The government insists that the Greek economy’s high growth rates are steadily closing the income gap with the rest of the European Union. As the pre-election period is drawing closer, however, the issue of how Greek incomes are faring is bound to become a hot topic of debate with the opposition. There are two ways of looking at the issue. One is the harsh reality of prices we pay; the hikes that accompanied the transition to the euro and the persistence of a relatively high rate of inflation since then have brought home to the average Greek the clear realization that his/her income is being spent faster. It is true that the establishment of a single European market after 1993 and the creation of a single monetary zone has helped equalize prices among member states at surprising speed. Most industrial products, either produced locally or imported, and hundreds of various types of services, particularly those making up modern consumption models, now have the same or higher prices as the rest of the EU. The low degree of competition among firms, the lack of consumer «education» and the imprudent distribution of borrowed money are factors maintaining inflation, which remains the highest in the EU. The reason for this is linked to the second way of looking at the issue: the low degree of competitiveness of Greek production, which is widening the gap between present incomes and those needed to reach – and above all, to maintain – the consumer model which the government is advertising and which most other EU partners have already attained. The average Greek real income is two-thirds of the EU average, the lowest among the 15 members. Portugal, Spain, and two of the 10 newcomers, Cyprus and Slovenia, are just ahead of us. Another two newcomers, Hungary and the Czech Republic, are following close. This comparison, often cited by the opposition and the labor unions, belies the government’s euphoric claims of the benefits of the high growth rates; it explains how the much-advertised Olympic projects – irrespective of the progress they contribute to – create new wealth which is recorded in statistics but, by and large, fills the coffers of only the few basic shareholders of construction and related companies, while another significant part of it is exported to the immigrant workers’ countries of origin. Another indicator, published in the last few days, has confirmed the odd and difficult reality we are facing: Greek monthly labor costs in industry and services are among the lowest in Europe, at 1,570 euros, against 1,189 euros in Portugal, 2,031 euros in Spain, 2,762 euros in Ireland and 3,169 euros the EU average. At the same time, Greece’s monthly average number of work hours per employee (151) is the third highest in the EU, after Ireland (160) and the UK (155). The low cost of labor may largely explain the high number of hours worked, but it is itself explained by the low productivity of labor. This, in turn, is explained by inadequate investment in organizational modernization and technology, particularly in sectors where competition is weak and the state has a strong presence. Moreover, worker specialization and skills remain at a low level, the result being that many Greek enterprises, especially those with a limited presence in their respective markets, prefer to employ many low-paid workers. By contrast, those with higher levels of productivity and a prominent market position achieve very good results. Also, the relatively low number of those in active employment, especially if the farming sector is excluded, restricts total household income further. The problem is worsened by the problems of integrating women and young people in the nation’s economic life. The continuous fall in purchasing power, as prices adjusted much faster than wages and salaries to the new conditions of the single European market, is already exerting serious pressures on households’ standard of living. Nevertheless, total consumption does not seem to have fallen; on the contrary, combined with EU inflows, it is feeding the high growth rates in the national product. The discrepancy is explained by two «cushions:» the black economy and borrowing. No one is in a position to accurately calculate the size of total undeclared income. If official measurements show that total actual income is 35-40-percent higher, other approaches prove that the hidden part is much larger; indeed, for some professional categories it is estimated to be nearly 50 percent. And when the additional income is related to tax evasion, corruption or money laundering, calculations must be closer to the realm of science fiction. The other cushion is borrowed money, which creates the illusion of an increasing (but increasingly stressful) prosperity. Many forms of borrowing are directly linked to the new consumption models, making plastic money part of daily life: mobile phones, purchases by installment and five-year loans for cars inflate consumption and maintain a standard of living that is in no case supported by actual incomes. The pressure created by the gap between wages and salaries, on one hand, and consumption patterns, on the other, is shifted onto prices. Profit margins and inflation are maintained, consumption dreams are fed; it becomes a virtual reality with which the real economy is unable to keep pace, as no new investment is made and productivity lags. In practice, we are increasingly living in a bubble; now, bubbles have an unpleasant habit of growing until they burst. Households, businesses and governments are already feeling the heat. Pay demands of 5-6 percent, much higher than the official consumer price inflation – but much nearer to reality – will further cut into the weak branch of productive potential on which the Greek economy sits. When the frenzy of spending for next year’s Olympics has passed, with bills unpaid, many firms having delayed decisions regarding their reorganization, and larger public deficits (some concealed), the barometer could be showing storms approaching.