One thing leads to another

One thing leads to another

The European Commission has decided to extend the suspension of the Stability Pact on public debt (60% of GDP) and budget deficits (3% of GDP) for one more year, until the end of 2023. This was expected. What was not expected was that this extension would not be general and for all countries, without exception. Instead, the Commission is expected to advise the Eurogroup to stringently monitor the expenses of heavily indebted countries. This means that this relaxation will only be available to countries that have money to spend. Not for Greece.

It should come as no surprise. Our country, due to its huge debt, must achieve a surplus to regain an investment grade credit rating and get its bonds out of the “junk” category. Even if we were encouraged (hypothetically) to relax, we cannot afford it and we should not because, apart from the Commission, there are also the markets. They watch, assess and tally up the bill when we ask for loans. The last time we asked, their reaction was not good. Relaxing would not be wise.

However, it seems that the Commission does not feel comfortable enough to trust our political system. The clientelism displayed when spending 43 billion euros of Greek taxpayers’ money during the first two years of the pandemic, the continued practice of horizontal subsidies and, on top of everything else, fears of what the road to the next elections may bring, contributed to the impression that preventative measures were necessary.

Essentially, the post-bailout monitoring that will officially end in August, as agreed in 2019, will continue until the end of 2023. Until then, any decisions on permanent measures that have budgetary implications (tax cuts etc) will need to be approved by the European institutions.

Unfortunately, the clientelist management of 2020-21 was not without consequences, and not just for our image in Brussels. Look at the plan for the so-called incentives for merging businesses.

A large obstacle to the growth of the economy and wages in Greece is the vast archipelago of very small businesses, most of which survive illegally and without a future. The causes behind the very low productivity of labor must also be examined in this framework. Technological innovation and the improvement of the quality of labor require large, strong businesses. In Greece, we only have 400 businesses that can be characterized as large. We need more, and stronger ones too. Almost everyone agrees incentives should be provided to achieve this. However, because the management of 2020-21 exhausted our country’s budgetary limits (especially after our previous attempt to approach the markets), combined with widespread fear over potential deficits, the relevant legislation includes only some very basic, very limited incentives. They are most likely addressed to very small, unsustainable businesses, that can, with another very small unsustainable business, form a new very small unsustainable business. Clientelism-wise, this makes some sense, especially in a period leading up to elections. Economically, if the goal is to create sustainable and strong businesses, it makes no sense.

What I am saying is we are throwing away money, because we have no money, because we threw away a lot of money last year and the year before. That is not the fault of Brussels.

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