Economy ministers see much good in calling early elections

It is surely no coincidence that Economy and Finance Minister Giorgos Alogoskoufis and his three deputies, Christos Folias, Petros Doukas and Antonis Bezas, have proposed in unison to Prime Minister Costas Karamanlis holding early elections, if possible in September. All four are in the front line of the budget’s defense, fending off daily all sorts of demands for pay raises and increases in funding by fellow ministers, who occasionally succeed in obtaining bonuses for their staff and other pork-barrel favors. The result of such pressures is that the budget is veering off course, as revenues are also falling short of targets. «My great concern is that if we do not resist, such expenses will be incorporated into not only this year’s budget but also next year’s, overturning the fiscal balance we have achieved by so many sacrifices,» says Alogoskoufis. «The most dangerous thing is that the expenses that will be incorporated permenently are 50 percent inelastic, as they concern salaries, pensions and grants to social insurance funds,» adds Doukas, who is in charge of the budget office. And so, as the public purse is facing difficulties, the ministers see no solution other than early elections. Besides, the country cannot afford to enter into a new standoff over fiscal deficits with Brussels, which is sure to react strongly if it sees the debt rising dangerously close to the cap of 3 percent of gross domestic product (GDP). «In other words, does the economy desire elections?» I ask Alogoskoufis. «Not only does it desire them, it demands them,» he says. In the first five months of the year, expenses were up 10.1 percent, against the annual target of 7.4 percent. In the six months, the situation has slightly improved but, as Doukas says, a great deal of more work will be required to keep outlays in check, as most such inelastic expenses result from laws voted in by the government majority. For instance, pension expenses in the first half of the year rose more than 10 percent, and grants to the farmers’ pension fund 20 percent, to the Social Security Foundation (IKA) 10 percent, the seamen’s pension fund (NAT) 12 percent and other smaller funds by up to 60 percent. Besides, it is well known that several ministers have become champions of the interests of the staff of their ministries, and instead of introducing institutional and organizational changes are sending pecuniary demands to the Finance Ministry. For instance, Public Order Minister Vyron Polydoras and Culture Minister Giorgos Voulgarakis, pressed by their staff, respond: «Go and say it to Alogoskoufis. He is responsible for solving your problems.» To be sure, Alogoskoufis is certain to keep his commitment to Brussels for a deficit of 2.4 percent of GDP, cutting if necessary credits destined for public investment and the Defense Ministry. But this is no solution, as the problem will return next year. So, an urgent barrier is needed to the flood of demands put forward as everyone feels the pre-election period approaching. The only answer is early elections, which will hopefully produce a government capable of proceeding quickly with the necessary reforms for a leaner and more efficient state. Lessons from the past We may be aptly reminded of the fact that governments that exhausted their four-year terms in fear of early elections saw deficits skyrocket: In 1981, 8.7 percent of GDP from 2.6 percent in 1980, in 1989 14.2 percent, and in 2004 7.9 percent. But it is not just the expenses. Revenues, even though they are still within target, are certain to be affected by the laxity of the pre-election period. Taxpayers, hoping that the new government will reschedule old debts, will begin putting off the payment of taxes, and the government, anxious to minimize political costs, will keep inspectors at bay. But the economy as a whole is also bound to be impacted by a deterioration in public finances, as investors, fearing a return to the sinful past of huge deficits and instability, will think twice before proceeding with investment plans. In other words, the prolongation of the pre-election period risks driving the economy into a minefield.

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