Without reforms, the economy will not work

If reforms are not pushed through now, when will they be? The issue keeps coming back into the public debate, with the now common conclusion that the prime minister has absolute control over his party, his government, and the state, so it is only up to him to introduce whatever difficult reforms he deems useful and necessary.

In fact, some people add, if he wants to introduce reforms, time is running out. The opportune time is only about another 12 months, because then, as in the second half of every government term, other calculations begin to weigh in and pre-election plans and tactics are put forward as the next electoral contest approaches.

We don’t all mean the same thing when we talk about reforms. Even if we are talking about the same ones or related, they are not weighted the same way nor are they given the same functional order of priority. Oftentimes, we can all agree on the need for a specific reform, as long as it only affects others – for example, in fighting the national shame of tax evasion. Above and beyond that, however, even if we don’t agree on how to reduce it, we all understand that things as they stand are not working any more – (some) profound changes must be made.

When it comes to the economy, as much as the liquidity circulating (from mid-2020 onward) cultivates illusions and (with the help of various government propaganda) feeds a spirit of complacency, the need for reforms is signaled by at least three strong indicators: the balance of payments, the debt, and the evolution of the demographic problem.

The demographic problem is worsening. If nothing changes, in about 75 years the Greek population will be 24% smaller, with a 31% reduced GDP, with 48% less employment

Balance of payments: The balance of payments deficit, a strong and undeniable indicator of the competitiveness deficit, was 1.5% of gross domestic product in 2019, climbing to 6.6% in 2020, 6.8% in 2021 and 10% in 2022. Despite fluctuations, it remains above 4% in percentage points. And the times may be changing, but 4% of GDP remains the safety limit for the competent services of the European Commission.

Public debt: Of course, times are not the same, but let’s not forget that we had to sign bailouts with a debt of 127% of GDP and today our debt corresponds to 166.5% of GDP – thanks also to the “magical” effect of inflation, which increases the denominator (the GDP). Furthermore, the interest rates are stable (we save around 15 billion euros a year) and we are in a grace period, but in 2032, when this period ends and the interest is capitalized, our debt will increase by about 7 points of GDP. 2032 is not that far away.

Demographics: In order to increase the wealth produced, it is necessary to increase the total productivity of the Greek economy (we are behind every country in Europe) or to increase the number of employed people or both.

The demographic problem is worsening. If nothing changes, in about 75 years the Greek population will be 24% smaller, with a 31% reduced GDP, with 48% less employment and with a 10% smaller GDP per capita – these are the forecasts of the Foundation for Economic and Industrial Research (IOBE). To increase productivity, major reforms are needed across the board.

Even more so if we add to the existing situation the new major challenges posed mainly by the climate crisis: Everything we do from now on must be done in a way that will not burden it; on the contrary, we must reduce greenhouse gases. In whatever we do from now on, we need to change priorities, instead prioritizing the most frequently repeated word: resilience. Without reforms, the economy will not work.