EU report out on Monday

Alogoskoufis confident that Greek economy will do even better than forecast

CONSTANTINOS KALLERGIS

The European Commission forecasts that Greece will manage to bring down its public deficit to the prescribed ceiling of 3 percent of gross domestic product (GDP) this year but warns that this will again rise to 3.6 percent in 2007 if proper attention is not paid to reining in expenses and bolstering revenues, Economy and Finance Minister Giorgos Alogoskoufis said in Brussels yesterday.

The forecast is contained in the Commission’s spring report on the economies of the 12 members of the eurozone, which is to be released on Monday.

Alogoskoufis explained that the unfavorable prediction for 2007 is due to the method of calculation employed by the Commission, which sees that the measures adopted in this year’s Greek budget are one-off and assumes they will not be repeated in 2007.

“When the 2007 budget is presented, the falling trend in the deficit will become clear,” he told reporters.

The government has forecast that the public deficit will fall from 4.5 percent of GDP in 2005 to 2.6 percent this year and 2.3 percent in 2007.

The Commission’s report does acknowledge that its prediction for 2007 is based on a “no change” scenario of economic policy which cannot take into account any new provisions in the coming budget. These will be taken into account in the autumn report — after the presentation of the new budget.

Late on Thursday, Economic and Monetary Affairs Commissioner Joaquin Almunia stated the Greek government’s efforts to contain the deficit were “very satisfactory” in 2005 and remained “in the right direction.”

He said they should be continued into 2007 for fiscal rehabilitation to be attained.

However, developments on the deficit will also depend on the growth rate of GDP, as they tend to vary in inverse proportions — the higher the growth rate, the greater the revenue collection and the lower the deficit.

According to sources, the Commission’s report projects growth at around 3.5 percent this year and 3.4 percent in 2007. In contrast, the government foresees 3.8 percent for both 2006 and 2007. Which of the two scenarios is actually realized will obviously affect the size of the deficit.

It may be noted that the Commission has proved too pessimistic in its forecasts over the years as regards the growth rate.