Will the bubble burst?

We rarely think how beneficial a speedy de-escalation of inflation by at least 2 percentage points would be; an annual rise of 1.5 to 1.8 percent in the consumer price index is perfectly compatible with the annual growth rate of domestic product. The excuse used by Economy Minister Nikos Christodoulakis that Greece’s high growth rate justifies a commensurate inflation rate is not valid. Rather, the inflation rate is due to the deeper structural problems in the economy, comprising the low degree of competition and the always huge size of the State, the black economy and corruption that maintain the high price levels – not the EU-subsidized investment. How widely «convenient» the higher Greek inflation rate is is confirmed by the characteristic indifference from all those who ultimately benefit from it. Big business admitted so much last year when it consented to wage hikes which could barely be shouldered by firms, with the argument that it was necessary to prop up consumption levels. Unions also favor inflation, not so much with justified demands for minimum wage levels as with their least realistic attitude concerning the restructuring of the economy, the method for meeting the cost of social security and, ultimately, the dogmatic defense of «more government,» as evidenced by the mobilizations of the workers of the Public Power Corporation in defense of its monopolistic position. Some other analysts even claim that the «equilibrium» of macroeconomic indicators in Greece is much better than that of other members of the eurozone which are, indeed, facing the danger of recession and deflation. However, they forget that our economy urgently needs to systematically fight to bring down the prices in many and crucial categories of products and services. Boosting real incomes and reducing the gap in the standard of living between Greece and the other countries in the eurozone will come from improving productivity, reducing deficits and, ultimately, inflation. Any other argument is really fickle and only serves the protected and favored (mainly politically) groups in the population. But it is also an affront to the efforts of everyone else who effectively maintain the country’s economy. Greek inflation is also the result of the bubble created around the areas of backwardness and the imbalances between the economy and the political system which are «defended» by the present economic and social establishment. We are talking about many, and historically successive, bubbles and serious distortions, the result of 25 years of high inflation. These are: the bubble of overindebted enterprises in the early 1980s, and the bubbles of public deficits in the late 1980s and the early 1990s which became the bubble of the public debt – all money spent on the basis of political calculations and to be paid by many future generations. Other bubbles were those caused by growing tax evasion and unregistered incomes originating either in second – or even third – jobs, or by the widespread corruption in public departments. But the biggest bubbles are related to the property market and the bourse. The explosion in capital gains, EU subsidies, the ballooning of incomes from tourism properties and the lack of town planning led to an irrational rise in property prices, aided by money laundering. The incomes derived from the initial bubbles of the 1980s and 1990s further inflated the bubbles of the property and stock markets later. The bourse bubble was also aided by the devaluation of 1998 and maintained by the speedy de-escalation of interest rates in the hasty drive to attain eurozone entry criteria. It is worth remembering that the losses sustained when the bourse bubble of 1999-2000 burst were profits for those that raised the capital or benefited from the big-time salaries involved in the «party.» The gains from this last bubble were channeled back into the real estate bubble, which is now further strengthened by extremely low mortgage rates. These are in full discrepancy with the actual conditions of the Greek economy and the elementary rules for promoting macroeconomic equilibrium. This is a bubble also maintained by money distributed – largely improperly – through EU structural funds. It is only logical to wonder what will happen when the time comes for all these bubbles, which support our incomes, to burst. The result will not be very pleasant, either for us or for the politicians in whose hands they will burst.