ECONOMY

Fruits of reform to be available soon

Greeks will begin reaping the fruits of economic rehabilitation from next year, Economy and Finance Minister Giorgos Alogoskoufis tells Kathimerini in an interview. Following the endorsement of the government’s program to stabilize the economy by the European Union’s Economy and Finance Ministers Council (Ecofin) earlier this month, he says, it will be possible to lighten significantly the burden on taxpayers from 2007, particularly in the middle-income brackets, and to fulfill all the government’s pre-election promises to the lower-income strata. Alogoskoufis rejects criticism that the government is moving too slowly; our pace of reform, he says, is that which society can endure in the framework of policy of gradual adjustment. Hasty decisions can backfire, he warns. Ecofin’s endorsement of the Stability and Growth Program is no doubt a big success. However, as it became apparent, everything depends on the strict execution of the budget. Are you certain that pressures from your colleagues for more expenditure will not put you off course? Undoubtedly, the strict execution of the budget, particularly on the expenses side, is and must be a collective effort. Everyone in the government must realize that bringing the deficit below 3 percent of GDP is a central national effort, as it was one of the basic obligations we undertook when we adopted the euro. The budget is law and we are all obliged to observe it and adapt our policy to the limits it sets. One sees that the budget is exclusively based on increasing revenues. What about expenses? We do not see many cuts like those announced pre-electorally. Is there any room for cutting waste in the public sector? Of course there is. This is already being done but it’s a difficult task, as every expense is related to public sector employees or supports to the weaker income groups and other social priorities. What we have done is that we put a brake on the growth of the public sector and left room for the growth of the private sector, which is being realized at a satisfactory pace. We restricted new hirings through a relatively tight incomes policy and, in the framework of the moderate fiscal adjustment, granted the highest possible pay raises. There is, however, room for structural policies which will limit waste, and this again is a matter which concerns all ministries. The prime minister has given clear instructions to all ministers. Also, we expect that the law on public utilities will give the taxpayer considerable relief from the deficits caused by mismanagement in the past. What does Ecofin’s positive vote for the Stability Program mean in practice for citizens, their incomes and work? It is positive, for a start, that despite the unfavorable predictions of the opposition’s Cassandras they are not asking us to adopt new tax measures. Both the European Commission and my colleagues in Ecofin have accepted the plan in the Stability and Growth Program. We can achieve our targets by tackling tax evasion, limiting waste in the public sector and keeping a rein on public expenses. And of course it is positive that they accept (this is also part of the program) that from 2007 onwards we can begin the gradual implementation of the second phase of the tax reform which concerns individuals, particularly salary earners. This will address middle incomes and will involve raises in two installments in farmers’ pensions and in the special supplement for other low pensions, as we had pledged pre-electorally. The Stability and Growth Program includes our commitments to citizens. For there is not meaning in an economic policy which does not ultimately aspire to improve the living standards of citizens, particularly those with the lowest incomes or those who bear the main burden of the budget. The figures we present are true. And when the true numbers are doing well, the citizens also prosper – in contrast with the past, when only creative accounting prospered. With respect to last Wednesday’s nationwide strike, do you see a climate of social upheaval gathering force? I do not believe the conditions are there for such a thing. There is an upheaval every year at this time because this is the season when collective pay pact negotiations are under way. The government respects and honors this institution and believes that the negotiations will again this year produce positive results for workers’ incomes and the competitiveness of our economy. Even though it is undeniable that the fiscal situation has been redressed during your tenure, the growth rate still depends on private consumption and the credit banks provide to households. The absence of state investment, especially in big infrastructure projects, is obvious. How will the economy grow from now on? I think big projects will move ahead this year. There were big delays because the PASOK government had not prepared projects for the (post-Olympics era). There were many outstanding legal and management issues concerning the Third Community Support Framework. These issues were resolved with the maximum gain for the state, so that the badly needed big projects can finally go ahead. Also, public-private partnerships are expected to contribute greatly toward implementing infrastructure more effectively and providing better services to citizens while reducing the burden to the budget. Private investment increased 3.8 percent last year, but the prevailing perception is that businesses are reluctant to invest. What are you doing to create a friendlier environment for businesses and investment? The major factor discouraging businesses in Greece was the complexity of the legal framework and uncertainty regarding economic developments. We cut down on bureaucracy, simplified the laws and created a climate of stability and confidence that the laws will be applied. We have cut corporate taxes. I must note that the law on investment incentives has helped create 4,000 jobs directly and many more indirectly. At the same time, by upgrading the Hellenic Foreign Trade Organization and the National Council on exports, we have created a platform for the coordinated and successful promotion of Greek products in the big global markets. Greek enterprises are no longer helpless in the global market. Through the synergies they can achieve by cooperating with these bodies, they are capable of creating a fertile exports policy. We are witnessing a revival of economic nationalism in Europe and an opposition to cross-border mergers. What do these developments mean for Greece? Greece and Europe cannot afford a relapse into economic nationalism. This is a dead end and undermines economic efficiency. As long as businesspeople hold passports, they will be traveling abroad in search of optimum investments for their companies and their shareholders. No one can prevent that without losing investor confidence. In any case, Greece plays a big role in Southeastern Europe; Greek businesses have invested over 10 billion euros in the area. It would be absurd to say no to cross-border business deals. moreover, to us, attracting investors is the key to prosperity and this goal is totally incompatible with economic nationalism. We suffered from lack of investment because we had such a policy before. We do not say no to «national champions» but I am certain these can only evolve through competition and the opportunities provided by the European and global economic integration.