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Our View: Change of economic tune is necessary

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Finance Minister Makis Keravnos

It was encouraging to hear Finance Minister Makis Keravnos defending the government’s decision to end the subsidy of all electricity bills and the reduction of the consumer tax on fuel. It showed there is still some commitment to budget discipline, despite earlier decisions by the government suggesting otherwise.

Speaking after the decision was taken by the council of ministers, Keravnos explained that horizontal measures kept in place indefinitely, as some interest groups have been demanding, would pose a threat to the budget plan. It would also go against the recommendations of the European Commission, which urged member states to opt for targeted measures as horizontal measures increased inflationary pressure.

Perhaps it was the Commission’s recommendations that played a bigger part in this unpopular, though necessary decision being taken. Until now, the government has been less than prudent in its spending, giving pension increases, sanctioning higher CoLA and opening 2,000 public sector jobs. This does not indicate a government committed to fiscal discipline, despite repeated assurances from the president that sound public finances are a priority.

There is a worrying degree of populism in the government’s economic policies and declarations, which seems to pander to the parties supporting it. The foreclosures law prepared by the government’s supporters is a case in point, with the finance minister, concerned about the consequences for the banking sector of this law, proposing an alternative in the hope of keeping them happy. It does not seem to have dissuaded these parties from pursuing the law, designed to help debt defaulters.

Then there is the regular interference in the banking sector, with the finance minister publicly demanding that banks “absorb even more of the costs of interest rates increase.” Not only this, but he also wants banks to increase interest rates on deposits, something they have been very slow to do because of the high liquidity they have.  Is it the job of the finance minister to try to dictate bank policies in the eurozone?

It is not, but Keravnos has been making public declarations about interest rates and issuing warnings to banks ever since he took over, describing this as “constructive intervention.” More ludicrously, he said that absorbing the cost of high interest rates was part of “the corporate social responsibility” banks have. This is astonishing coming from a man who served as a CEO of a bank for several years and is presumably aware that banks’ main reason for existence is to make profits for their shareholders.

He is only voicing the populist economics of the government he is serving and its party backers, but this cannot inspire much business confidence. A change of tune is necessary.

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