ECONOMY

Greece put on the spot by EU focus on debt

The European Commission will today unveil proposals modifying the goals of the Stability and Growth Pact and giving more emphasis to the overall debt level than to budget deficits. The development is the exact opposite of what Greece had wanted. Economy and Finance Minister Nikos Christodoulakis, who is presiding over the eurozone finance ministers’ meetings because Denmark, the current holder of the EU’s rotating six-month presidency, has not adopted the euro, has been the main defender of the Stability and Growth Pact remaining as is. The Commission revision – euphemistically called «budget policy coordination proposals» – became necessary after influential EU members, such as Germany and France, bluntly said they would not follow the guidelines obliging members to keep budget deficits below 3 percent of their countries’ gross national product (GDP) and imposing fines. While such a procedure was possible with Portugal, whose 2001 deficit exceeded 4 percent of GDP, the rebellion of the big states against the rule posed a threat to the whole pact. The new proposal, to be unveiled today by Finance Commissioner Pedro Solbes, will not abolish sanctions for high budget deficits but will shift the emphasis to high total debt levels. It will also provide a carrot in the form of allowing countries with very low debt levels, such as the UK and Ireland, to post excessive deficits in order to fund investment projects that will boost employment. This new tactic is also in accord with the views of Commission President Romano Prodi, who, in an interview with newspaper Le Monde, had called the Stability Pact «stupid» because of its rigidity. The Stability Pact’s stated goal is for all EU members to reduce their debt level below 60 percent of GDP. At present, three countries – Greece, Italy and Belgium – have debt levels exceeding 100 percent of GDP and will be the first to draw the Commission’s attention. Greece’s total debt, initially expected to be about 96 percent of GDP in 2002, has been revised upward to 105.2 percent by Eurostat, the EU’s statistics agency, after it decided that several capital transfer operations, such as issuing of securities against future receipts, had to be included in the calculation of the debt. Greece’s 2003 budget aims at reducing overall debt to 100.2 percent by the end of next year.