By Seraphim Constantinidis
Although the importance of oil in the world economy has weakened in recent decades, the Greek economy is paying the price of again falling behind. It is the most oil-dependent economy in Europe. This is the result of successive political decisions that were aimed not at tackling the problem but managing the current situation. Natural gas was late in coming and the Public Power Corporation (PPC) was oriented toward producing the cheapest electricity in the European Union. Also, for vote-catching reasons, fuel taxes were kept low, which encouraged the wasteful consumption of cheap energy. Moreover, given the widespread levels of tax evasion in the fuel distribution system, the cost of energy in the real economy has been even lower than the official rates.
But cheap energy prices also put off the day of reckoning for a serious problem. In all likelihood, the country would not have an acute fiscal problem now if fuel taxes had been on a par with levels elsewhere in the eurozone and there had been no tax evasion. Surely such a policy would have lowered growth rates and, more importantly, would have come with a heavy political cost. That is why it was consistently shunned.
State-run PPC was condemned to offering household electricity rates lower than industrial rates, in contrast to practice in other countries. For many years, fuel taxes were kept very low and, even when they were raised, three tiers were created: one for heating fuel, one for automotive diesel and one for farmers.
So the price of oil became a political matter and no one was prepared to push for unpopular measures. Moreover, low energy prices also keep new investment at a distance and unemployment high. The policy of subsidizing household electricity and heating fuel is not social policy; it is populism.
At the same time, large tax differentials create incentives for tax evasion; that which is arbitrarily siphoned off by citizens in response to low-quality services offered by the state.
(Kathimerini, 26/6/06)