ECONOMY

Greece fights to minimize changes in Stability Pact

Among the most important tasks that Greece’s six-month presidency of the European Union must manage is the revision of the Stability and Growth Pact. The topic will dominate the agenda of today’s meeting between Economy and Finance Minister Nikos Christodoulakis and European Commissioner for Economic and Monetary Affairs Pedro Solbes. The two exchanged views on the subject on a flight from Frankfurt to Athens yesterday evening. Solbes began promoting the revision of the Stability and Growth Pact in September 2002, under pressure from Germany and France, which were forecasting budget deficits above the limit – 3 percent of a country’s gross domestic product – prescribed by the Pact. The Pact was also undermined by Commission President Romano Prodi, who called it «stupid» in an interview to French daily Le Monde. Greece was one of the countries immediately, and determinedly, opposed to any revision of the Pact, especially in light of the fact that any revision would place greater stress on the overall debt level, and not in annual budget deficits. This was because, even after revision of its public account statements imposed by Eurostat, the EU’s statistics agency, Greece is running a small budget deficit, well within Stability Pact guidelines. On the other hand, its debt, revised from 100 percent to 107.3 percent of GDP for the year 2001, is the third largest in the EU, behind Italy and Belgium. Moreover, the new guidelines, as revealed by Solbes, would ask for a faster reduction of debt, something that Greece would find difficult to achieve without cutting real expenditure, something it has been unwilling to do. With national elections looming by May 2004, at the latest, it is unlikely the government would start cutting real expenditure any time soon, relying instead on fast economic growth and added revenue to reduce the debt as a percentage of GDP now that Eurostat effectively prevents it from engaging in the sort of financial transactions denounced by opponents as «creative accounting.» So far, nothing has been leaked about Stability Pact discussions. A first open debate of member states’ proposals will take place at an interim EU summit, in Brussels this March. Being the presiding country, by tradition a consensus-building role, Greece cannot directly oppose the Franco-German proposals. This opposition, in any case, would expose it to charges over fiscal policy. What Greece can do is make minor concessions and encourage other heavily indebted countries, especially Italy, to speak up so as to gain concessions from the other side. Otherwise, the heavy debtors would face very heavy fines if they fail to reduce debt level significantly in coming years. Greece’s fiscal woes are not helped by the fact that managers of public utilities consistently disregard government guidelines to keep wage raises very tight.