ECONOMY

Inflation poses a real threat

Very wisely, citizens have chosen to point to inflation as one of their main worries, and one for which they blame the government. On at least two occasions, government ministers have admitted that price rises are a cause for concern. Several months ago, Economy and Finance Minister Nikos Christodoulakis pointed out the problem, promised to keep public sector prices – including utilities’ rates – in check and predicted that prices would stabilize. More recently, Kimon Koulouris, deputy development minister responsible for trade, imposed on the government a different way of tackling the problem. Backed by a media campaign, he made vague accusations against «profiteers,» threatened producers and retailers, entered into agreements with certain supermarket chains and promised exemplary punishment of those who would not conform. These two tactics, obviously at odds with each other, revealed the government’s inability to keep inflation down, as well as the scant preparation made to do so. Because what finally determines prices is competition and the level of supply. Christodoulakis’s predecessor, Yiannos Papantoniou, chose to ignore the problem when he had the chance to take serious and effective measures. Limiting inflation to the level required for Greece to enter the European Economic and Monetary Union was achieved in two ways: ceilings on prices controlled by the government (utilities’ rates, fuel taxes) and the appreciation of the drachma relative to the euro. After Greece joined the euro, prices of public goods rose rapidly. Concurrently, the new, strong currency, combined with «easy and cheap» loans, maintained, and even helped increase, consumer demand. With the Greek economy’s competitiveness constantly sliding, imports controlled by large enterprises and internal demand constantly on the rise, the Greek economy faced persistently high inflation. A hard currency, relatively high inflation, public deficits and a «closed» market constitute an explosive mix. The citizens are aware of this, because it affects their wallets. This threat takes its place along the, equally great, threat of unemployment. Together, they shatter the propaganda myth about a «strong economy.» Obstacles to employment, low and volatile wages, along with expensive goods and services, lead to a significant limitation of available income. Add to that liabilities from increased borrowing and the situation becomes truly suffocating. Translating this into politics constantly erodes the current government’s chances for re-election. It also undermines the opposition, which seems to be trying to promise more and more things, especially high growth. Keeping inflation at the same levels, even with high growth, will offer no real solution. What we need is a serious and rapid income redistribution.