina of the economy for the next round.