A look ahead at the Greek economy after a successful Olympic Games
The Olympic Games have cast a long shadow over the country’s economic life, particularly when considered along with the problems of fiscal management left over by the previous government. Over the past few days, in the midst of a climate of general euphoria, the State Audit Council was trying to estimate the cost, determine the difficulties ahead and add up the bill for the party. There is a common conviction, now that the party is over, that we are entering a period of self-knowledge and self-restraint, as economic indicators are showing costs way beyond what has been forecast and which therefore call for re-evaluation and superhuman efforts. Already, Deputy Finance Minister Petros Doukas estimates that the cost of the Games will be well over 7 billion euros, maybe as high as 8 billion, although there can be no definite figure yet as the bills are still coming in, and there is no unified management that would permit a definite picture to emerge. Unbearable pressure This burden, however, becomes apparent in the increased public debt, which last June passed the 195-billion-euro mark. By the end of the year, with the inclusion of state guarantees, it will pass 210 billion. This is high indeed, almost as high as Argentina’s. Were it not for the euro, this would provide the makings for a major crisis. The debt is putting heavy pressure on the government as it calls for more restrictions on economic policy. Such a large amount of debt – with international organizations arriving en masse this month to re-evaluate the country’s credit capacity – obliges the State to come up with a credible plan to control public finances. When asked for specifics, Doukas avoids going into detail, but makes no secret of the fact that specific initiatives are called for to bring public finances under control and at the same time create the right environment for attracting foreign investment. The major problem with public finances lies in the fact that most state budget expenditures are inflexible. Nearly 40 percent goes toward wages and pensions, another 30 percent on interest payments and 20-25 percent on funding. Just 5-10 percent is flexible enough to be influenced by political decisions. This explains the difficulty in bringing about decent increases in wages and pensions, which the State Audit Council believes should not be more than 3 percent. Increases of this magnitude, along with the maturing of mutual funds, raise the State’s wage costs to almost 5.5 percent, leaving just a small margin for economizing, assuming that the nominal increase in the GDP, including inflation, is 7 percent. In the event that these increases are over 3 percent, even that small margin will evaporate. It goes without saying that with this level of expenditure, no more staff can be hired. As for interest rates, it is clear that the major increase in the public debt does not bode well for reducing the cost of servicing the state debt, not to mention the need for controlling guarantees, which in practice means programs for improving transport organizations, the Hellenic Railways Organization, the urban bus company (OASA), Olympic Airlines and even the reorganization of the Agricultural Bank and other state bodies whose operation is supported by bank loans guaranteed by the state. Under these circumstances, only aggressive management can lead to curbs on the cost of servicing the debt, and only if there is no increase in interest rates internationally. As for subsidies and funding, there is not much margin for economizing unless it is through rationalization and cuts. Privatizations One area in which the government could be more aggressive and profit from new initiatives is through privatizations. Although there are political hindrances, there could be grounds for more aggressive solutions in the Hellenic Telecommunications Organization (OTE), the Public Power Corporation (PPC), Hellenic Petroleum (HELPE), the Athens Water and Sewage Company (EYDAP), the Postal Savings Bank, the casinos, ports, airports, and of course co-funded projects, such as zoning state land for private development in tourism. It is the only area, along with structural changes, that can provide obvious results and get the main body of the economy moving. However, it is also subject to political restrictions. Already, Prime Minister Costas Karamanlis is evaluating his associates’ reports. His speech at the launch of the Thessaloniki International Fair is expected to set the tone and the scene for the «day after.» At any rate, the extent of the government’s resolve in tackling the problem of the economy will reveal its political intentions. What remains to be seen is how far it will go.
