ECONOMY

Final 2003 budget deficit may climb to 2.7 pct of GDP

Economy and Finance Minister Giorgos Alogoskoufis will receive, in the coming days, two reports, one by ministry officials and one from the General Accounting Office, informing him of the state of public finances. Somewhat later, Alogoskoufis will receive the interim report on monetary policy by the Bank of Greece. He will be informed of its content today by Bank of Greece Governor Nicholas Garganas. It appears that the 2003 budget will finally show a deficit too close to the 3 percent limit prescribed by the European Union’s Stability and Growth Pact. Initially, the government had aimed for a budget deficit equal to 0.5 percent of the country’s gross domestic product (GDP). The latest estimate by the former economy and finance minister, Nikos Christodoulakis, was that the deficit would equal 1.4 percent of GDP, but sources within the ministry said it might be as high as 1.7 percent. According to sources, the final deficit could reach 2.7 percent of GDP. Admitting a far higher budget deficit than initially estimated will place Greece under the close scrutiny of the EU Commission and Eurostat, whose representatives arrive today. Thankfully, the recent situation in the eurozone, where France and Germany have all but ignored the Commission’s warnings about excessive deficits, will allow Greece to get away with a fairly long extension (probably four years, to 2010) to achieve a balanced budget. What Greece would like to avoid, but may not, is a significant upward revision of its debt level, which would place many restrictions on economic policy. The present government, however, appears determined not to hide any hidden debts. To those that invoke Portugal as a counterexample, officials close to the government reply that Portugal’s current recession was not due to the higher deficits discovered after the Socialists left the government but to the great indebtedness of Portuguese households and their inability to pay back loans or to take out new ones. In any case, the higher 2003 budget deficit will make for an unstable 2004, with the deficit threatening to run even higher after the final costs of the Olympic Games are counted. According to sources, Alogoskoufis asked for a detailed report on all ministerial decisions made during the past two months. He also made it clear he wants to reduce membership in the advisory Council of Economic Experts from seven to three. He will retain current Chairman Vassilis Rapanos for at least another month so that he can help with next month’s unofficial council of EU finance ministers (Ecofin).