A mortgaged future

Japan’s economic boom during the 1960s was largely attributable to the policy of public borrowing. The State borrowed to fuel growth through public spending that was based on loans. As the architects of the economic policy argued after the striking results, the method was plain: They could spend more than they possessed of the projected revenue as long as the loans were used to finance projects which augmented the source of income so that the loans could be repaid and at the same time profits made. Although Japan was a model for the policy of public borrowing, recent experience demonstrates that the Japanese example is not the rule. Countries that borrow collect future revenue in advance not in order to invest it productively but rather to make poor or risky investments. This is not because of erroneous economic forecasts but because of a clear political factor, the governments’ dependency on the popular vote. Unfortunately, faced with the political cost of economic austerity measures, parliaments and governments have often opted for excessive borrowing, thereby deferring the burden of unpopular measures onto subsequent governments. Greece has bitter experience of such decisions, which were either based on naive optimism or crude pre-election tactics. The government decision to securitize revenues from the Third Community Support Framework (CSF III), archaeological sites, and the state lottery (OPAP) – in other words to borrow by mortgaging future earnings from EU funds and the revenue from archaeological sites and the state lottery – seems to be in this spirit. The government will, of course, claim that the loans will be used to fund productive investments. This is hardly credible, however, given that, first, the coming years will effectively be a pre-election period, in the sense that PASOK is already concerned about the electoral outcome and, second, that the deferment of the social security reform betrays an accommodation with the logic of minimum political cost. It seems likely that the loans will be channeled into the unproductive Olympic-related projects, whose budget is already 60 percent higher than what it was in the candidacy bid. Despite reassurances, there is a widespread impression that the government is engaged in excessive borrowing in order to postpone unpopular decisions and to avoid the ensuing political cost. This method strengthens the government’s re-election prospects. But it runs the danger of paying a hefty price. The draft, giving municipalities greater say over budgets, public services, culture, education and health, needs the backing of a two-thirds majority in Parliament to become law.