Improving competitiveness is the key to continued high growth, real convergence

A week ago, second-quarter growth rates for the European Union and Greece were announced, with the former averaging 0.4 percent and the latter 4 percent. This difference is not accidental. In the last seven years, the Greek economy has been developing at a faster speed than the average EU rate. All international bodies have come to the same conclusion: that Greece in the next few years will grow at similar strong rates, thereby closing the gap that separates the country from the rest of the EU member states in terms of living standards and other indicators of prosperity and social cohesion. Among the factors contributing to this projected robust growth rate and real convergence with the EU are the construction of transport infrastructure, investments in education and human resources training, increased employment, the introduction of new technology, expansion of entrepreneurship, and the modernization of public administration. Equally important are the deregulation of markets, socially acceptable structural reforms, the government’s strengthened supervisory role and its policies against poverty. Many compare Greece with its EU partners based on a series of indices drawn up by Luxembourg-based statistical office Eurostat and which are centered on the EU’s goals decided upon at the Lisbon Summit. It is well-known that the Greek living standard – at least according to official data which does not include the black economy – is substantially lower than other EU member states. Greece’s other weaknesses are also well-known. This is nothing new, however. What is new is that Greece is developing, gradually covering the distance between it and other EU countries. The pace of growth in public investments is among the highest in the EU in recent years. Spending on education, research, wages, pensions and other social benefits has increased at a faster rate than in any other EU country. Productivity growth is the second highest in the region after Ireland. This year, unemployment has declined even as the rest of Europe reported rising numbers of the jobless. On the political front, there appears to be an attempt to distort the truth and this does not help to foster a broad dialogue to draft a growth strategy. I refer to Eurostat’s figures which showed uniform growth in regional development, whether based on living standards or on the unemployment rate. Despite this, there are many who alleged that Greece leads in unequal regional development! This contradicting conclusion is based on the logic that, as some of the 13 regions in Greece are among the poorest in the EU, Greece must have the biggest regional inequality. This deduction ignores the fact that regional cohesion is defined as national cohesion, that is, based on each country’s average rate and not the EU average figure. Today, with the world in the grip of a recession, global stock markets in free-fall and the possibility of a new war which could lead to higher oil prices and thus prolong the global economic crisis, there is no room for such exaggeration in the social dialogue. We must focus on securing economic growth by adopting policies that will counter an international recession. First of all, we should stick to an anti-inflationary policy and a strict fiscal policy as outlined in the Stability and Growth Pact. This strategy helped Greece gain eurozone membership and is still essential for its future growth. However, we also need other strategies. The loss of monetary policy as a tool means there should be emphasis on macroeconomic strategy and economic competitiveness. Thus, the government embarked on social security and taxation reforms while continuing to modernize public administration and deregulate the markets. The goal is that competition can flourish to the benefit of Greeks. Greece also has the advantage of EU community funds. Third Community Support Framework projects are being intensified and speeded up with projects related to all aspects of the economy, from information technology to training and education. It is essential, however, that the private sector also participate in these programs. The State’s principal objective is to increase the country’s economic competitiveness, considered the principal factor which will determine Greece’s real convergence with the EU. Boosting Greek competitiveness is a constant battle. There is no room to let down our guard as other countries have the same goal. Any policy to boost competitiveness, however, will not produce maximum results if a broad dialogue with all social partners does not exist. This is because competitiveness does not just affect the cost of raw materials, it also affects wages, allowances and employees’ contributions. Similarly it is affected by the work environment and the incentives offered to employees, the production framework, the size of the business, the distribution network, technology, the quality and type of products and services, the administration’s perception and the ability of companies to adapt to consumers’ demands. (1) Ghikas Hardouvelis is economic advisor to Prime Minister Costas Simitis and a professor at Piraeus University.

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