Commission exhortation for Greece fails to convince

On April 18th, the Commission released a communication, entitled Growth for Greece against the background of a country in its fourth year of severely negative growth during which unemployment has more than doubled to over 20% and wages and pensions have been cut by around 30%. Greece needs growth as much as a starving man needs food but the implicit suggestion that the Commission and other EU institutions like the European Investment Bank may be offering the country the chance of growth as it approaches a general election on May 6th could be a mirage. The economy has slumped because of the need to cut the government deficit from a staggering 15.7% of GDP in 2009 towards balance. The tax rises and expenditure cuts have reduced all elements of domestic demand and with no upturn in exports have therefore cut GDP. Since Greece has not completed the task of deficit reduction (the 2011 deficit was 9.25% of GDP), since severe cuts in the 2012 budget are contributing to an expected GDP decline of 5% or more this year and since further cuts are being requested in subsequent years, prima facie the communication’s title looks like an offer of an illusion. The reader of the title wonders what there might be in the document, which could offer a way to reverse the existing trend.

The fact that the communication was launched by President Barroso does indicate at least that Greece has not been forgotten in Brussels and that its predicament is being taken seriously. However, the content of Mr Barroso’s speech does not inspire confidence. He claims that the EU is in some way providing financial help of 177% of Greece’s GDP, a meaningless figure which includes both the €100bn write-down of private sector debt and new loans which are intended to be repaid with interest. These sums cannot alter the dynamics of the Greek economy. The only part of the financial flows to which Mr Barroso refers that might stimulate growth is that which could go towards boosting such businesses as might start exporting, increase exports from companies already exporting or take domestic market share away from imports. These are primarily from €20bn of structural funds in the 2007-13 Community Support Framework programme which provide non-repayable grants , of which–according to the Communication–half has so far been spent. With half to spend in the last two out of the seven years, there could be a relatively big boost to provision but obstacles to the money being well spent are still large. Although the proportion going to businesses is supposed to increase, the majority of the funding still goes to infrastructure, which cannot directly support business expansion or boost exports. An important but unanswered question is whether there have been any successful business investments which could provide examples for others to follow.

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