Spillover effects of liberalization

Although everyone – from political parties to unions and employers’ associations – agrees on the need to bolster economic growth, there are still a number of very concrete options that remain unexploited. A recent report by the Center for Planning and Economic Research (KEPE) on the economic and social implications of the currently drafted EU directive on the deregulation of the European services market raises a number of interesting points. According to the report, the abolition of the so-called closed professions will boost Greece’s GDP rate by one percentage point. At the same time, it will increase real wages by 0.4 percent, capital returns by 0.9 percent, and total employment by 0.2 percent. The study estimates that the above will have a spillover effect on the economy at large. It is thus estimated that direct foreign investment will soar by some 25 percent. Former national economy minister Yiannos Papantoniou had raised the issue a few years ago after the release of a KEPE report. But the document’s emphasis on the benefits to be derived from the abolition of closed professions failed to prompt the Socialist administration into action. As often happens in these cases, the government of Costas Simitis was afraid of the political ramifications of the inevitable reactions from professional groups that would stand to lose from the deregulation of the market. It should be noted here that the implications of further liberalization will not be exclusive to closed professions, such as notaries. This is bound to affect the broader services sector, given that the self-employed and the normally small Greek companies will suffer strong competition from their better organized and much bigger European rivals. On the other hand, the pressure of competition will force Greeks to adapt and improve their productivity. The ball is in the government’s court. The advantage for Costas Karamanlis is that he will soon be able to invoke the binding character of the European directive and exploit the relatively more receptive climate. The government must show cautiousness coupled with determination.

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