With difficult year ahead, gov’t must instill climate of seriousness in economy

Greece seems to have escaped the worst of European Union sanctions that it could have been subjected to as a result of the serious irregularities revealed by the revision of public finances this year. The government is now being called upon to seriously apply itself to the problems of the real economy and society. Parliament’s approval of the 2005 budget last week signals the beginning of a difficult year for the government, one when it may often be called on to account for errors of judgement. The parliamentary debate on the budget, not surprisingly, did not bring out the true essence of Greece’s economic problems, which have been dire for many years. It is a well-known fact that most parliamentary speakers on the budget are poorly acquainted with the subject and rarely go beyond rhetoric. Nevertheless, following the revision, this budget is supposed to give a much more accurate depiction of the state of public finances, which is bad and could become more so in the future. The budget foresees a reduction in the public deficit from an estimated 5.3 percent of gross domestic product for 2004 to 2.8 percent for next year. This is a huge endeavor, one in which not even Economy and Finance Minister Giorgos Alogoskoufis himself seems to believe. The European Commission accepts that the deficit will fall but thinks the 2.8 percent target is unrealistic. Before Greece, other EU partners, such as France and Germany, that overstepped the 3 percent prescribed ceiling have struggled for at least three years to return to the path of fiscal propriety, and still are not there. And Greece’s excessive deficit was far above theirs… Aware of the hugely difficult task, the EU Economy and Finance Ministers Council (Ecofin) will most probably, within the first two months of next year, grant Greece a one-year extension to the deadline to achieve the de-escalation. This will surely be welcome, as long as it does not lead to any relaxation of the guard, as is usually the case in Greece. The extension, of course, will not be a panacea nor will it solve any of the economy’s major problems, such as low competitiveness and exports. Nor, again, can anyone expect all the foreign investment that has eluded the Greek economy for so many years to suddenly surface in one year. However, one can demand a clearing of the slate and for the country to gradually become a friendly destination for foreign investors. The recent break-off in talks for the sale of a major stake in the Public Gas Corporation to Spain’s Gas Natural can only be a cause of sorrow. The lack of a legal framework for the deregulation of the specific market, which the government cited as the reason for suspending the talks, is rather comical, no matter how serious it sounds at first. Has it taken the government nine months of discussions with the Spaniards to realize the lack of such a framework? At any rate, the government has said in 2005 it will receive about 1.6 billion euros from privatizations – the kind of privatizations it will put through will largely indicate the course it plans to follow as regards structural changes. The government’s two major bills, on taxation reform and investment incentives, should bring results in attracting investment and improving the business climate. But we should be mindful that no tax reform bill, no matter how substantial, can tackle the perennial problem of corruption at public tax offices. Also, no investment incentive law can alone counter the red tape plaguing investors for time immemorial. Furthermore, much remains to be done in most specialized markets, where ministries still set the price lists. Much has already been done but the extent of the government’s liberalization intentions remain to be proven. The opening up of protected markets to competition is the only medicine for the rising prices that are proving so stubborn, as Development Minister Dimitris Sioufas said recently. The government must also urgently offer help in solving the major problem of banks’ social insurance problems – a paramount issue for the credit system in view of the introduction of International Reporting Standards next year. On the whole, the New Democracy government must succeed in instilling a climate of seriousness in the economy. If it does, 2006 will be a better year. If not, it will prove extremely difficult for it to make the ensuing necessary steps, despite its often declared good intentions. Finally, a major (and quite intriguing) issue is that of internal government disagreements. The most recent incident was that of Environment and Public Works Minister Giorgos Souflias, who unmistakably expressed misgivings about certain aspects of government policy last week.