Public debt the original source of economy’s troubles
Rendering an account of the main problems of the Greek economy, Giorgos Alogoskoufis, the economy and finance minister, cited the high public debt, the social insurance problem and unemployment. In essence, the second and the third are symptoms of the first problem: the high public debt. For its own operation, the state will require -88 billion this year. State revenues from taxes, dividends and investment will come to -53 billion, so the rest (-35 billion) will have to be borrowed. As if that was not enough, the state will have to pay another -10 billion in interest to serve previous debts. This is like a family which has a monthly income of -1,000 but spends -1,600 and has to pay -1,000 for its debts, so it has to borrow another -800 to make ends meet. Obviously this family cannot make investments. This is what is happening in the economy. The words competitiveness, reforms and development may be pronounced easily, but applying them is much more difficult, as they require funding. The high public debt creates a vicious circle of borrowing which reduces the likelihood of finding resources for reforms that will contribute toward containing expenditures, increasing revenues and strengthening employment. For instance, the social security system requires reforms that will cost about -12 billion. Employment also needs reforms in the labor market, as well as a boost in entrepreneurship. How could development become possible when the total budget of the Public Investment Program is smaller than the interest the state must pay to serve its own debts? For this year, the Public Investment Program provides for total spending of -8.75 billion, which includes European Union funds as well. The interest amounts to -9.75 billion. On top of all this there remains the target of balancing the budget by 2010. This will be a real riddle that the government will have to solve. It certainly cannot reduce spending on investments, but what it can do is to contain operation spending. This is where a paradox lies: While the government is trying to solve the problem, applying a tight economic policy by making the state smaller, civil servants are growing in numbers. For the first time, they have exceeded 1 million in number. There is, of course, no relation between the increase in employment and the reduction of investment. The aim is to increase employment via productive interventions. After all, foreign investments in Greece in recent years were not about the creation of new enterprises, which does say something – that this country has not yet become an attractive destination for new productive investments. Consequently, besides the containment of expenditures which may be the easiest road, efforts must focus on the structural problems, with bureaucracy being the first and biggest.
