Unemployment is the biggest long-term threat, says Garganas
Inflation will rise and growth will slow down this year, making the adoption of employment- and productivity-boosting reforms even more imperative, Bank of Greece Governor Nicholas Garganas remarked yesterday, during the presentation of the central bank’s annual report. Specifically, inflation will rise to an average of 4 percent, higher than the 3 percent forecast by the government, while growth will slow down from 4.15 percent in 2004 to 3 percent. The government had forecast 3.9 percent growth when presenting the 2005 budget back in November. This figure, however, had been considered too optimistic both by the Bank of Greece and the European Commission. In March, the Bank had issued a 3.3 percent forecast. The Commission recently revised down its 3.3 percent estimate for Greece to 2.9 percent. The Greek economy expanded in 2004 at a rate double the eurozone average, thanks in part to Olympics-related works but also thanks to robust consumption levels. Now, with the promised post-Olympics boom failing to materialize, persistently high oil prices, higher indirect taxes imposed by the government as a result of its own politically-motivated «revision» of public accounts all combine to undermine growth. Meanwhile consumer morale has dropped, partly at least as a result of fast-rising household indebtedness. «If we take into consideration the recent further rise in oil prices and the worsening of consumer sentiment… the economic growth rate may turn out lower, at around 3 percent from 4.2 percent in 2004,» the Bank of Greece says in its report. However, the highest danger for the Greek economy, said Garganas, is unemployment. While the rate of employment has grown, at less than 60 percent it is still low by EU standards. Employment may also have risen sharply in 2004, partly also as a result of revised figures, but the persistence of high structural unemployment is a reality. In 2005, the unemployment rate will rise slightly, to 10.5 percent of the work force. Garganas proposed a range of reforms to combat unemployment, including the «lifting of obstacles to the young entering the market» (hinting, probably, at the abolition of the minimum wage or, at least, at the adoption of a special low rate for first-time employed youngsters), the hiring of more women and elderly people (read: growth of part-time employment) and the «lifting of obstacles to employee mobility,» which would likely entail a relaxation of the current restrictions on the number of layoffs. Garganas remarks that the average Greek retires at 59.5 years of age, a fact which, far from assuring Greeks a long, blissful retirement, actually engenders poverty: Greece, according to 2001 data, already had one of the largest poverty rates in Europe, with 20 percent of all people below the poverty line. Among the over-65, the poverty level increases to 33 percent. Based on Eurostat data, in 2001 other EU countries with high poverty levels were Ireland (21 percent), Portugal (20 percent), Italy, Spain and the UK, all with 19 percent. Sweden stood out with the lowest, at 9 percent, the Bank of Greece said. (One mitigating factor is that a large number of Greek people are farmers living off their own produce and that home ownership is very high, which reduces the number of people below the poverty level by about three percentage points, the report says.) The Bank of Greece recommends boosting productivity by further simplifying the tax code, providing incentives for business creation, opening up more sectors to competition and accelerating privatizations. Garganas said social security reform is imperative if we are not to see pensions lowered dramatically, or taxes rising. To fight inflation, he proposed that the government freeze utilities’ charges and, to unions, showing restraint in pay rise demands.