ECONOMY

State aid should be made conditional on lower prices

It is normal for trade unions and various business interests to ask the state for help in times of economic turbulence. However it is equally important and only fair for the government to ask the parties in question to help lessen the adverse impact of the sharp economic slowdown by offering concessions. But this is not what we have been seeing in Greece. In his inaugural speech as president of the US in the 1960s, John Fitzgerald Kennedy said something memorable: «Ask not what your country can do for you, ask what you can do for your country.» It is a phrase which has been repeated many times by many over the years, but has clearly not caught on in Greece where statism has been deeply rooted in Greek society and the political system for decades, perhaps going back as far as the country’s independence from the Ottoman Tuks in the 19th century. The current economic crisis has unfortunately confirmed this. Two of the most important Greek industries, namely construction and hotels, provide a vivid example. There is no doubt that construction is one of the sectors that has been hardest hit by the sharp economic downturn. The problem lies both on the demand and the supply side. Many prospective buyers have postponed their purchases for three reasons. First, they are uncertain about the future and their jobs in particular; second, they expect house prices to fall; and third, they cannot get as much credit as they would like from banks. The main problem on the supply side is the stock of unsold houses. After rushing to obtain building permits and construct new apartment buildings and detached houses before the imposition of VAT (value added tax) and an increase in so-called «objective» property values, many construction companies have found themselves stuck with a large stock of unsold homes. As a result, they have suggested to the government that it provide tax relief and take other measures, including paying interest subsidies on mortgage loans to help the finances of construction companies as well as the potential buyers of their apartments in order to boost demand. Otherwise, they warn, tens of thousands of people, mostly immigrants, will have no jobs and social tension will rise as thefts and crime escalate. They may be right in their prognosis and indeed the situation is quite dire for the government not to act. However, neither the representatives of constructors nor any government official has mentioned the obvious, which is that if the Greek taxpayer is to help the industry, the companies should also do something to reinvigorate demand by cutting their prices even if it means they will earn no profit in the current juncture. It is a fair solution to a major problem for the industry and the Greek economy and entails a small cost, if any, for the majority of construction companies that are known to have made a lot of money in the past.  The construction industry is not the only one in which there have been calls for state help. The tourism industry is another. Players in the tourism sector have asked for the cost of employing personnel during April-May to be subsidized as well as cheap financing with state guarantees among other things. Although representatives of the tourism industry claim to have reduced prices by some 20 percent, this is not what one sees at hotels on Mount Pelion, in Corfu and at other popular Greek destinations for Easter. There may be some large hotels on Crete or somewhere else that have cut prices, but many others have not done so. Once again, it would seem only reasonable for there to have been a binding agreement between the government and hotel owners, obliging the latter to cut prices in exchange for receiving state aid. It is ironic that the only aid package to an industry for which the state gets something concrete in return is the one criticized the most by politicians and the media. This, of course, is the bank rescue plan worth 28 billion euros. Lenders pay cash to the state for the government bonds they get and for the state guarantees for issuing their own bonds and the capital injection. In this regard, it is a pity for the state that banks have made use of less than 30 percent of the total package so far and may expedite plans to return the aid to the government in order not to have it under their feet. All-in-all, it is normal for the state to help individuals and companies that find themselves in dire straits during this unprecedented international economic crisis. But, it is equally important for the beneficiaries to be asked to contribute to the softening of the blow by cutting prices even if it means wiping out this year’s profits. By only demanding and not offering something in return, the parties in question hurt their credibility and show how well-rooted statism is in the Greek business world and society at large.