A banker’s warning
Bank of Greece governor Nicholas Garganas has warned both the government and opposition not to push for a loosening of fiscal policy if they do not want to compromise Greece’s process of convergence with other eurozone economies. In an interview with Kathimerini, the new central banker, who took over from Lucas Papademos at the beginning of June, says he feels obliged to sound the death knell for some persisting illusions about the economy, by pointing out the dangers of a relatively high inflation rate and the widening balance of payments deficit. Even though we may have accepted such developments in the past, we must now confront them, he says. There is no room for generous handouts of the kind that we have been accustomed to in pre-election periods, Garganas warns, pointing out that «the temporary benefits from handouts will be dissipated very quickly if inflation rises as a result of a lax fiscal policy and if the growth rate drops.» Garganas’s warnings come just at a time when the government is inclined not to heed them: With local government elections looming in October, it is considering precisely the kind of handouts that Garganas cautions against, in the form of extra aid to farmers and generous pay raises for civil servants. According to Economy Ministry sources, the 2003 budget, currently in the drafting stage, calls for a 5.5-percent increase in spending and a somewhat higher increase in revenue, despite the fact that the EU has warned the government to stop raising revenue to maintain budget surpluses and cut spending instead. A few days ahead of Prime Minister Costas Simitis’s keynote speech at the Thessaloniki International Fair, in which he will spell out next year’s economic policy, Garganas – a close friend of Simitis’s for over four decades – recalls the lessons from previous years, when Greece’s growth rate stagnated due to high public sector deficits, persistent double-digit inflation and rising unemployment. Public opinion, he says, has absorbed the lessons of the past and is not willing to pay dearly for a possible further relaxation of fiscal policy. He says the relaxation began in 2001 and he seems concerned about the future. Garganas denies reports he has called for a wage freeze; but he does believe that wage rises, and especially in the public sector should not exceed the increase in productivity. Other producers had shown interest in the story, but most wanted to change the family’s ethnicity to Hispanic or Italian, saying Greeks wouldn’t resonate with mainstream audiences, Vardalos said.
