Business expects the PM to usher in a new era

The Greek economy has to shed its antiquated self and gradually incorporate another, new character: one with a more modern mentality, much more liberal and dynamic, in order to maintain growth. In one sense, the long Keynesian period must come to an end and be succeeded by the new era of Schumpeter, in the spell of which economies seem to be moving under the present conditions of globalization. Some may dispute the aptness of invoking these two great economic thinkers, but it nevertheless signals relatively well the need for the Greek economy to trim the role of the state and public spending, in order to make room for entrepreneurship and innovation – which only the private sector can promise – as a moving force for growth in the future. The prime minister, Costas Karamanlis, would do well to depict, in some way, this change in the traditional keynote economic policy speech at the opening of the Thessaloniki International Fair (TIF) on September 9, which the country’s business world is awaiting with added expectations this time around. Besides, the entire European Union is tuning in to the same wavelength, and it would be political naivete to believe that Greece could stick to the old growth model. This would simply spell marginalization in terms of investment capital, jobs and incomes. During his three months in office, the new French prime minister, Dominique de Villepin, has moved along this path of structural changes, privatizations and flexible markets that boost innovation and business opportunities. Greek entrepreneurs are also eager to hear this substantive message from their prime minister, as a signal of change and support for entrepreneurship. They want to see a firm resolve for reform, and they will put out sensors for the government’s intentions as regards privatizations and new investment ideas in sectors where international demand is strong and Greece can display comparative advantages. The already announced auctioning of new public projects, the various draft bills in the pipeline and the just-announced reduction in the top income tax rate from 40 percent starting in 2007, aiming for a top rate of 25 percent, cannot really bring a substantial change in climate. So everyone expects the prime minister to set high standards. This will be the most appealing message for both domestic and foreign investors, and the best for the stock market in the short term. Privatizations, where policy signals have so far been weak, are considered a particularly important indicator of the government’s resolve. The previous PASOK government’s lukewarm policy in this field, which amounted to piecemeal selloffs of 10 percent tranches in public enterprises, seems nonsensical today. What good are such selloffs, businesspeople ask, when utilities remain under public control and there is no change in mentality and management? If you don’t transfer the management to the more productive and flexible private sector, there can be no real change in economic structure. Another major issue for growth is that an economy cannot avoid the flight of firms and capital to others that have lower costs. The government must create the conditions for growth in modern sectors of activity, in globalized services in high demand, such as real estate, catering for holiday homes of foreign residents, tourism, education that can attract foreign students, health and financial services. Greece can tap its favorable geographical position and infrastructure of the most developed economy in southeast Europe. Another mindset, based on private initiative and on highlighting specific characteristics and quality of different service sectors, can create a different dynamic in the Greek economy.

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