ECONOMY

EU Commission tells Greece to watch fiscal discipline and debt

Despite Greece’s projected high growth rates in coming years, the country’s fiscal situation displays several problems, while economic policies must be further harmonized with those of the basic aims of the European Union, the European Commission said in its report on the updated Greek Stability and Growth program for the 2003-2006 period, released in Brussels yesterday. The Commission said that the program’s projected high annual growth rates – in the order of 4 percent and relying on considerable amounts of private and public investment in preparation for the Olympic Games as well as subsidy inflows under the Third Community Support Framework – «appear optimistic» for the years after 2004. The Stability program envisages the elimination of Greece’s fiscal deficit by 2006 from an estimated 1.4 percent of gross domestic product in 2003. The Commission acknowledges that the country’s so-called structural deficit (adjusted for cyclical fluctuations in economic activity) is expected to improve but notes it is still projected to stand at 0.9 percent of GDP at the end of the period. The Commission also notes that the Stability program projects public debt to decline by more than 11 percentage points to 90.5 percent of GDP by 2006, but expresses concern that efforts toward fiscal stabilization are largely relayed to the last two years (2005, 2006). It notes as a problem the estimated 0.6 percent of GDP deficit overrun in relation to the 2003 budget target due to higher spending for investment, public sector pay and social benefits. Further, it notes public debt fell by 3 percent in 2003 – against a forecast of 5.1 percent in the previously updated program. It says an acceleration in public debt reduction is absolutely necessary due to the fiscal pressures bound to emerge from an aging population. The report acknowledges the prospect of a fiscal improvement as a result of lower interest payments and a higher primary surplus after 2004, but notes the lack of binding limits for primary expenses in the last two years. Finally, it brings attention to the need for an effective solution to the country’s social insurance problem, stressing that the fiscal challenge posed by the aging population requires a more comprehensive strategy. Despite the recent reform of the pension system, the Commission notes, it is expected to absorb a clearly higher level of resources than those in the rest of the EU. Its recommendations on the Stability and Growth program will be considered by the EU Council of Ministers on February 10. Questioned during the presentation of the report, Economic and Monetary Affairs Commissioner Pedro Solbes said Greece’s high growth rates are not justified by the projects for the Olympic Games alone. «I consider these rates to be satisfactory in themselves,» Solbes said. He added, nevertheless, that additional spending for the Olympics has negative repercussions on the public deficit and urged fiscal discipline. In Athens, Prime Minister Costas Simitis held successive meetings with labor union and employers’ representatives with discussion focusing on the negotiations for a collective labor agreement for 2004. Labor leader Christos Polyzogopoulos said the unions would press for an 8 percent rise in pay, and called on the government to boost social protection measures. The unions also want the universal introduction of a 39-hour week with a gradual course toward 35 hours. Labor Minister Dimitris Reppas said the issue was a subject for negotiations between the two sides.