Fiscal crisis

The comments yesterday by National Economy and Finance Minister Giorgos Alogoskoufis on Greece’s fiscal woes can, in ordinary speech, be summed up in a banal albeit easily understood phrase: The State is broke. This, of course, could have already been deduced from the fabricated numbers published by the Socialist government of Costas Simitis. In fact, the size of electoral campaign handouts was too big even for these numbers. The problem became more evident after the conservative government went on to take stock of public finances, thereby shattering the fabricated picture painted by PASOK’s creative accounting. In fact, the deficit hovered above the 3 percent (of GDP) threshold. The ministry conceded to having resorted to emergency borrowing, contracting five loans worth 5.75 billion euros. To be sure, the ministry statement focuses on the positive side of the loans, the favorable terms and the ability of the State to form reserves. However, unless this money has been borrowed with particular investments in mind, it becomes obvious that the loans aim, rather, at covering specific needs. This was suggested by the government itself when it referred to the pressing need of covering the operational costs of the public sector and the Summer Olympic Games. It is understood that the State had no other way of meeting its economic obligations than by resorting to emergency loans. Public borrowing has ballooned to some 30 billion euros in the first five months of the current year when the projection for the whole year was just 32 billion. Worse, economic analysts – like PricewaterhouseCoopers earlier this week – foresee a slowdown in economic growth after the Games. It is estimated that the growth rate will slide below 3 percent – a reduction which will necessitate a readjustment of the projected tax revenue and social spending (in areas like unemployment benefits). Prospects over Greece’s fiscal situation and economic growth appear grim – even more so given that the country’s per capita GDP (according to European statistics that were made public yesterday) is at 79 percent of the EU average (which means that Greece ranks 15th among member states) and will need a robust growth rate if it wants to converge with its EU peers. The specter of fiscal crisis accentuates the need for measures aiming to promote fiscal reform and encourage growth. The government has said that it will announce its new economic policy in September. However, paying heed to the alarming signs now will help avoid a nasty surprise later in the year.