Mortgaging the future
Prime Minister Costas Simitis is expected to announce today the government’s planned handouts, which are said to hover in the range of 1.3 billion euros. Given that handouts are normally generated from a budgetary surplus, one cannot help wondering how the Socialist administration can increase social spending at a time when France and Germany, Europe’s economic powerhouses, are straining under the burden of deficits that have forced them into initiating unpopular welfare cuts. The imminent handouts sound even more absurd in the light of fiscal data on the first seven months of 2003 that were released yesterday. First the budget deficit has increased by 83.4 percent compared to last year, going up to 7.2 billion euros when the projected target for the entire year is estimated at 5.3 billion euros. If a significant part of the 1.3 billion «package» is added, it will be impossible to keep the budget on target. There is no sign that the existing deficit can be trimmed. Spending is increasing at a 12.5 percent rate over last year, compared to the target of 5.2 percent, while revenue is rising by a 4.5 percent rate over last year, compared to the target of 5.1 percent. Furthermore, figures regarding the public investment program are disheartening. Revenue from EU funds has dropped by 61.8 percent vis-a-vis the same period last year. Where is the government going to find the money for the lavish handouts planned ahead of the national elections? How will it go about distributing money that does not exist? There is only one way to marry the burgeoning deficit and handouts – and that is borrowing. It is an open secret that the PASOK administration is borrowing money in order to pay for civil servants’ benefits and as this policy is expanding, the fiscal burden will increase. Woe betide us if the government decides to add to this the cost of the planned benefits. The introduction of the euro, which the government has exploited to increase borrowing without facing any exchange rate risks, offers no long-term solution. A big deficit may prompt the government’s foreign creditors to demand higher interest rates. Increasing social spending by means of borrowing is a highly opportunistic and irresponsible economic policy, and a surefire way to mortgage the future.