Policy dilemmas
The government is expected to announce its strategy to reduce household spending on electricity from July onward. There are two plans on the table. One is radical and does not drain the state budget: It foresees that the energy market is effectively suspended at the marginal price (a measure that was introduced to boost renewable energy sources and has become a “weapon of mass destruction” for households and businesses) while the retail price will depend on the production costs from each source (gas, renewables, lignite), plus a reasonable profit margin.
The second is the well-known plan of action where the budget subsidizes energy producers to keep retail prices down. If the first is approved – that is, if the logic of dealing with an emergency prevails and not the lobbying of electricity producers and suppliers in Athens and Brussels – it will be a positive development that may go beyond several of the proposals heard from the opposition.
In contrast, there are strong objections to the substance and logic of the second plan, which is a repetition of what has been done for household consumers in the last six months: Instead of the state spending money (that it does not have) to subsidize consumption for every consumer, it would be fairer and more rational for them to directly subsidize the income of only vulnerable households, which will in turn spend this money as they see fit – either to consume electricity or to meet other needs. Thus, the total public expenditure, which had already been stretched, would be lower.
Instead of the state spending money to subsidize consumption for every consumer, it would be fairer and more rational for them to directly subsidize the income of only vulnerable households
For comparison: About 46 billion euros was spent on benefits, state aid and other horizontal financial support in the last two and a half years – a massive amount as a percentage of GDP, but also as an absolute number. I remind you that in 2012, a huge effort was made to cut our public debt, the well-known private sector involvement (PSI), which resulted in the reduction of our debt by 53 billion euros. We are now about to compensate for this by distributing 46 billion euros to anything that moves in the country, from the wealthy to zombie businesses, instead of focusing on vulnerable households. In the decade to 2019, crisis management meant (even) savage spending cuts. In the last two years, crisis management means, as it were: I borrow money to hand out benefits, I distribute money that I do not have.
Loosening fiscal policy was a government choice. Instead of communication policy being called upon to serve the pursuit of a just and strict plan, fiscal policy was called upon to serve the needs of government communication. And now things are getting harder because of the war. They are also having a hard time because of the side effects of fiscal easing.
For example, while the civil service got rid of a lot of work thanks to the applications launched by Digital Governance Minister Kyriakos Pierrakakis, it has not transferred a single employee from an empty department to others in need. And – lo and behold! – other reforms have begun, just before the elections, with bonus handouts!
But much of Greek entrepreneurship is also becoming complacent. For example, the Next Generation EU recovery fund is available and waiting for businesspeople to invest, but most of them seem to be relaxing and waiting. They are waiting, as the banks tell us, to take advantage of the imminent development law so they can further reduce their own participation in investment costs. Their goal is private investment with public money – just like the old days.
