ECONOMY

Faint praise for economy

The Greek economy is a fast-growing one, even in the adverse conditions that prevailed all over Europe in 2001, but is also bedeviled by high debt, low productivity, high taxation and high unemployment, according to the European Commission, which yesterday released its «Report on the implementation of Broad Economic Policy Guidelines» for the year 2001. Even Greece’s high growth rate, however, which is expected to top the EU for the first time ever in 2002, is fragile because it is circumstantial, depending on the 2004 Athens Olympics and considerable EU aid, the Commission reports. «The main source of growth is domestic demand, driven by investment in the context of the preparation of the Olympic games of 2004 and sustained by considerable financial assistance of EU Structural Funds,» the report says. Greece gets high marks in fiscal policy, where «budgetary adjustment has been pursued with consistency for a number of years.» In 2001, the budget recorded a small surplus – equal to 0.1 percent of the gross domestic product (GDP) – for the first time since 1970. As far as labor markets are concerned, the situation is far from bright. The level of employment is low and there is a high level of structural unemployment. There was little progress made in linking pay rises to productivity and «taking into account local market conditions.» The introduction of so-called «territorial employment pacts» was never implemented. The commission also criticizes the centralized system of wage bargaining and the iniquities of the taxation system. Taxation system «Despite recent measures, some of the fundamental distortions introduced by the tax system still remain. These include the relatively strong degree of progressivity of personal income tax rates, and a higher burden on dependent employees compared with the self-employed,» the report says, touching on a fundamental weakness of the taxation system: Salaried workers are burdened because they have nowhere to hide, while the self-employed evade taxes to a large extent. A measure introduced by the government, to tax «imputed income» according to one’s profession and location of business, did result in added revenue but has now lapsed. The report also concludes that, «partly due to its geographical location,» the Greek economy is the least open of of any other EU member state. «The costs to set up a new business are relatively high… the system of corporate taxation is still relatively complex and possibly constrains firms’ incentives to grow,» the report points out, confirming a point made much more dramatically by industry representatives, who told Parliament earlier this week that the system stifles investment. Furthermore, the report adds, the education system is not effective, which results in Greece «being one of the weakest innovators in the EU.» The trade deficit is too high and markets too regulated, the report also finds. Too late?