ECONOMY

Greek economy fails to adapt

Brussels – The European Commission once again warned Greece of the dangers to its economy stemming from its inability to take advantage of its high economic growth to fix public finances. The Commission’s annual «Report on the Implementation of Broad Economic Policy Guidelines,» to be published today, mentions uncontrolled spending, widening deficits, an enormous debt and a «very high risk» to the viability of public finances posed by the growing burden of sharply rising social security costs. Furthermore, it repeats old warnings about the inability of the country’s education system to adapt to the needs of the marketplace, the harm done to companies by too much red tape and the slow steps made toward introducing new technologies into production. Opportunity missed Greece may enjoy the highest growth rate among European Union member states, thanks largely to inflows of EU aid and the projects related to this year’s Athens Olympics, but the Commission says, «It did not take advantage of favorable conditions to tackle its two main structural problems: the lack of competitiveness and fiscal imbalances.» The «higher-than-expected» cost of the Olympic Games, together with the package of measures largely in favor of low-income groups announced by the government last fall under the name of «social spending package,» will place more pressure on public finances, the Commission report warns. The report insists on the fact that, although Greece has enjoyed growth higher than the EU average since 1996, the government has done very little to lower the country’s large public debt – still over 100 percent of Greece’s GDP – besides using a part of proceeds from the privatization, or part-privatization, of state firms. The report further remarks that primary surplus has been shrinking, and is not expected to widen in the near future, as a result of primary spending that has spun out of control, the report says. In 2003 alone, primary spending will exceed the target by 475 million euros, or 0.3 percent of GDP. Excess spending may even become the norm, since, as the report remarks, expenditure on public sector wages and measures in favor of low-income groups routinely exceed budget provisions; wages, especially, have proven a highly inelastic expenditure item. Besides, pay rises have routinely exceeded inflation and productivity rises. The Commission estimates that the end of the Olympics should allow the government to make savings equal to 1 percent of GDP and insists that any such savings should be used to lower the public debt. The report laments the abandonment of efforts to reform the social security system, remarking that the changes made in 2002 «do not take into account» the country’s high debt level. As a result, the viability of public finances is in great jeopardy if further measures are not implemented. The report also notes that «no additional measures are envisaged» to lower the costs of the social security and pension systems. Competitiveness suffers The Commission acknowledges that there has been an improvement in competitiveness over the past few years, but the Greek economy is still only slightly ahead of Portugal in that respect. This is due both to enterprises’ reluctance to invest in new technologies and the education system’s inability to acknowledge the needs of the marketplace. The report attributes enterprises’ «lack of dynamism» in adopting new technologies to bureaucracy and an overregulated economic environment. Moreover, the deregulation of the electricity market, which would help slash costs across the industrial sector, still exists only on paper. In fact, Greece is facing the European Court for its delays in opening up the electricity market. Rigid labor market The Commission’s assertion that the level of education of the Greek people is low is not something new. It keeps reminding Greek authorities that its educational system does not shape individuals with the skills demanded by the job market. All measures designed to improve productivity have had little impact, except a marginal decline in long-term youth unemployment. Likewise, efforts to promote part-time employment in the private sector have failed; as a result, the public sector has been called upon, once again, to provide jobs. As the report remarks, «changes in the legal framework of the labor market are unsatisfactory and cannot attack the problems of low employment and high unemployment… The main features of the Greek labor market remain the high obstacles to entry and rigidities on the supply side.» This means it remains difficult for the job market to absorb those who, willingly or not, remain on the outside.