Record oil prices and Greece’s deficit

The Greek government’s attention is correctly focused on staging a successful Olympic Games – no doubt, a mammoth and manifold task. However, its officials should not miss a number of worrying developments taking place in the domestic and international economy – developments that could put an additional strain on the already worrisome post-Olympic period. First of all, the globe is faced with an alarming surge in oil prices. Prices are currently hovering above $40 a barrel – despite the fact that we are in the middle of the summer in the Northern Hemisphere where most of the world’s energy-consuming countries are located. Furthermore, the announcement by OPEC producers that they cannot pump any faster raises concerns that prices could climb even higher during the autumn, particularly should prices remain at the existing record levels. Needless to say, such a development will push prices upward on all commodities throughout Europe. And as if the record high levels of oil prices were not enough – a problem the Greek government can do nothing about – the recent publication of half-year spending and revenue figures by the State Accounting Office has shown a deterioration of public finances, putting the deficit above 4 percent of GDP. The huge price tag of the Athens Olympic Games and the need for coordinated policies to cover the cost of the event will surely be an extra burden on the government while the decline in tourism revenues doesn’t help either. The Stability Pact may have become more elastic, particularly for larger countries, but if the government of Costas Karamanlis wants to live up to the commitments it has made to Brussels, it will have to squeeze the deficit by 1 percent of GDP over the coming period. Trimming the deficit will demand the implementation of stricter economic measures than what the conservative government would have wished or expected. In effect, the administration must keep a close eye on developments and brace for a difficult fall.