Difficult and easy options for growth

Maintaining high rates of growth is not easy. The effort becomes even harder when the simultaneous aim is to restore public finances to a healthy footing. Over the past few years the growth of Greece’s gross domestic product (GDP) was supported by a rise in public spending as well as credit expansion. We were thus quickly led to rising deficits, but no one doubts their positive effect on growth. The latest monthly report of the National Bank of Greece describes this reality in rather elegant terms: «It is worth noting that the drive for fiscal tightening can only result, at least in the short term, in the ending of the period of fiscal policy’s positive contribution to domestic demand.» Usually, the contradictions and complexities of reality go unnoticed and public opinion focuses one-sidedly on single issues. Either public deficits are demonized or the lack of growth is lamented. Things are not that simple. Of course, long-term growth cannot be secured with uncontrollable public deficits, which have a number of side effects. The real challenge for the Greek economy now is how to maintain the high growth rates without further fiscal expansionary policies. Growth must be achieved with the expansion of the private sector. This is, after all, the reason why everyone is speaking of the need for promoting and facilitating entrepreneurial initiatives as well as attracting investment capital. Previous governments were obviously aware of these needs, but they simply opted for the easy way out. It is rather easy and painless for a finance minister to approve spending increases (which are tangible), looking forward to at least equal revenue rises (which are hypothetical). By contrast, it is much more difficult to create a favorable environment for new investment. It means introducing measures that aim for positive results over time, while the negative reactions (which are inevitable) will come immediately. This game with time usually forms the basis for decision-making. And this holds true for all governments.