The public debt nightmare

Public debt keeps swelling. It stood at 213 billion euros at the end of the first half of 2005 – rising from 201.5 billion at the end of 2004, 182.4 billion a year earlier and 171 billion euros at the end of 2002. The debt’s ballooning at such a rate means the government has to keep borrowing more in order to pay off older debts and to meet continuously rising interest payments. According to government data, paying off older debts will cost 22 billion euros in 2005, more than the government will pay for all public sector salaries and pensions; 25 percent of tax revenues will be taken up by interest payments. Such interest payments amount to more than the total of the public investment program and more than the total of grants to social insurance funds. Such a huge burden stifles growth and increasingly narrows the leeway for the exercise of economic policy. Public debt swelled during the PASOK years – supposedly in pursuit of social policy – which proves that it is hypocritical populism to promise social benefits without producing wealth first. Ironically, it was PASOK’s founder, Andreas Papandreou, who had said, «We will either obliterate debt or debt will obliterate the country.» The reasons for the swelling of debt are several. First, annual budgets are always in the red. In the best-case scenario, this year’s budget deficit will be 9.8 billion euros – no doubt an improvement from last year’s 11.5 billion but still considerably higher than the European Union’s threshold of 3 percent of GDP. So the first thing to do is tidy up the public sector, which, however, will prove to be a non-starter if its size and role in the economy are not reduced. The second reason is the hidden deficits and debts in the public sector which are still being uncovered: more than 700 million euros to the Agricultural Bank for payments to farmers and cooperatives, 350 million euros to the lawyers’ pension fund, about 2 billion to hospital suppliers, a further 2 billion to the main insurance funds and local government, 400 million euros to public utilities (Hellenic Petroleum, the Public Power Corporation, OTE, Hellenic Post), and so on. No matter how forward we wish to look, this vicious circle of debts and interest will keep haunting us.