EU endorses ‘ambitious’ Greek economic forecasts, with caveats

Greece’s updated macroeconomic forecasts, mandatory under the European Union’s Stability and Growth Pact, will be approved by the European Commission today. Once again, this approval will be accompanied by a number of remarks, chief of which is that Greece’s targets are «ambitious,» a nicer way of saying «barely believable.» The government forecasts, on annual gross domestic product (GDP) growth, budget deficit, or surplus, as a percentage of GDP, total debt, again as a percentage of GDP, and the annual inflation rate, covering the period from 2002 to 2006. GDP growth, expected at 3.8 percent this year – the highest among advanced economies, globally, not just in the EU – is expected to stay the same in 2003, rise slightly to 4 percent in 2004 and decline slightly in 2005 and 2006, to 3.7 and 3.6 percent, respectively. Last year’s budget deficit is estimated at 1.1 percent of GDP. Initially a 0.8 percent surplus, it was revised after Eurostat, the EU’s statistics agency, obliged Greece to include certain financial operations into its budget and its total debt. The revision process may not have finished as Eurostat is looking into Greece’s defense expenditures for signs of creative accounting. If there are no further revisions, and the government forecasts hold, the budget deficit will decrease to 0.9 percent of GDP in 2003 and 0.4 percent in 2004. A modest 0.2 percent surplus, the first in almost four decades, will be achieved in 2005, rising to 0.6 percent of GDP in 2006. Greece’s total debt at the end of 2002 is estimated at 105.3 percent of GDP, the third largest in the EU after Italy and Belgium. It is forecast to fall to 100.2 percent of GDP in 2003, 96.1 percent in 2004, 92.1 percent in 2005, and 87.9 percent in 2006. The Commission wants Greece and other heavily indebted countries to reduce their debt to below 60 percent of GDP as fast as possible. It is expected to place an even greater emphasis on this in the future, imposing heavy fines on wayward members. Finally, the average annual inflation rate – measured by the European Central Bank’s Harmonized Index of Consumer Prices – is expected to remain unchanged in 2003 from 2002 levels (3.9 percent), and decline slightly thereafter – to 3.2 percent in 2004, 3 percent in 2005 and 2.9 percent in 2006. All these figures will be well above the eurozone average, which is expected to dip below 2 percent next year. The Commission will devote a great deal of its remarks to the pressing need for a more radical reform of the heavily indebted social security system. A reform bill, passed this year, fell short of initial drafts which appeared in 2001 and were staunchly opposed by unions and opposition parties, left and right. A recent report by Social Affairs Commissioner Anna Diamantopoulou, a former junior minister under PM Costas Simitis, has made it clear that the recent reforms do not provide a long-term solution for funding a system also burdened by a rapidly aging population. The Commission is expected to demand a second reform package. On the issue of debt, the Commission will repeat its position that it is crucial to reduce it in real terms and not just through faster GDP growth. The Commission considers that maintaining fast growth after 2004, the year of the Athens Olympics, is one of the Greek government’s most ambitious goals.

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