On May 15, the European Commission’s latest assessment of the outlook for the economy of the European Union of 27 and of course Greece was published. Through the assessments of the experts of the European Commission, the positive characteristics of the economy emerge but also some serious difficulties.
The development
In 2020 and 2021 the economy was stagnant due to the pandemic. In 2021 he regained almost what he had lost in 2020.
In 2022, the Greek economy showed dynamic growth of 5.9% which, according to the estimates of the European Commission, will decline to a satisfactory 2.4% in 2023.
The development dynamic is mainly based on tourism and the European funds of the Recovery Fund. It is undoubtedly a positive development, but it does not determine political developments. If we take the countries that underwent the test of the financial support programs, the champion in growth was Ireland in 2022 with 12%. Portugal followed with 6.7% and then Greece and Cyprus with 5.9% and 5.6% respectively.
Therefore, we do not have a Greek peculiarity of dynamic development but participation in a dynamic development process for all the former countries that accepted these financial stability programs, with Ireland as the champion.
It is worth noting that the center-right government in Ireland and the center-left government in Portugal face serious political problems and have difficult electoral contests ahead of them, despite the growth rates that exceed the growth rate of Greece.
The situation is predicted to be similar in 2023. Ireland is predicted to come first in growth with 5.5%, followed by Greece, Portugal and Cyprus at 2.3% to 2.4%.
Therefore, the dynamics of the Greek economy was and will remain positive, but a comparison with the other countries under the memorandum shows that Greece is not a champion of development, as Mr. Mitsotakis says, and that the growth rate does not solve political problems by itself.
The Inflation
According to the European Commission’s estimates, inflation in Greece was 9.3% in 2022 and will remain at a high of 4.2% in 2023, to decline to 2.4% in 2024.
Therefore, the Greek government (2019-2023) was and remains vulnerable to the issue of inflation. According to the official data of the OECD, in 2022 Greece had one of the biggest drops in the average real wage, of the order of 7.5%.
With such a strain on the people’s income, one would expect that the opposition parties would be able to hold the government accountable.
As pointed out in the European Commission’s report, despite the expected increase in nominal wages in 2023, there is no forecast increase in real – deflated – wages before 2024.
Therefore, the Greek government failed on one key measure, the real wages of workers, without the opposition parties being able to put pressure on it.
The unemployment
According to the estimates of the European Commission, the unemployment rate in Greece was 12.5% of the economically active population in 2022, it will decrease to 12.2% in 2023 and to 11.8% in 2024.
If we take into account that the “brain drain” continues at lower rates, that many unemployed people have given up looking for a job and are not included in the measurements, in industries such as tourism the positions are often poorly paid, and that we still have about 600 thousand part-time workers employment, we realize that the social difficulties are greater than the economic ones.
Not even on this issue were the opposition parties able to challenge the government’s narrative that spoke of many new and well-paid jobs.
There is no doubt that the Greek government’s dominance of the media plays an important role in shaping the public’s perception of the economy. But this cannot be an excuse for the opposition parties, on the contrary, it is an incentive to better explain their positions and to convince the citizens that what the government officials and the journalists who support them say have little to do with reality.
Danger signs
Based on the European Commission’s estimates, the current account deficit hit a record in 2022 at 11.8% of GDP. That is, it returned to the levels required by the financial stability programs when the international financial crisis of 2008-09 occurred.
The European Commission estimates that the current account deficit will remain in 2023 at 9.2% of GDP, to decline to 7.8% of GDP in 2024.
It should be noted that the government of the previous Prime Minister Alexis Tsipras (2015-2019), whom the government denounces (2019-2023), had limited the current account deficit to 2% of GDP.
The external deficit was of course affected by the energy crisis caused by Russia’s invasion of Ukraine, but the main cause is the policy of the Greek government (2019-2023) which weakens the international competitiveness of the economy.
This is demonstrated by comparing Greece’s trade deficit with the performance of other countries that also implemented financial stability procedures.
In 2022 Ireland had a current account surplus of 8.8% of GDP, which is forecast to rise to 11.1% of GDP in 2023.
Portugal had an external deficit of just 1.5% in 2022, which is projected to turn into a surplus of 1% of GDP in 2023.
Spain, which has not implemented a formal financial stability program but has also experienced an adjustment test, had an external surplus of 0.6% of GDP in 2022, which is projected to rise to 1.6% of GDP in 2023.
Only Cyprus has similar problems to Greece, but at a somewhat lower level. External deficit of 9.1% of GDP in 2022, falling to a deficit of 7.3% of GDP in 2023.
Therefore, the strengthening of the international competitiveness of the Greek economy and a leading role in the international markets of Greece are propaganda constructions of the government (2019-2023), which the opposition parties should have deconstructed. This did not happen either, with the result that most people are left with the impression that the Mitsotakis government turned the Greek economy into an extremely competitive one.
Fiscal Economics
In 2020 and 2021, Greece showed, cumulatively, the largest fiscal deficit in the European Union of 27, of the order of 17% of GDP.
The large fiscal deficit risked combining with the record current account deficit to produce the so-called twin deficits that destabilized the Greek economy in 2008 and 2009 and led to bankruptcy and the forced implementation of the memoranda.
Fortunately that didn’t happen. In 2022 the fiscal deficit fell to 2.3% of GDP and in 2023 it is predicted to fall even further, to 1.3% of GDP. The fiscal destabilization we were dangerously close to was averted.
Having conceded the improvement, we must make two observations. The Mitsotakis government received a budget surplus from Tsipras and turned it first into a dangerous and then into a perfectly controllable deficit. In other words, his performance is much lower than that of the Tsipras government (2015-2019) whom he accuses – without this being clear from the data – of fiscal destabilization and fiscal populism.
The second issue is related to the manner in which the reduction of the budget deficit was achieved. As the European Commission’s report points out: “This improvement is mainly due to better-than-expected tax revenues, particularly for value added tax and direct taxes.”
Essentially, the European Commission tells us that fiscal stabilization was achieved by the Mitsotakis government (2019-2013), at a lower level than that achieved by Tsipras, with a large increase in revenues from consumption taxes, which mainly affect the underprivileged, and from an increase in income tax, which is related to the non-indexation of the tax scale, in a period of high inflation. Nominal incomes rise due to inflation, causing tax deductions to rise as well, thus reducing the net real income of many.
It is worth noting that this harsh, for the less privileged, tax policy was combined with provocative tax breaks in favor of the rich and super-rich. Let’s remember that the British Conservatives removed Prime Minister Liz Truss as soon as they found that, in a period of economic and social difficulties, she was promoting a program of tax breaks for big business.
However, the Greek conservatives do not find anything corresponding. It is certainly the choice of the Mitsotakis government to reduce the tax on the dividends of shipping companies from 10% to 5% while at the same time increasing, through inflation, the tax on the consumption of basic goods. But it is the duty of the opposition parties, if not of the New Democracy (Conservative) executives themselves, to explain to the world that this policy is socially unjust and unacceptable and to exert pressure for its adaptation to what applies in most European countries . Neither did the opposition parties, with the result that provocative tax injustice against the underprivileged was rewarded at the polls.
Finally, the economic staff of the government highlights the significant reduction of the debt of the Greek State, which had reached 200% during the pandemic. In 2022 it fell to 171% of GDP and in 2023 it is projected to fall to 160% of GDP.
The reduction in debt as a percentage of GDP is due to the dynamic growth in 2021, 2022 and 2023 after the shock of 2020, but also to the high inflation that is “gnawing away” at the debt.
However, it is worth remembering that public debt was at 115% of GDP when the crisis broke out and we entered the memorandums and that the level of 2022 is comparable to the level left by the Tsipras government (2015-2019) as a percentage of GDP, while public debt has increased in absolute numbers.
At the same time, the major failure of the government lies in the continued inflation of private debt, which limits the potential of the Greek economy and destabilizes the economy itself.
The European Commission’s report on the Greek economy concludes that the elections were not won by the financial and fiscal performance of the Mitsotakis government (2019-2023) – which are quite problematic – but by the impressive inability of the opposition parties to explain what exactly is happening and how the situation can be improved.
