ECONOMY

An uphill fight against spending

The government is fighting a war on all fronts to contain spending and restore fiscal stability, so that its various development initiatives can bear fruit. No doubt measures such as the fiscal inspectors provided for in Deputy Economy and Finance Minister Petros Doukas’s bill will help its efforts. Make no mistake, though; no matter how many measures are taken or auditing mechanisms set up, public spending will not be cut drastically unless the ravenous monster that swallows the taxpayers’ money shuts its mouth. This is none other than the massive, bureaucratic state, turned into a monster by various politicians governing it for the last 30 years, to satisfy their «clientele.» Doukas and his minister, Giorgos Alogoskoufis, are doing all they can to cut expenditure, through strict control on ministries and by clashing with colleagues asking for additional credit or hirings. These efforts have indeed yielded results, as in the first quarter of the year spending was lower than the same period the previous year, and the trend continued in April. Yet Doukas is a realist and admits that despite his «close marking,» the spending momentum is pressing; by year’s end it will probably fail to stick to the 5.4 percent upper growth limit provided by the 2005 budget. «Unless the government intervenes drastically by closing down agencies and companies that offer no services to the citizen, spending will remain a threat,» he says, conceding that the problem is political after all and one that depends on the desired size of the state. Note here that Prime Minister Costas Karamanlis has committed himself to reducing the state’s size by 1 percent every year. Public spending is split into four main categories: salaries and pensions, grants to social security funds, interest and operating expenses. Apart from the last category, where painful savings are made, the other three are essentially inflexible and tend toward constant expansion. Especially threatening are grants and interest that expand the massive public debt. As Bank of Greece Governor Nicholas Garganas wrote in his annual report this year, «based on revised data, the total debt rose to 110.5 percent of gross domestic product at the end of 2004, from 109.3 percent at the end of 2003. Greece’s public debt is the highest among the 25 EU states and is almost twice the Maastricht Treaty’s target amount (60 percent of GDP). The high debt combined with big deficits render the current fiscal position untenable, posing significant risks if lending rates rise or growth rates collapse.» I do not believe that society has realized the import of these immediate dangers, above all the political leadership, which is again tussling over social provisions, which will again be funded through loans. Unfortunately, such a mentality held over from the past has led to today’s nightmare of a public debt, the interest on which we will pay 10 billion euros – more than for all medical expenditure and grants to social security funds. The opposition is accusing the government of cutting the public expenditure program, limiting it to 8 billion euros, while for interest serving the public debt we are now paying 10 billion euros a year, a debt that reached massive proportions during the PASOK governments. In 1981 Greek public debt stood at 30 percent, while under the Socialists it grew to 109.3 percent by the end of 2003. But can a social policy relying not on the country’s prosperity but on borrowed money be sustainable?