No real convergence
Over the years, a number of people (this writer included) have dealt with the question of Greece’s convergence with the European Union – that is, when its per capita gross domestic product (GDP) in purchasing power units (PPU) approaches that of the pre-enlargement EU (of 15 member states). The answer is to be found in data included in the European Commission’s latest report on the EU member states’ economies released in late November 2005, with figures from 1981 to 2004, which show that Greece’s per capita GDP in PPU dropped from 77.9 (100 being the EU average) in 1981 to 63.8 in 1996 and after leveling out in 1997-1999, rose to 75.4 in 2004. According to the Commission’s forecast, it will reach 77.1 for the year 2005, about where it was in 1981. This means that in the 25 years since Greece joined the EU, there has been no real convergence. In contrast, three other countries in the Cohesion Fund have achieved true convergence, Ireland in a spectacular fashion, leaping from 69.7 in 1981 to 124.6 in 2004, with Spain rising from 73.9 to 90.5 and Portugal making a small rise from 61.0 to 69.9. In my book «Inequalities in the 25-Member European Union,» published in 2003, I examined three immediate factors affecting true convergence. These factors are the increases in the GDP in current prices, the consumer price index and the population increase in each country compared to the corresponding increases in the pre-enlargement EU as a whole. These factors can be reduced to two – the increase in the GDP in stable prices and the population increase. Each depends on many other factors – the GDP increase in current prices depends on investments, the amount of employment, people’s educational levels, technological progress, among others. Inflation depends on production and services costs and, until 2001, the drachma parity. The population increase depends on having more births than deaths and the influx of immigrants. Between 1981 and 2004, the increase in the GDP in current prices and the inflation rate in Greece were both higher than in the EU as a whole. The same applies to the population increase, with the exception of 2000 and 2002-2004. The analyses of three periods (1981-1990, 1991-2000 and 2001-2004) showed clearly that in order for true convergence to take place, what is needed are high increase rates in the GDP in stable prices in Greece, but that is not enough. Of equal importance is to what extent that increase is greater than that in the pre-enlargement EU. Also important is the difference in the rise in the inflation rate. Given that in the next few years, the GDP increase rate in the pre-enlargement EU is likely to rise and that, for many reasons, Greece’s population has to increase, true convergence will depend on whether the following can be achieved continually over many years to come: a very high rate of increase in the GDP and a very low inflation rate, so that the rate of increase in the GDP in stable prices will be at least double that of the pre-enlargement EU. (1) Manolis G. Drettakis is a former deputy speaker of Parliament, a former government minister and a professor emeritus at the Athens University of Economics and Business. This is an excerpt from an article in Kathimerini.
