Greece became the first EU country yesterday to have its economy officially placed under supervision after finance ministers in Brussels agreed to give the government until the end of 2006 to lower its deficit to within eurozone limits.

In granting Greece an extra year to cut its deficit, the European Council of Finance Ministers (Ecofin) said it acknowledged that «the budgetary adjustment necessary to correct fully the situation in 2005 may prove economically costly.»

Economy and Finance Minister Giorgos Alogoskoufis declared himself satisfied with the decision and confident that the government could achieve its target. Having until next year to lower the deficit would help the government's policy of mild economic adjustment, he added.

Greece has not been asked to adopt any extra deficit-cutting measures apart from the ones laid out in its 2005 budget, which Ecofin asked the government yesterday to implement «with rigor.» The government, however, will have to submit biannual progress reports to the EU, starting this October, and could face financial penalties if it is found to be doing too little to reduce the public deficit below 3 percent of GDP.

How successful the government is in achieving its target will depend substantially on the final deficit figure for 2004 and the growth rate for 2005. The European Commission estimates that Greece's 2004 deficit may top 5.5 percent of GDP, while the government has unofficially admitted that it may be above 6 percent. The revised figure will have to be submitted to the EU by March 1.

As for the growth rate, the Commission has expressed fears that it will be below 3.3 percent of GDP for 2005 whereas the government has predicted a figure of 3.9 percent.