What’s next, ‘mobile pass’ and ‘TV pass’?
What is the Bank of Greece’s biggest concern? That reaching investment grade has drifted further away and that in an international environment full of uncertainties, there is only one certainty: That the time of abundant, cheap money has given way to an era of high interest rates and limited liquidity. Of course, even if we did regain investment grade soon, things would not be easy, because we would be at the bottom of the list of creditworthy countries. That said, we would at least have the opportunity to reduce the very high cost associated with our bonds’ “junk” status.
Greece could have already attained investment grade. With gross domestic product growth rates of 6% and inflation hovering around 10%, which fills government coffers with windfall tax revenues and shows a drastically reduced public debt burden (as it increases the numerator, the GDP, while the denominator, the debt, remains constant) along with real annual savings of around 15 billion euros from paying interest (because most of our debt is at fixed rates), the government could have run a primary surplus in time – if its priority had been serving the public interest. That way, we would have regained investment grade already, as central banker Yannis Stournaras has argued.
This did not happen; it was not even attempted. Populist handout policies prevailed instead. This overspending led to a redistribution of wealth on an unprecedented scale, with partisan and clientelist criteria, increasing the bank deposits of businesses and opportunists (tax evaders) by several billion euros. The same policy of non-selective handouts (which restricts the aid that reaches the weakest) continued with the energy crisis and has now culminated with pre-election handouts to 8.5 million voters via the so-called Market Pass.
What is certain, however, is that a painful fiscal consolidation will have to begin after the elections. That is when taxpayers will foot the bill for the current clientelist government policy
One of the worst things about horizontal handout policies is that their consequences carry on long after they expire. This will become apparent after the upcoming general elections. In the meantime, the government may decide to give voters a “mobile pass” or a “TV pass.” What is certain, however, is that a painful fiscal consolidation will have to begin after the elections. That is when taxpayers will foot the bill for the current clientelist government policy. Whatever government is formed, it will have a real challenge on its hands to fix the country’s finances.
This is why Stournaras underscored the political risk. Given that 2023 is the year of national elections, the central bank’s interim report said, “the coordination and understanding of political forces is required in order to implement the basic commitments of economic policy and preserve what the economy has achieved in the last decade.” A culture of cooperation is a key condition for political stability. This culture needs to be strengthened.
This is the direction that Greece’s elite would work towards – if it existed. It would not be going on and on about how “the country has no alternative.” A real elite would be ashamed if this were true for Greece. Nor would it insist that the solution – allegedly – lies in securing an absolute majority… If there was an elite.
