ECONOMY

Hit by gov’t inertia, economy faces risk of fall in consumer spending

A few years ago, when the country set out to become a member of the eurozone, there was earnest talk about the necessity of restructuring the Greek economy through privatizations, deregulation and new-type investment. Hopes rose on prospects of the economy becoming more competitive, productive and able to create and maintain well-paid jobs. Indeed, we thought that the bonanza of the European Union-subsidized Third Community Support Framework (CSFIII) investment plan would give a healthy boost to this process of modernization. Unfortunately, it seems that little of all this will become reality, if at all. Very soon after the approval of the country’s accession to the eurozone, the government showed it was in no hurry for anything. In the beginning, they said the country needed a «breather» after the discipline which attainment of the Maastricht targets required; but after a while, this was forgotten. As if for consolation, we were then served up an action-packed program of reform: the social security system, radical changes in taxation, deregulation of the big sectors (energy, telecommunications), modernization of public administration, measures to attract foreign investment. Nothing of the sort has happened; and will not happen until election time. It will be even worse if an early election is called in autumn. But the economy is not habituated to the whims or weaknesses of politicians. Every month that passes is an extra burden of time lost for everyone. A basic contradiction, whose effects on the economy’s basic indicators are making themselves felt, is ample proof of this: the spread between inflation and the benchmark rates of the European Central Bank. This not only affects savings but is also a measure of the distance that separates us from adapting to a more efficient and less wasteful production model. The downturn in consumption, foreign workers’ earnings from large public projects and many auxiliary occupations, will soon reveal their impact on the gross domestic product. This same contradiction is registered by the fact that a large majority of respondents report as their biggest problems the deterioration in personal finances, the threat of unemployment and the cost of health services. In this environment, the path to market deregulation, of reducing government intervention in all markets, becomes the only option. The search by Economy Minister Nikos Christodoulakis of an indirect way of extending shop business hours is in the right direction – of lifting the restrictions promoted by trade unions and which limit the return on capital invested in commerce. Such restrictions are also a nuisance to consumers and increase the cost of managing household expenses. For example, bank employees had resisted for years the extension of business hours but did not report any adverse effects after finally giving in. Besides, dozens of different occupations and middle-ranking company staff are used to working way beyond the official business hours. The dividing line in today’s Greek society throws up an irrationally inverted picture. On one side is a conservative front, grouping trade unionists in the public sector and enterprises with threatened but still protected vocations, unproductive state-owned concerns and those private entrepreneurs with connections to government insiders who win public contracts. On the other side is a progressive but disunited front comprising hard-working folk inventing productive solutions, keeping their distance from political and government authority, better attuned to and incorporating international trends. The government’s failure in most sectors, for which it planned at some point speedier deregulation and fairer competition, burdens the economy with additional costs and limits the volume of private consumption; the incomplete privatization of OTE telecoms, the effective maintenance of the monopoly of the Public Power Corporation (PPC), government intervention in competitive sectors such as information technology, transport and intermediary services (such as brokers, notary publics, lawyers) tie down precious economic resources. To the above can be added a gradual and insidious danger to our economy: burdening disposable income with hidden costs (see corruption, health and education) which intimidate consumers into conservative behavior. The consumption onslaught that was fueled by cheap loans is already slackening. If we add the fact that prices of many goods and services remain at unacceptably high levels compared to the European average, the danger of a recession in consumer spending becomes more pronounced.