ECONOMY

Brussels urges more effort to cut debt, curb spending

The European Commission yesterday called on Greece to take action to reduce its high public debt and curb spending before adverse demographics put pressure on the budget. «There is the risk of unsustainable public finances emerging in about half of EU member states, especially Belgium, Germany, Greece, Spain, France, Italy, Austria and Portugal,» the Commission said in its Public Finance Report 2003. The report came as EU countries struggle to reform their pension systems before they become unsustainable as a result of an aging population. Widespread protests in France and Austria last week underlined the tough battle ahead for governments. Greece last year overhauled its debt-burdened, pay-as-you-go pension system, key of which was a 9.6-billion-euro refinancing plan by the government. Critics said the changes failed to address the adverse demographic problem which could cut the ratio of working people to pensioners to 1.1 by 2050 from the current 2.1. A Citigroup report on the global retirement issue suggested that Greece’s public pension spending could rise an additional 19 percent of GDP by 2050, with total public pension and health spending reaching a staggering 44 percent of GDP. Economic and Financial Affairs Commissioner Pedro Solbes warned of the limited time available for EU countries to tackle their budgetary imbalances before the region’s aging population strains national budgets. «There is only a limited window of opportunity for countries to get their public finances in order before the budgetary impact of aging takes hold as of 2010,» he said. Greece’s budgetary problem has as much to do with the slow pace of debt reduction as with its overspending, the Commission said. It questioned Greece’s goal of a 2.5 percent increase in government final consumption expenditure this year, a third of the 6.7 percent increase recorded in 2002. Not only is the target «rather optimistic,» but «the uncertainty characterizing some categories of expenditures, mainly wages, may result in overshooting the projected primary expenditures,» the EU executive body said. It said revision of budgetary data last year after discussions with Eurostat underscored the need for «further and more decisive consolidation of Greek public finances.» The reclassification of capital injection and securitization operations jacked up the general government deficit to 1.2 percent of GDP against an initial estimate of 0.1 percent of national output. Public debt also rose to 104.9 percent of national output. «Additional measures are, therefore, required to limit current spending and bring down the debt ratio at a faster pace in view of the expected budgetary costs from an aging population,» the Commission concluded.