A dangerous game of promises

The Greek economy is trapped in a certain phase of the political cycle, with national elections a few months away and growing calls for more promises to satisfy demands, not only within the government but also among the main opposition politicians. There is a danger of outbidding one another in promises which, if even partly fulfilled, will derail the economy. The main danger is to the fragile fiscal balance which, if upset, would have an immediate impact on inflation, already running at almost double the average eurozone level. Bank of Greece Governor Nicholas Garganas has already warned against a loosening of fiscal policy. He may repeat this warning at the interim report he will submit to Parliament at the end of September. In the past few years, this unfortunate tradition of making excessive promises that derailed the economy has been weakened. But the intense political fight over the election poses a revival danger. The particular structuring of Greek markets encourages inflationary trends. Prices of fruit and vegetables, for example, rise much faster than in other European countries after calamities such as bad weather. The Greek market is also more vulnerable to fluctuations in the international oil market because we consume more energy, and more inefficiently, than many of our European partners. Despite the fact that economic growth is robust, there is little room for being generous with public money. More so since the staging of the Olympics next year demands a great deal of spending. The government would do well not to listen to clamorings for higher spending.

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