Commission mellows view of Greek fiscal shortfall in 2004

The European Commission yesterday appeared to have second thoughts on its forecast for Greece’s fiscal deficit in 2004. A spokesman for Commissioner for Monetary Affairs Pedro Solbes in Brussels said that the forecast – of a deficit of 2.4 percent of the gross domestic product (GDP), contained in the Commission’s autumn report on EU economies at the end of last month – may have been excessive. «The Commission’s autumn forecast may have overestimated to some degree the nominal deficit for 2004,» the spokesman said. Nonetheless, he urged Greece to maintain fiscal discipline. The forecast has been strongly disputed by the Greek government, which had predicted the deficit at 1.2 percent of GDP in its draft budget on October 3. It argued that the Commission’s figure was based on incomplete information and the erroneous assumption that spending would increase due to the elections early next year. Economy and Finance Minister Nikos Christodoulakis said the Commission had underestimated the effect of a higher growth rate on revenues and overestimated t he additional costs of announced social measures. Solbes followed with a warning that the widening of the public deficit was alarming but he was ready to reconsider if the Greek Finance Ministry provided additional data. The spokesman said yesterday that additional data on the Greek 2004 budget and stability program for the 2004-2006 period, provided during a visit to Athens by a Commission delegation last week, generally confirmed Brussels’s view of Greece’s fiscal performance next year but suggested that the specific deficit forecast may have been an overestimate. He said during periods of rapid economic growth, such as Greece’s in recent years, the goals of fiscal policy should be to trim structural deficits and balance budgets, adding that the Commission will further consider all such issues after the government submits its stability program, due next week. Its report on all EU economies should be expected early next year, the spokesman said. Finance Ministry officials said there was continuous consultation between the two sides and that the 2004 budget, due to be tabled in Parliament this afternoon, will clarify several aspects relating to the disputed forecast. Yesterday, after conferring with Prime Minister Costas Simitis and Bank of Greece Governor Nicholas Garganas, Christodoulakis said the 2004 budget aims to promote stability in the economy while also addressing the need for continued growth and social problems. «I believe the Greek economy is in a phase where fiscal stability should be a clear priority in order to reduce the (national) debt and contain deficits,» he said. The government is said to be anticipating that the boost to economic and investment activity as a result of the Olympic Games and EU-subsidized public projects will enable the economy to continue growing at high rates, projected at 4.2 percent next year, 4 percent in 2005 and 3.8 percent in 2006. The Commission concurs with the 2004 figure but forecasts a slowdown to 3.4 percent in 2005. According to analysts, the Organization for Economic Cooperation and Development (OECD), in a report due at the end of the month, is expected to forecast a fiscal deficit of 1.5 percent of GDP next year and 1.4 percent in 2005.

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