Who is flirting with inflation?
What if we were not in the middle of the sales season and if the price of lamb did not go down? Where would inflation be? It would probably be over 5 percent instead of the annual growth rates of 4.4 percent it showed at the end of January. But even this figure is still double the expected overall result within the eurozone. What are the repercussions of having double the inflation of other countries with whom we share the same currency? The answer must be: the worst possible. If this «inflation spike» were to be sustained over a number of months, it would be the equivalent of exporting jobs. In other words, having such a difference in inflation in conditions of monetary union is disastrous for employment in Greece. There are many who believe that «a little inflation can’t hurt.» They also talk about a «return to Keynes» to provide a theoretical underpinning to their opinion. Some others blame the transition to the euro, and the government suspects that its partners in the «gentlemen’s agreements» over prices were less than gentlemanly. Finally, the most optimistic experts expect that inflation will subside during the coming months. That’s a reasonable supposition, but the same thing will happen in the eurozone as a whole. Therefore, if our prices do not rise at a slower rate, the inflation differential will be a burden on our production. The other crucial factor for prices is the degree to which producers and traders of goods and services will incorporate inflationary expectations into their future pricing. The collective labor agreements which have got underway are an important element in this process. If employers believe that a more lax incomes policy will ultimately boost demand, a convergence of positions with the unions will be easier. They could also take into account the benefits of tranquility on the labor front, which suits the government. The latter could reciprocate the gift by further weakening the disagreeable arrangements regarding overtime work introduced by the previous labor minister, Tassos Yiannitsis. Everyone would be happy and inflation would be tamer. But such a scenario would effectively waste the opportunity to invest in the future. The productivity gains from the attainment of growth rates higher than the eurozone average are spent «here and now,» in the name of a shortsighted policy. In actual fact, we continue to believe that what counts is what we put in our pocket at the end of the month. We never take into account our future obligations, the rising level of prices and the complex and real repercussions, which are difficult to bear for those enterprises gradually approaching a marginal level of profitability. Under a regime characterized by a locked external parity of a currency, inflation creates an illusion of prosperity while eating away at our future incomes. It is also disappointing that in the discussions underway for a collective labor agreement, the issue of incomes is not considered together with the more general prospects of the economy or the evident need to promote difficult restructuring changes for entrepreneurial activities. Evidently, it would be mistaken to argue that many Greek companies, particularly the big industrial concerns, are not in a position to pay their employees better. For instance, an enterprise which has consolidated its investment in neighboring Balkan countries can easily distribute to its Greek employees a portion of the added value which its investment yields; no doubt, securing industrial peace at home is of greater value. The same applies to those enterprises that have made significant cost-cutting efforts in recent years. At the same time, income transfers in the form of the tax incentives which the government is considering will more than reward the additional expenses which a generous income policy will require. Finally, the high profit margins enjoyed by many companies (certainly those that have attained oligopolistic power in their sector, but also a good number of others besides) is yet another factor contributing to the same «inflationary» policy. «America’s own crude resources are declining rapidly and it already imports over 50 percent of its annual needs. Europe is closing in on a similar situation – reserves in the north are declining and it will start running out of oil supplies around 2010,» said Ferguson.
