ECONOMY

IOBE: New growth policy needed

The government must completely change the growth model of the country by drafting a new 10-year development program, the Institute for Economic and Industrial Research (IOBE) suggested yesterday in its prestigious quarterly report. It also estimated that excess spending in the broader public sector will reach 3.7 billion euros, and the shrinking of the economy to end the year at 3.5 percent in 2010. The IOBE report argued that a new growth model would have to include a stable and competitive tax framework and the acceleration and completion of reforms as soon as possible, as well as a bolstering of lenders’ equity capital (either through share capital increases, such as that done by National Bank, or via the Credit Stability Fund). The model must also introduce modern corporate governance in public companies, the creation of measurable targets for Greece’s position on global competitiveness charts, the facilitation of the movement of labor from increasingly obsolete sectors to those that are emerging and the creation of a social standard that would ensure a minimum guaranteed income. The institute stressed the significance of the triangle of knowledge – education, research and innovation – noting also that the sectors under protection do not innovate, which sends a clear message in favor of the liberalization of more professions. The estimated 3.5 percent recession this year will see unemployment at above 12 percent in 2010 and close to 14 percent in 2011, while the report noted that inflationary pressures are here to stay, with the consumer price index closing at 4.6 percent this year, it added. It therefore highlights three possible scenarios for the future of the Greek economy. The first, «hopeful,» scenario is that in which Greece is able to implement the terms it has agreed to with its lenders and successfully emerges from the financial crisis; the second is that of «disaster,» which provides for «sudden death,» with a stop put to the disbursement of cash by Greece’s creditors and therefore bankruptcy, or a «slow death,» with a block on disbursement at a later date. The third scenario, that of «salvation,» is a combination of the first, with the simultaneous aggressive use, sale and/or management of the state’s real estate assets. As far as the derailment of budget expenditures is concerned, IOBE attributes it to the need to cover the deficits of state corporations such as hospitals, local authorities and social security funds, as well as to the failed guarantees by the state to public companies. Given that the state’s gains from reductions in salaries and pensions this year come to just over 4 billion euros, the obligatory increase in budget expenditures will effectively cancel out any additional revenues from salary cuts.