New wealth

Reports on fiscal data do not bode well for the coming fall when the bills will have to be paid. No doubt fiscal economy has in recent years been abandoned to its fate as the administrations gave way to other priorities, such as major infrastructure projects and Olympics preparations. The cost has skyrocketed because of mismanagement and money squandering by conflicting interests. As a result, the country will after 2005 enter a period of economic austerity with the aim of restoring macroeconomic balance – in line with the EU’s new Stability Pact. It still remains to be seen what path the government will choose. There are many schools of thought: Classical monetarists propose aggressive adjustment policies such as spending cuts, quick privatizations, and tax increases that would not go down well with Greek politicians and the public. A more common remedy, closer to our political habits, is that of a mild adjustment. Any treatment of this sort may tackle problems in the short term but does not address the long-term causes of instability. Within the current context, none of the above remedies would bring about the desired results or meet Greece’s genuine needs. The former option would bring the new government to loggerheads with society and force it to breach its campaign pledges, whereas the latter would neither solve the problem nor bolster its bonds with society. The big challenge for the new administration is to promote a set of economic reforms that will produce new wealth to cover the fiscal deficits as well as to uphold the much-needed policies of redistribution – all this in an environment of mild fiscal adjustment. New wealth can be created only through greater economic liberalization, the removal of structural obstacles, and the establishment of a more competitive environment in all sectors – following the successful example of Greece’s shipping industry.