The market does not confirm the Prime Minister’s unrealistic image

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It has become quite apparent that the combination of austerity measures and high taxation has brought the country’s economy and society to its knees. Voices against this policy are growing louder and stronger every day.

Last night the Prime Minister gave a speech at the Economist conference in Athens during which he attempted to convey a positive image of today’s situation in Greece. However, it is obvious that the market’s view of the reality is quite contradictory to that of Prime Minister Antonis Samaras.

It is commonly accepted among business people that Greece’s international lenders (IMF, EU, ECB) have gone too far with austerity. In fact they have pushed so much that even if the continuing recession could stop today, it would take at least another couple of years for the economy to return to positive growth figures.

The Prime Minister’s unrealistic image is based on tourism, the banking sector, European subsidy funds, and the payment of the Government’s debt to businesses. Let us look at each point separately though. With regards to the banking sector the Government has suffered a very strong blow with the collapse of the strategic decision of the merger between the National Bank of Greece and Eurobank. Nevertheless the Prime Minister was satisfied (!) by the recapitalization process, despite the fact that banks’ shares hit rock bottom yesterday.

As per the European subsidy funds, the absorption rate of funds for all programs running is approximately 49%. Sectoral programs are at 47% and regional at 52%. These figures are disappointing considering that the program expires –in theory at least- at the end of 2013. Simply speaking, the funds’ absorption rate should have reached the 90th percentile by now. Is the money going to be absorbed as we enter the final straight? This appears to be wishful thinking since Greek public administration is hostage of an ongoing red tape process.

The third point is the money owed to businesses. Ironically enough as the Government shies away from its obligations, quite so often the public experiences prominent businessmen being imprisoned for the same reason. According to the latest available data, the debt in February amounted to 8,132 billion Euros. It is obvious that the circumstances do not leave much hope that the debt will be repaid by the end of the current year as the PM promised last night. Even if he used all the money from the financial aid tranches he could still not deliver on his promise.

Finally, regarding the “ace up the sleeve” called tourism it would be sensible not to keep our hopes very high. It is already mid April and many hotels have not even opened up for the season yet. Many businesses in the tourism sector are in despair. They are trying to reach an agreement with the electricity company –a monopoly controlled by the state which is the main shareholder and retains the company’s management- to settle their unpaid bills. They cannot afford to pay social contributions and employee wages, and they are struggling to keep up with their financial obligations towards banks since their loans are three or four times higher than their turnover. At the same time, due to the global competition they are forced to lower their prices and suppress their profit margins. Considering the above, I am not so sure that hotel owners will be smiling the coming autumn.

So, without the slightest inclination to be a killjoy, the assumptions of the Prime Minister have serious gaps and do not reflect the reality of the livelihoods of real people in the real economy. What the Prime Minister and his cabinet should do is to really listen to the needs of the economy and abandon a policy whose destructive consequences have spread horizontally pushing the country into the abyss of a never-ending recession.

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