It reminded us yesterday. Eurostat data the evolution of inflation. As everyone feels in their pocket, things are not going well. In Greece They're getting worse.
The annual rate of increase in prices for Greece is 4.6%, when the Eurozone average is 3%. We're running faster by 53%. However, the income generated by the economy, i.e. the income passed through the hands of households, enters the corporate funds and flows the state's chest. Wholesalely, this year national income per capita is around 25 thousand euros, when in the 2021 recession it had fallen to 17 thousand. That's 8,000 more, almost 50% over a five-year period.
One event affects the other.
However, inflation is monetary in size and is affected by monetary rules, primarily the following two: firstly, the liquidity of the money markets and, in particular, the banking system; and secondly, the cost of money, i.e. interest rates on the capital market, which are primarily determined by the central interest rate of the euro coin, as defined by the European Central Bank.
We continue our thinking from the end to the beginning and because in not too long Mrs Lagarde, Mr. Stournaras and the other central bankers will be able to increase the central interest rate of the euro.
More expensive money means reducing liquidity and slowing down investment. As a result, the rise in national income ultimately slows down, hence the individual incomes, profits and surpluses of the state.
The rise in interest rates is not a disaster and it is necessary because central banks have no more than an effective tool to harness inflation. But it creates significant difficulties in the economy, because it brakes on easy consumption.
It will be necessary, in order for the economy to resist downward pressure, to achieve greater efficiency and the only tool to achieve this is to improve and even dramatically improve labour productivity.
To do this, businesses need to be mobilised, a boom of entrepreneurship is required in short. That doesn't look like anything. It is also characteristic that we are going into an election period, just the opposite climate. The opposition in particular recruits plans to dismantle the two regulatory instruments of business development, which are the banking system and taxation of dividends.
If, hypothetically, the opposition governs and implements what they say and if this happens in an environment of increased interest rates, Greece will lose, in 2027-2029, more than four units of potential GDP growth.
All of this, the above, will never be discussed by the sellers of easy solutions and hope eyebrows. Neither public nor private and, in all likelihood, they do not understand them.
