Protracted pre-election climate

Paradoxically, all the indicators of the Greek economy worsen during a pre-election period. A foreign economist who tries to explain this only on the basis of «objective» factors and prevailing circumstances in the international economy will do so in vain. He must also take into account the upcoming pre-election period. Without it, any assessment or forecast is risky. The Greek economy’s main problem today is that there are indications of a protracted pre-election period for the municipal elections in October. This was initiated by the government itself, which raised the issue of changing the electoral law. But that is not the only factor at play. All public departments are now pushing for increases in the credits approved by the budget; suddenly, they have all found urgent requirements which must be met. A flurry of demands for raises in wages and pensions are being made in the context of negotiations for a new collective labor agreement and social security reform. In the meantime, the government is giving the appearance of thoughtfully attending to permanent problems, such as the transfer of building rights, the closure of outstanding tax cases and solving the issue of draft dodgers. The only part still missing (as usual) is the legalization of buildings erected without a license which is certain to happen again, supposedly for the last time. All these issues are certainly important and in need of solution. But they are also creating a situation obviously detrimental to the economy, indeed at a time when the number of demands coincides with a fiscal situation that presents difficulties. The budget has to record a surplus at the end of the year but the prospects for revenues from privatizations do not seem very rosy, while the falling profits of enterprises are also cutting into tax revenues. Under such conditions, the prevalence of pre-election conditions is the worst possible development. It is quite clear that the government has been trying to overturn this climate, highlighting positive initiatives in various sectors. It is a worthwhile effort but inadequate. The only way the government can change the atmosphere is to convince the public that it is adopting measures that are not necessarily pleasant, to show it is meeting demands and that it is solving problems. The transition to the euro has resulted in the overcoming of a number of problems; there is no pressure on a national currency, there are no more currency crises with a deterioration in the balance of payments, no outflow of foreign exchange due to worsening conditions in the bond and stock markets or in interest rates. Nevertheless, some of these problems functioned as early warning signs, restraining governments from overspending and monetary circulation from creating more inflationary pressures. The absence of such signs after the introduction of the euro allows more room for maneuver but will not make problems disappear. These return in the form of reduced competitiveness and incomes, and higher unemployment. The real problems of the economy come to the surface and these are the ones that the government has to attend to. However, this requires the promotion of substantial institutional reform initiatives for which there seems to be no resolve. Even the reform of the social security system, which was supposed to be unpleasant to many, is effectively being postponed, will not touch most people insured today and is unlikely to offer any solution.

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