The Greek economy shows impressive strength, as noted in the quarterly magazine of KEPE “Economic Developments” (issue 48-June 2022).
“The recent upgrades of the Greek economy reflect market confidence in the Greek economy and bring Greece one step closer to the goal of returning to investment grade. Nevertheless, challenges and risks due to the international situation and associated uncertainty remain, with the strengthening of the Greek capital market being a priority”. This is reported by KEPE, while noting that there are three estimated short-term and long-term risks for the Greek economy: inflation, rising interest rates and geopolitical instability.
In the meantime, it is underlined that “even if inflation moderates in 2023, accuracy will remain”.
What is the appropriate strategy for shielding the Greek economy?
The long-term prospects of the international and European economy are not on Greece’s side, as KEPE notes and reports in more detail the following:
Problems in the supply chain due to the pandemic and the energy crisis, exacerbated by the war in Ukraine, are pushing up prices, significantly worsening the standard of living of Greek households. Economic policies in the EU and the US are turning from expansionary, which they were, for a long time, into contractionary. Furthermore, the cost of adapting to a pattern of development and living that is compatible (and legitimate) with the achievement of environmental goals is still ahead of us, both as Greece and as Europe and the planet. The duration and intensity of adjustment are still largely undetermined quantities, but it is already clear that the cost of adjustment will be large. This is especially true for countries like Greece, which lag behind in critical areas such as energy efficiency and do not have a leading role in the upcoming massification of goods and services that will facilitate the transition. The above shows that even if inflation moderates in 2023, accuracy will remain. This will happen for two reasons:
First, because of high taxation. During the years of fiscal crisis, high taxation reinforced the exactness effect, as while wages fell, taxes kept product prices high. The KEPE recalls the VAT increases in the years 2005, 2010 and 2016, when these increases were accompanied by significant shifts in categories of goods from lower to higher rates. Or the increases in the EFF mainly in 2009 and 2017 on fuels, which are a key input of the supply chain and, in particular, contribute to the increase in prices across the range of goods and services.
The second factor that keeps prices at a comparatively higher level is the country’s institutional and regulatory environment. As noted, despite the progress made in recent years, the institutional environment continues to have significant negative effects on the cost of living in our country. In the relevant rankings, Greece still falls significantly short of the other countries.
This means that the continuation and completion of structural reforms in product and service markets, and especially in network markets, the continuation of the reform of the tax system (reduction of the tax burden, simplification of tax procedures and redefinition of the VAT system), but also in work and production (reduction of employer and insurance contributions) and the promotion of the modernization of justice (acceleration of justice delivery time) are necessary. They are the only way to improve the production base, to cover the investment gap and, therefore, to enhance productivity and sustainably increase incomes but, at the same time, also reduce the prices of goods.