ECONOMY

Preparatory work is necessary before fall arrives

Contrary to the projections of the previous government, the average Greek income will not exceed 76 percent of the European Union average by 2008. Indeed, if we continue at the same commendable growth rates, we will catch up with that average in about 2033. This good scenario is the most likely. There are worse and better ones; all will depend on policy decisions – not so much in the months ahead as early next year. Irrespective of pre-election rhetoric, the preparations for formulating a new economic policy will not begin definitively until after the Olympic Games this summer. The 2005 budget will be the first exercise with «live rounds» for new Economy Minister Giorgos Alogoskoufis. Until the fall, a great deal of serious work will be required to take stock of the economy, particularly as regards the structural changes required if the government attempts to initiate positive changes at the base of the economy. The consolidation of confidence in the self-sustained dynamics of the entrepreneurial sector, the taming of costly overruns in the public sector and the reconciliation of accounting surpluses and actual deficits in social security funds are just a few of the existing challenges. In the medium term, a politically crucial factor is Greece’s low employment level, which means that although those with jobs work more than the European average, the total number of hours worked remains comparatively low. This factor, combined with the lower productivity, keeps Greeks’ disposable income well below that of most European partners. In recent years, lax incomes policies in the private and especially public sectors fed consumer demand and maintained the economy’s high growth rates, helped by credit expansion. What we need, however, is to boost the national product through new and bigger investment in physical and human capital in the competitive segment of the economy, and to support the more efficient enterprises. A favorable scenario which remains realistic could be based on an annual rate of increase in total employment of 0.5-1.0 percent, a little higher than the rate recorded in the 1996-2002 period, through incentives for firms to hire more women, young people and those over 55. Such incentives would offer greater flexibility in the wages system, expand part-time employment and increase the mobility of workers. It is time to overcome the «no layoffs» dogma. What is important in practice is to boost the overall level of employment, thereby reducing structural unemployment. This particularly urgent target would require a realistic appraisal of the contribution of the school system in the integration of young people in the labor market – but this is not yet available. Over-55s must be encouraged to stay on at work; this means that present rules facilitating early retirement must be abolished, as this is frequently followed by entry into the black labor market, without due contributions to the social security system. Boosting employment and production efficiency must be the new government’s twin targets. The continuous fall in the country’s international competitiveness, which has been the result of an incomes- and profit margins-led inflation – much higher than of our main trading competitors – is a real and serious threat. The previous government lost the confidence of most voters well before the election because it failed to apply itself seriously to the medium-term problems of the economy. These problems could become explosive if not addressed by the new government.