Budget deficit under the microscope

European Commission officials expected to visit Athens in coming days to meet with Papathanassiou

European Commission officials are expected to visit Athens in the coming days to look over measures aimed at helping to provide Greece with some fiscal solutions, as last year’s budget deficit heads for well above the 3 percent mark.

Sources said officials from Brussels have already asked to meet with Yiannis Papathanassiou, who will be sworn in as national economy and finance minister today, as they consider activating the European Union’s excessive deficit procedure against Greece.

The country’s 2008 budget deficit is likely to hit 3.5 percent of gross domestic product (GDP), overshooting the targeted 2.5 percent figure, and exceeding the EU-imposed 3 percent limit.

Budget revenues are seen as missing the mark in 2008 as the slowing economy has resulted in less taxes being collected than expected.

The deficit overrun may prompt the launch the excessive deficit procedure as this will be the second straight year that Greece has broken EU budget rules. In 2007, the budget deficit reached 3.5 percent of GDP.

A decision as to whether the country will be supervised or will face tougher measures will be announced in the Commission’s spring forecast, expected to be made public in April, a source said.

Meanwhile, Greece will be required to submit its updated Stability and Growth Pact (SGP) targets by January 15.

Greece’s Finance Ministry is likely to ask for an extension to the deadline – until the end of the month – due to the change in the relevant minister, giving Papathanassiou more time to put the final touches to the report.

The SGP is believed to include three economic scenarios, offering alternatives to the government’s optimistic budget forecasts in an attempt to measure the impact of the international crisis on the real economy.

The first scenario will be the most optimistic, based on an economic growth rate of 2.7 percent for 2009, while the other two will include less favorable outlooks.