ECONOMY

PM must offer reform timetable, vision in Thessaloniki speech

If pundits are right, Prime Minister Costas Karamanlis’s speech at the Thessaloniki International Fair this week – the most widely watched speech on the economy – will deviate from the tradition of past prime ministers who made promises to interest groups and instead stick mainly to the government’s reform agenda. Economic reality and political considerations may partly dictate this ap- proach but even so it is a welcome development if this indeed turns out to be the case. However, the premier will be much more convincing about his government’s intentions if he avoids vague references and provides a timetable for at least some of the most important reforms on the agenda. Economic and social reforms usually bring about medium- to long-term benefits at the expense of short-term political costs. So, it is hard to believe that a government which is more than halfway through its four-year term, would do things which entail short-term political costs and may hurt it later at the polls. Of course, Karamanlis, like his predecessors, will be able to wrap those reforms in a wonderful box by going over some of his government’s successes, starting with the economy. It is true that the conservatives can point to certain figures to indicate that things have been improving in the economy during their tenure. The Greek economy grew by 4.1 percent year-on-year in the second quarter, boosted by hefty gains in investment spending of 13.9 percent and a strong rise in final consumption expenditures by 3.9 percent after rising by a similar percentage in the first quarter. They can also claim that they put public finances in order with the budget deficit, heading toward below 3 percent of gross domestic product (GDP) this year. However, political expediency dictates that Karamanlis make no mention of the fact that the current account deficit has climbed to 10 percent of GDP and the public debt-to-GDP ratio has not declined significantly yet, remaining above 103 percent of GDP. Even so, a look at history teaches that in the last 10 years or so Greeks have not really been impressed by premiers recounting good macroeconomic figures in annual Thessaloniki Fair speeches. They are more interested in their own welfare and how this reconciles with their own changing expectations in a country where more than 800,000 people are employed in the broader public sector. Interestingly enough, some polls show a majority of Greeks are more willing than before to embrace educational and/or economic reforms and this is something which apparently has not escaped the government’s attention, providing pro-reform ministers, mainly Finance Minister Giorgos Alogoskoufis, with a strong card. Of course, things would have been much easier for the conservative government if it had acted faster after coming to power in early March 2004, on the promise of implementing a program of economic, public sector and social reforms, aiming at sustaining economic growth rates of 5 percent or better per annum. However, the conservatives, like their Socialist predecessors after the April 2000 elections, lost precious time, namely the first six to eight months, to start implementing a front-loaded reformist economic plan. Whatever the explanations, ranging from being unprepared to govern to the need to focus on more urgent matters such as the Summer Olympic Games of 2004, they settled for the second best in economic policy, namely a gradualist approach, emphasizing mild adjustment. In this context, the prime minister is right to emphasize reforms as a means of achieving and sustaining high GDP growth rates and improving living standards while paying lip service to the tradition of promises for hefty wage and pension increases. However, appearing responsible is half the game. The other half is convincing the audience, including the average Greek and the markets, that he is also serious about implementing some reforms. To do so, leadership must provide a list of things to be done and give a clear timetable. No government would dare tackle the country’s biggest problem, the ailing social security system, less than two years before the next general elections. So nobody expects this thorny issue to be in the premier’s speech this week. On the other hand, people do not understand why the government does not go ahead with reforms in education as well as the tax system, civil service and public sector and why it also continues to show indecisiveness in opening up the energy and services sectors. From the prime minister’s speech at the Thessaloniki Fair, a good number of columnists and others will try to glean hints about political developments and the next general elections. Karamanlis would do much better if he instead offered his vision and provided the average Greek citizen and the markets with a timetable for the implementation of specific reforms in the economy and other fields.