The difficult autumn of the post-Olympic economy
Greece is already tuned to the Olympic Games which are virtually guaranteed to monopolize the public interest for the rest of the month. Government activity is bound to be dominated by the effort to ensure the success of the endeavor and prevent any mishaps that might blacken the country’s image. This is a huge task in itself, with no mean reward: that it can project Greece on the international scene as a place which can host big events and as a base for investment and other activities in the eastern Mediterranean and the Balkans. Trouble after the fiesta The government is, indeed, looking forward to such a gain, hoping it will enable it to face the difficulties which the big fiesta will leave behind. No one disputes that the post-Olympic period will be one of reflection and a regrouping of forces. The latest fiscal data released last week by Deputy Economy Minister Petros Doukas are a good indication of the difficulties. The fiscal deficit was nearly 9 billion euros in the first half and is projected to exceed 4 percent of gross domestic product in the year as a whole; primary budget spending is increasing at a rate higher than 16 percent. If one adds Olympic overspending, the problems in the business sector and the promised tax cuts, it becomes clear that the drafting of the new budget for 2005 will be a very difficult puzzle to solve indeed. The difficulties are not restricted to the area of public finances alone. Tourism has been hit this year. The opportunity of the Olympic Games was somehow transformed into a curse for tourism businesses, which have seen hotel occupancy rates fall to about 50 percent in this August high season. The usual complaint «there is no money» is now heard as more credible than ever. Other sectors, such as coastal shipping, textiles, foodstuffs and construction, are exhibiting signs of fatigue and, in some cases, of crisis, which, bankers say, will come fully into the open in the coming December or January and trigger a downturn throughout the economy in the next 12 months. There are already forecasts of a slowdown in the growth rate and labor demands seem to be gathering force in sectors which are in the process of being restructured. In the banking sector, expectations are of a wave of buyouts and mergers in 2005 as, due to the less favorable conditions in many areas of the economy, the more robust groups should reasonably be expected to tap opportunities for absorbing weaker midsized entities. Considered good indications of such prospects are the acquisition of a sizable shareholding in ferry operator Minoan Lines by the strongman of coastal shipping, Pericles Panagopoulos, and the interest expressed by large metallurgy and mining groups in Aluminium of Greece. The problems faced by overdebted groups such as Klonatex textiles and Thraki meat industry give signs of a likely pending crisis in other sectors. EU constraints Whatever the particular developments, the government will have to face a complex post-Olympic reality and without the freedom of movement that it would like, mainly because of fiscal constraints. Brussels will continue exerting pressure on the government to bring the public deficit under 3 percent of GDP while rekindled labor demands will be pressing in the opposite direction. So, the government is very likely to find itself undertaking a difficult juggling act, with the danger in the background of an early election forced on the country if Parliament fails to elect a new president of the republic in the spring. Even though New Democracy may seem certain to win a fresh contest, such a prospect inhibits the development of new initiatives and policies. The government’s most likely course is to declare it will follow a path of moderate adjustment, avoiding conflict and seeking to create new opportunities for growth through the promotion of self-financed concession projects and a speeding-up of privatizations. It is banking on its recently announced arrangements for the settling of pending tax cases providing a cushion of revenue for the next 18 months, and hopes to attract capital funds from abroad through the repatriation-of-money incentive and the improvement in the country’s image abroad. Moderate tones Whatever the case, no one expects an easy autumn. The prime minister’s traditional keynote speech at the Thessaloniki International Fair in about a month’s time is expected to define the environment and set the stage where social and labor demands will be handled. The message of a new approach and the setting of priorities, goals and policy means are seen as having a moderating effect and maintaining the confidence of the public in the new government in the medium term. This is a strong political reserve which the government has to tap and not let it fizzle away by the grind of day-to-day problems which, despite progress, will continue to be consuming.