Inflationary side effects
There are data that are not counted in official statistics. Like, for example, elevators that remain out of order because there is no money for their maintenance. Or the worker who asks for a 30-euro advance from next month’s salary to cover some “emergency” needs. Or apartments whose tenants don’t switch on the central heating out of fear of not being able to pay the bill. If you think these things are rare, you’re wrong. About 29% of our fellow Greeks are on the verge of or close to poverty, according to official statistics.
Official Greek inflation in February spiked at 7.2%. For the most vulnerable households, along with the unemployed and those who have a job but are paid the basic wage, inflation is much higher, as it is for those who make 1,000 to 1,200 euros a month. According to a survey conducted by a university on behalf of a well-known private company, a salary of 1,000 euros has lost 25% to 30% of its purchasing power since February. In practice, for an employee earning 1,000 euros, inflation does not run at 7.2% but at 25%, perhaps even 30%.
Rising prices are drastically affecting the life styles and psychology of a society already weakened by an economic crisis that lasted more than a decade. Inflation and the war in Ukraine are the two problems that are rated as the biggest in recent polls. Not surprising at all, considering that the tsunami of hikes in energy bills and food prices – which began several months before February 24, the day of Russia’s invasion of Ukraine – is spreading to rents and a broad range of widely used goods. The higher costs are testing half of Greece’s population and torturing one third of it.
High energy rates and inflation are also affecting all economic activity, from tourism to the production and supply of food. They are further eroding the competitiveness of Greek companies, especially in manufacturing, for which energy costs have long been a problem, holding them back, and which were weakened further during the pandemic, because their competitors in wealthier countries were supported financially by the state, while the Greek ones were not.
If the trend continues, rising prices may end up affecting the banks, where there will be a new batch of loans that will stop being serviced. The danger is that the existing problem of nonperforming loans (which were removed from the banks’ balance sheets but remain rather stagnant in the funds that bought them) could be inflated, with more loans turning bad because of the war in Ukraine, which will be added to those of the Covid-19 pandemic. All this could increase the capital needs of Greek systemic banks.
Inflation, even if it only lasts until the end of the year, may leave a lasting imprint on Greek society and economy. Because we are in a difficult position as a country, it would be appropriate to try to deal with the problem seriously and intelligently. Are we doing that? Instead of answering, I have two remarks: While the government was quickly able to find the fiscal space to reduce the ENFIA property tax, the increases in the minimum wage and unemployment benefits were postponed to May 1. And while the European Commission has long proposed taxing the profits of energy companies, in Greece there was a refusal, and perhaps nothing would have happened if Kathimerini had not revealed their problematic practices with customer contracts.
