Greek economy taken to task

European Commission to revise deficit figures upward, blame military, social spending

By Constantine Kallergis - Kathimerini

BRUSSELS - The European Commission will today release a report on the Greek economy that will highlight the fallout caused by the way the previous government handled the economy. This is the first step in the process of placing Greece under supervision for an excessive deficit.

Earlier this month it was announced officially that Greece's deficit in 2003 came to at least 3.2 percent of GDP, exceeding the Stability Pact limit of 3 percent. The Commission blames this on the derailment of the 2003 budget, which confirmed the general relaxation of fiscal policy after the end of 1999. This loosening of the reins was covered by the short-lived but effective method of «creative accounting.» By mid-2003 already, Brussels had begun to voice suspicions, setting in motion a series of upward revisions of the budget deficit which are not expected to stop at the current 3.2 percent. «Current figures lead to the conclusion that state spending and therefore the budget deficit will have to be revised upward significantly,» the Commission's report today will say.

The reasons for concern are well known: excessive spending for the Olympic Games preparations, excessive spending on the largely pre-electoral «social package» offered by PASOK which is estimated to reach 1.4 percent of GDP in 2003-2004, compensation to farmers for crops damaged by bad weather and a reduction in tax revenues.

Eurostat's spotlight is focusing on three main areas: military spending, the surplus that social security funds are purported to have, and income from structural funds, where Athens declared income from the Third Community Support Framework that was greater than the money paid out by the Commission.

The case of military spending is an example of the situation. The Commission says that on the basis of international practice, military procurements are set down as a state expense the moment the materiel is delivered. But Greece's National Statistics Service (NSS), with the excuse that the delivery of arms is a military secret, made the expenses disappear. Now the NSS has promised to wrench the accurate figures from the Defense Ministry and provide accurate figures by June. If it does not succeed, it will present a ballpark estimate on the basis of payments that have been made.

In any case, all of these figures will have been cleared up by September and then we will know the true magnitude of Greece's deficit. But the EU procedure pertaining to excessive deficits will not wait. Today's report will now be sent to the Economic and Fiscal Committee (which is made up of national representatives) and then the Commission will send the report to the ECOFIN on July 5, enriched with the warning that the Greek government must take whatever measures it sees fit in order to bring the deficit below 3 percent of GDP by the end of 2005 at the latest.

National Economy and Finance Minister Giorgos Alogoskoufis yesterday pledged that this would be difficult because of Olympic spending but would be achieved next year.