Defense budget, state investment to be trimmed

Government to save over 1 billion euros

Spending on the government’s costly defense program and state investment scheme will be trimmed next year as the Finance Ministry scrambles for ways to fulfill its promise to the EU and rein in the budget deficit to below 3 percent in 2006, an election year for local municipalities, sources told Sunday’s Kathimerini.

The government’s budget woes got worse recently after doubts appeared as to whether Greece will be given the green light by Brussels to securitize 1.5 billion euros of existing tax debts.

Sources told Kathimerini that the Finance Ministry now intends to offset the potential drop in revenues by cutting defense spending in 2006 by about 500 million euros to 1.1 billion euros.

Greece has one of the largest defense budgets in the world as a percentage of gross domestic product (GDP).

In the last decade, the country is estimated to have handed over 25 billion euros for its arms programs, although critics say that the money has not been well spent and that poor strategic spending has left gaping holes in the nation’s defense network.

An incident in 1996 that nearly brought Greece and Turkey to war over the Imia islets has helped keep weapons spending high.

The 2006 budget draft, which has already been sent to Brussels for review, includes securitized revenues but the amount may have to be crossed out as EU Monetary Commissioner Joaquin Almunia has indicated that such one-off measures are not allowed.

Finance Minister Giorgos Alogoskoufis is expected to meet with Almunia in Brussels tomorrow on the issue.

The conservative government is determined to avoid imposing any new taxes next year as the country will be called to the polls to elect local prefectures.

After having already upped value-added tax by 1 percent to 19 percent earlier this year, state officials are now resorting to spending cuts.

Sources said the Finance Ministry also intends to trim spending on infrastructure through the Public Investment Program in 2006 to just over 8 billion euros from an originally intended 8.7 billion euros.

The cut is a concern and could weigh on growth given that the public investment program fuels GDP expansion rates.

After running a government deficit well over the 3 percent limit allowed by the EU since 2001, Greece must either abide by the rules or face stiff penalties.

State officials fear that if the government fails to adhere to EU budget guidelines then Brussels will choose to make an example of Greece for other member states and come down harshly on the country.