Government worries middle class momentum is being exhausted
The international economic crisis has been knocking on the door of the Greek economy, causing the government to revise its macroeconomic forecasts for 2008. The country’s updated Stability and Growth Pact, recently submitted to Brussels, sees the growth rate slowing down from an initial projection of 4 percent to 3.6 percent and inflation climbing from 2.8 percent to 3.5 percent. A senior government official notes that the crisis may not yet have crossed the threshold, but the insecurity that it causes has, affecting the consumer behavior of the majority of the population. «Since the beginning of the year, all measurements regarding shop turnover, spending on entertainment and generally all market transactions show that households are seeing an uncertain future and have hastened to limit purchases to the bare necessities. Greece, a country with the highest rate of population in the EU under the poverty line, now has an insecure middle class. This is leading to a dangerous weakening of the social structure and makes it urgent for the government to adopt countermeasures,» the official says. The official estimates that the middle class he is talking of comprises about 1 million households with annual incomes ranging from -35,000 to -70,000, forming the most dynamic economic segment of Greek society. They are the ones who not only spend all of their income but also borrow extensively to buy houses or other purchases, accounting for about two-thirds of the country’s high growth rates for more than 10 years. Indeed, mortgage and consumer loans started at very low levels after Greece joined the EU’s Economic and Monetary Union, and grew steeply on very low interest rates, reaching a climax last year. In 2002, the two categories of loans represented just 15 percent of gross domestic product and reached 45 percent in 2007, approaching the eurozone’s average of 54 percent. But the momentum now seems to be exhausted, and the number of households facing repayment difficulties are about 4.5 percent, against 3 percent in the eurozone. This key middle class mainly includes the salary earners in the broader public sector, high ranking managers in the private sector, self-employed professionals and traders, and has always been targeted for its voting favors by both major parties. Now, the apparent loss of its economic momentum is causing concern for the government, which, however, has very little leeway to stem developments, beyond persisting with a reform policy that can guarantee a return to high growth rates in the long-run. Sniping However, the climate of grumbling in the ruling party, recently manifested with the sniping by former Culture Minister Petros Tatoulis, who is certain to be followed by others, is not conducive to more reform, especially in view of the govenment’s slim majority. What is more, the already enacted and planned reforms have not yet started being implemented and society has yet to feel the pinch of measures, the necessity of which they have not understood. On the poverty front, the government has pledged to devote -600 million this year to change for the better the lives of about 20 percent of the population. But the state machine’s credentials in this respect are poor and its inefficiency in the implementation of social policy prevents taxpayers’ money from truly reaching those in need. The poverty line in Greece was determined as -5,650 a year for a single person and -11,864 for a couple with two children under 13 years of age in 2004. Despite the fact that social spending in Greece as a percentage of GDP is about equal with the EU average, only 11.6 percent of people under the poverty line manage to rise above it after receiving social benefits in the 2004-2206 period, against an average of 36.4 percent in the EU-15. Economy and Finance Minister Giorgos Alogoskoufis said last week that the resources of the national fund for social cohesion will progressively rise to -2 billion annually, with a view to reducing the number of households under the poverty line to 15 percent over the next five years.
