Structural flaws

The sharp inflation increase to 4.3 percent on the year in February from 3.1 percent in January, is perhaps the clearest sign that the Greek economy is on a downslide. The increases in the price of fruit and vegetables, no doubt, took an aggressive toll, but this factor cannot be used as an excuse. Core inflation, which is free of such fluctuations, now hovers at 3.7 percent, which means we’re dealing with a deeper problem. In the single-currency zone, the rise in inflation has led to a further drop in the competitiveness of Greek products and services, given that the average EU rate is about 2.3 percent. It should be noted here that exports have already suffered a serious blow. The situation is not expected to improve in the near future. The looming war in Iraq will cause oil prices to skyrocket, meaning that those costs will be shifted onto the prices of goods, especially if prices remain high for a long period of time. A few months ago, the European Commission issued a warning over the course of the Greek economy. The signal was clear enough. Reality is a far cry from the reassurances from the government’s economic officials. It’s a far grimmer picture than the one painted by the administration’s spin doctors. And this concerns not only the fiscal economy but the real one as well. The Greek economy is plagued by serious structural weaknesses. The deficit in production is becoming increasingly clear. Fiscal obligations are great and pressing. Creative accounting has also been stretched to the limits. It once helped to fabricate a picture of economic euphoria, but the truth cannot be hidden any longer. Besides, idealizing the situation does no service to the government nor the country. The funds coming from the Third Community Support Framework have helped to maintain a relatively high growth rate, but these tonics are not enough, nor will they last much longer. What is worse, these funds have only been partly exploited, which means that they fall short of creating a productive environment with any trickle-down effect onto other productive sectors. The government is striving to restore equilibrium, but what is really needed is to break the vicious cycle in which the economy has been caught up for years. The current economic policy has come full circle. It has become bureaucratic and, in effect, counterproductive. The government must react and open the way to structural changes that would release the productive forces and breathe fresh air into the economy.