ECONOMY

Warnings on the state of the economy multiply

“It is time to note the risks of a crash landing that will nullify our forecast of 3 percent growth next year,» Morgan Stanley analyst Vincenzo Guzzo declared last week. These worries by international analysts and credit rating agencies have become weapons in the hands of the opposition, which depicts Economy and Finance Minister Giorgos Alogoskoufis as someone out of his depth, allowing his deputy, Petros Doukas, to announce ever-bigger deficits and higher public debt to score political points. Alogoskoufis himself uses the deficit figures as an argument against the requests of his fellow ministers for further spending. It is true that the government of Prime Minister Costas Karamanlis has, so far, failed to present any ideas for revamping the state agencies, especially the National Statistics Service, which have been churning out arbitrary numbers on the country’s national accounts. One should have seen the European Union’s technocrats, from Eurostat and the European central banks, being scathingly dismissive of their Greek colleagues and their superiors, the ministers, as Greece is now stuck with a reputation for cooking the books. I still believe the new conservative government did well to proceed with its audit of public finances and the resulting upward revision of budget deficits and the debt. It would have been preferable, however, had it made use of the new data to revise the 2004 budget. This would highlight the responsibilities of its predecessor, Costas Simitis’s socialist government, and the burden the new government has shouldered. Morgan Stanley’s analyst is not the only one pessimistic about the Greek economy’s prospects. Credit rating agency Standard & Poor’s decided to downgrade the economy’s outlook to «negative» from «stable» and warn about the pressure brought to bear from a gradual increase in the cost of borrowing. Their colleagues in the other two major credit rating agency’s (Moody’s and Fitch) will not be far behind. Guzzo remarks that GDP growth in 2005 will be slower than the economy’s potential for the first time since 1993. Credit will not be as forthcoming and Greece’s bonus earned from its entry into the eurozone is being eroded. This is bad news for indebted households. There are three dangers lurking for the Greek economy. A slowdown in international trade will put pressure on the economy; the need to battle the huge public debt will lead to higher taxes and less public investment; and, most importantly, the differential in inflation (an average of 3 percent in Greece against 2 percent in the eurozone and 1.7 percent in the United States) will further erode our competitiveness, including in the tourism sector. The facade of prosperity built upon mounting debt is slowly crumbling.