Parties’ economic policies are short on specifics, long on generalities

The two main Greek political parties striving for power have laid out their economic agendas for governing over the next few years but, to nobody’s surprise, these are short on specifics and long on generalities. This makes it more likely that the economy’s future will depend a lot on the personalities who will be called upon to streamline public finances and put it back on the path toward growth. These persons and the extent of support they get from the next prime minister will play a great role in shaping the economic future of the country – perhaps more than anything else. The conservative government likes to point out that Greece has not suffered as much from the international economic crisis as other economies in the eurozone. Official data supports this view, since stagnant gross domestic product (GDP) in the first half of the year and a rise in unemployment compare very favorably with macroeconomic developments elsewhere in euro-land. However, this is half the truth. The other half is that the dynamics of the Greek economy are worse than in other economies at this stage and there is the risk of a vicious cycle evolving, which may lead to years of the economy’s underperfomance vis-a-vis its EU peers. Within this context, the new government will have to act quickly and put in place a comprehensive program of fiscal consolidation as well as a few pointed reforms to arrest the worrisome dynamics. Of course, this program should have the consent of the European Commission (EC) to be more credible but it is well known that Brussels has lost patience with the inability of successive Greek governments to deliver what they promise, especially on the fiscal front. It will, therefore, require double the effort to convince a highly suspicious EC that this time Greece means business. As people await the two major political parties, conservative New Democracy and socialist PASOK, to release their political manifestos and reveal further details of their economic agendas, few pundits expect to see a real economic program. This is because they know that the economic programs of Greek political parties are more a compilation of various ideas presented by different people who participate on the committees set up to prepare the plan than any real blueprint for economic policy once in power. These programs are written to maximize vote-gathering by satisfying the demands of various labor, business and other interests more than anything else. This, in turn, means the effectiveness of any economic policy depends on the politicians or technocrats and their teams, who will be called upon to implement the economic policies amid whatever backing they have from the prime minister. Of course, other factors, such as the timing and the small or large majority of the ruling party in Parliament, are also important. For example, there is no doubt that PASOK and its leader, George Papandreou, would have enjoyed a great boost in credibility both in Greece and abroad, namely in Brussels, had the vice president of the European Central Bank (ECB), Lucas Papademos, accepted an invitation to return to Greece and become the PASOK finance minister with extended powers in a socialist government. The conservatives do not have a politician or economist of similar caliber to show and they would certainly have been at a disadvantage but, luckily for them, Papademos turned down PASOK’s offer, according to the Financial Times. The two major political parties are most likely to follow the economic policy of «act as you go» mixed with a few predetermined measures to leave their political stigma and satisfy a few of their pre-election campaign promises. Given the precarious position of Greek public finances, this is not what one would hope, although one has to admit that the conservative New Democracy party, having been in power for more than five years, seems to be more aware of the complexity and depth of the problems. On the other hand, ND lacks credibility as it had every opportunity to push ahead during its tenure with the structural reforms it now seems to espouse – and largely failed. So, the ability of the Greek economy to arrest the deteriorating dynamics will depend a lot on the quality, experience and aversion to political cost of those politicians and experts who will assume any key economic portfolios in the new government. Their determination and the next prime minister’s commitment to a path of fiscal discipline and modernization of the economy will determine whether the next government can succeed where others have failed in the past.