Don’t listen to this dangerous lullaby

The upheaval and pessimism that have swept the world over the past few weeks has caused certain pre-existing problems to re-emerge. Many things have changed, but paradoxically, those old problems remain exactly the same. There appears to be a consensus among analysts that the repercussions of the global economic upheaval on the Greek economy will be rather limited. The argument holds that growth rates will remain relatively high, riding on factors that are largely unaffected by the adverse external circumstances. The Greek economy, according to this logic, wears a kind of parachute which slows down the fall. The inflow of considerable EU investment subsidies from the third Community Support Framework (CSF III) until 2006 is the main factor that will ensure the maintenance of robust growth rates. The inflow of such funds is not affected by global economic circumstances, but rather is institutionally backed by political decisions and will be realized, provided Greece submits the corresponding programs. The country is, therefore, assured of a significant boost in demand. The other factor bolstering the prospects for high growth rates is the Olympic Games of 2004, and all the projects associated with them. It must be kept in mind, however, that this optimism is based on outside factors that depend only secondarily on our own responsibilities and efforts. We simply have to manage these resources efficiently. But is this enough? Greece indeed faces a rather unique set of circumstances. In all countries, governments are usually concerned when their economies slow down, recognizing that recessions mainly hit the poorest the hardest, with all that this implies. They introduce measures designed, for instance, to boost exports, either through subsidies or by reducing taxation. Occasionally they attempt, through fiscal or monetary policy, to do something that will improve the entrepreneurial environment or change consumers’ behavior. In short, they search for the best recipe to blunt the recession and limit the repercussions. It is only a rare few that can afford the luxury of complacency, having secured resources that enable them to overcome difficulties without needing to adapt. Inflexibility in responding to developments is the most important inhibiting factor for the country’s long-term development. This not only concerns governments; it equally applies to the behavior of most Greek companies. Few show readiness to change business plans even when the assumptions on which these plans were based no longer apply. They only do so when matters come to a head… Government officials behave similarly. They rest assured that the Greek economy has secured the inflow of resources in the years ahead and shy away from measures that would consolidate growth. Ultimately, the country’s best defense against future dangers is not just to maintain a political balance, as seems to be the order of the day; rather, it lies in promoting the right conditions for long-term development, boosting productivity and formulating flexible policies. It is for such reasons that simply securing resources is not enough. In the long term, the main thing that matters is what products are made and at what cost with the available resources. An economy that receives a boost from whatever outside source gives the impression of prosperity. But this feeling is transient and disappears quickly if the resources do not improve the products made. For instance, in the 1950s the Soviet Union produced more steel than the USA. Soviet officials were very proud of their success and certain they would prevail in the world market. But they failed because they ignored the fact that their steel required far more resources than US-made steel; more energy, more raw materials, higher production costs. The certainty that EU fund inflows will help us go through the global recession painlessly is dangerous. It is like singing a song that sends the driver to sleep. Even if it does not, the driver is unlikely to remain as alert as he needs to be. Calling the 4.5-percent output target for this year and 4.6 percent for 2002 over-optimistic projections, EFG Eurobank economist Platon Monokroussos said the 4- percent figure contained in the alternative scenario was a more realistic forecast in view of the global risks.