Pre-election danger for the economy

At the beginning of the year, everything was different: The world was facing the uncertainty of the coming war in Iraq and still feeling the aftershocks of September 11. Markets hastened to price in the worst scenarios and many businesses were trying to absorb the shock of reduced profits and turnover in 2002. The climate is clearly better now, more optimistic, and this is reflected in business plans. Stock markets, too, are expecting better days. What has changed in six months? It is true that doomsday scenarios are now behind us; uncertainty has been moderated. The world is now more hopeful, either because of the signs of an upturn in the American economy or because expectations are better in Europe. Now the fears of a disaster due to unchecked geopolitical developments and a repetition of the 1929 crash have receded, we have a return to average estimates. The world is heading neither toward great ills nor leaps in growth in the short term. This is the time of cautious optimism. Regarding the Greek situation, optimism is perhaps less cautious. We have begun to feel the repercussions of the political cycle on the economy, with elections due in May at the latest. The government, banking on improved prospects abroad, is seeking to promote more privatizations in order to gather revenue and is hoping to benefit from the completion of projects for the Olympic Games next year and the rise in the stock market. But above all, it is preparing social policy measures, hiring for full- and part-time positions in the public sector and attempting to show quick improvement in public health and education services. The real question is not whether a spectacular improvement in public services is feasible before the elections, it is how to finance social policy and public sector hirings when the fiscal situation is precarious. The odd endeavor is that the public sector is trying to offer jobs that the private sector cannot, and this poses the question of whether an increase in employment through the old method of pre-election hirings is sustainable. The proper means of meeting this target are usually measures such as tax breaks and other boosts to business activity for firms to hire more workers. It is reasonable to expect any government – and party, for that matter – to want to go into the elections on the best possible terms. But it is wrong to create conditions that will burden the economy in coming years for merely pre-election motives. Fortunately, we are still bound by the EU’s Stability Pact and Greece is too small a country to overturn it. Without such commitments and the euro, the situation would have already been out of control.