Budget overruns can be mixed blessing in case of recession

The unveiling of draft budgets every autumn is always expected to give rise to political controversy and frequent quarrels among ministers over the distribution of expenses; most times, the repercussions on the economy as a whole, the incomes and the employment of the taxpayers elude proper attention. From this point of view, the news for 2003 is both good and bad; the bad news for Economy and Finance Minister Nikos Christodoulakis may actually prove pleasant news for everyone else. Most Olympic projects will have to be completed with funds from the public investment program in next year’s budget. And because these projects have to be delivered at certain dates well before the Games so that trials events can be held, experience tells us we have to expect cost overruns. Overspending is an unpleasant prospect for Christodoulakis but could enable the Greek economy to buck the trend – or at least ameliorate the effects – of a deepening global recession. This is the pleasant side of things, on condition, of course, that the benefits trickle through to the entire economy. In fact, the resistance of the Greek economy to the recession would appear to depend to a large extent on the practice of project contractors presenting cost overruns. However, an increase in public investment could upset the delicate fiscal balance at a time when the European Commission considers it a priority task to keep a watchful eye on the data presented by national governments. In Portugal, the government was forced to fully revise initial projections and the indications are that it will receive a warning from the Commission for having exceeded the ceiling of public debt. We may recall that Greece currently holds the presidency of the eurogroup, the member states of the eurozone. This has been largely forgotten because in reality, the presidency is effectively not exercised. Commissioner for Monetary Affairs Pedro Solbes seems to be effectively exercising this function, and the Greek government will look in an even worse position if its fiscal policy is seen to be leaving a lot to be desired. It would be very unfortunate, for instance, if it shows a budget surplus when actually running a deficit. This may be the reason why the Greek government has preferred to assume a «shadow» role in the presidency while others play the real Stability and Growth Pact game. The stagnation of the European economy has brought to prominence again the role of the State and the option for increasing deficits in order to boost economic activity. As regards the Greek economy itself, the most pertinent question arising is why employment and the profits of enterprises are not rising when so much of national and EU resources are devoted to investment. The answer lies in the lack of structural reforms, but this issue is not on the European agenda. It seems, after all, that the avoidance of political cost is not an exclusively Greek habit.