Commentary
The financial news from the capitals of the Western world is cause for considerable concern. The economic slowdown in the United States and the European Union is expected to be much deeper and longer than previously thought, a worrying trend for financial decision-makers. Even the European Central Bank (ECB), an institution which has been dogmatically fixated on monetary stability, acknowledged the accelerating pressure on economic activity and, for the first time albeit with great delay, reduced its benchmark interest rate by half a percentage point, putting aside worries over inflationary pressures. Even so, many question whether the interest rate reduction and the additional fiscal measures that have been taken, mainly in the US but which are now being discussed in Europe as well, are enough to protect economies against the approaching recession. Economists, bankers and entrepreneurs are faced with a weakening economy as fears over the way in which the international economy will unfold make consumers more cautious, cause businesses to react to declining sales and profits by imposing mass layoffs and cutting expenditures, and elicit from governments their usual tardiness in assessing the new environment. Once again they have failed to intervene in timely fashion, generating a cyclical crisis which can only worsen the economic situation further. The latest data from the US and other countries show that despite the recent interest rate cuts, savings rates are going up, which underscores growing public insecurity over the economy. With flagging expectations over future income and with sagging confidence all around, citizens are accumulating wealth and trying to create a personal safety net in an environment of growing uncertainty. This cyclical process, however, deepens the crisis and gives rise to the so-called ‘Japanese syndrome,’ which implies governments’ failure to stir demand despite fiscal measures taken and the extremely low interest rates adopted. This phenomenon is now threatening the other poles of the international economic system, transforming the economic environment and affecting the Greek economy, which can no longer hide behind the already precarious Olympic Games and funds from the Third Community Support Framework (CSF III). The government should weigh these new developments and reshape its economic policy accordingly, rather than merely respond with expedient measures dictated by the stock market.
