After a long period of gloom, things are finally looking up for Greece’s economy. The national economy minister, Giorgos Alogoskoufis, is said to be close to an agreement with the European Commission to extend by one year the country’s 2006 deadline to bring the budget deficit under the 3 percent threshold.

An extra year will give the New Democracy government some needed breathing space, allowing it to continue with its policy of gradual adaptation and to shelve any unpopular, cash-raising measures.

There is little need to talk about the political implications of such a decision, especially at a time when low-income groups are under heavy financial strain that colors their electoral preferences. But there is also a clear economic dimension to this. Liberated from a suffocating time frame, the government will have an opportunity to spend a bigger chunk of the budget on growth-inducing projects.

This is also easier now that public revenue for 2005 has increased by 6 percent, exceeding the target by one percentage point. No doubt the hike was largely a result of brisk business in real estate transactions. But that does not change the fact that it provided a much-needed tonic for public finances.

Despite these upbeat signs, the Greek economy will not enter an upswing without first passing the competitiveness test. And that will not happen unless the government’s economic policy planners push on with a wide range of drastic changes. More action is demanded of the business world too.

The country must finally focus its efforts and energy on the sectors where it has a tradition and a comparative advantage. Good intentions alone will not do. Greece needs to boost its growth prospects. The key lies in the tourism sector. In order to reverse the climate and set the economy on an upward trend, the government must introduce fixed rules and scrap a great deal of red tape.

The conservative government must also promote more structural reforms and promote changes at the regional as well as sectoral level. That is the only way to make use of the existing possibilities and unleash the country’s productive forces.