ECONOMY

Simitis to promise big rise in living standards by 2008

The Real Convergence Charter (2004-2008), which Prime Minister Costas Simitis will present tomorrow at the Zappeion Hall, will contain forecasts of a dramatic improvement in Greeks’ living standards. According to government sources, the Charter forecasts a rise in Greece’s per capita gross domestic product (GDP) from the current 69.8 percent of the European Union average to 80 percent in 2008. This will translate into annual real wage rises of 1.5 to 2 percent, a reduction in the unemployment rate, an increase in productivity and a boost in competitiveness. The charter has been the result of several months of work by Economy and Finance Minister Nikos Christodoulakis and ministry officials. Targets Among the targets mentioned in the charter, the most significant are the following: First, the budget will be balanced by 2005 and show surpluses from 2007 on. Greece had claimed a budget surplus before, in 2001, but a thoroughgoing investigation by Eurostat, the European Union’s statistics agency, forced Greece to include several financial transactions in the budget and turned the surplus into a deficit. Second, public debt will drop from 105.5 percent of GDP at the end of 2002 to 90 percent in 2007 and 70 percent in 2010. Third, the unemployment rate will fall from 9.9 percent of the work force at the end of 2002 to 6.5 percent at the end of 2008. Fourth, welfare spending will increase from 27 percent of GDP currently to 30 percent in 2010. Fifth, gross salary will increase from the current 80 percent of the average European salary to 88 or 90 percent in 2008. Through the Charter, Simitis is expected to say, Greece will achieve real convergence – per capita GDP equal to the EU average – by 2015. Until recently, Christodoulakis’s predecessor, Yiannos Papantoniou, claimed the convergence would take place in 2010. Bank of Greece governor Nicholas Garganas, far more pessimistic, or realistic, has forecast convergence to take place around 2030. The government has based its forecasts on two assumptions: continued, even accelerated, high economic growth, and a big drop in the amounts paid on interest on the country’s debt. The government forecasts that GDP will grow by an average 4.5 to 5 percent each year in the period 2004-2008. But there are factors that cause concern, of which the first is the end of the EU’s Third Community Support Framework (CSFIII) program (in 2006) aiding infrastructure projects and the near-certainty that CSFIV – if it gets off the ground at all – will be far smaller, due to the entry of seven far poorer nations than Greece in 2004 and the prospective entry of even poorer Bulgaria and Romania. The end of the Olympic Games is another factor that will affect the GDP negatively; in the best-case scenario, the Olympics will benefit the country in the medium and long term. In the short term, however, excessive spending on their preparation will increase public debt. As for the reduction in interest payments on the debt, in the 1994 budget, payment on interest accounted for 39 percent of state revenue; in 2002, it had fallen to 30 percent of revenue, a small drop considering that the government was borrowing at 18 percent interest in 1994 and only 3 percent in 2002.