Commission set to warn Greece over excessive budget deficit

Brussels – Greece faces the prospect of entering the select but hardly glamorous club of Stability and Growth Pact violators. According to the European Commission’s annual General Economic Guidelines report, due to be published on Wednesday, the 2003 budget deficit nearly exceeded the 3 percent of GDP limit imposed by the pact and, if no emergency measures are taken, the 3 percent limit may be breached by the 2004 budget. Thus, the Commission warns, the government should be prepared to intervene at any point throughout the rest of the year if there is any indication that the budget deficit will exceed 3 percent of GDP. «Data for 2003 shows that the general government deficits stood at only slightly below 3 percent of GDP, a development that represents a significant widening of the deficit compared to 2002,» the Commission report says, adding that «there is a clear danger of exceeding the 3 percent limit in 2004, with the result that Greece gets further away from the target of (achieving a) balanced budget or a surplus.» The treatment for this condition has been repeated ad nauseum but never fully and consistently followed: The Commission calls on Greece «to ensure effective control over primary public spending.» In the short term, this can be achieved through «dealing decisively with inelastic primary spending.» To avoid any misunderstanding, the Commission explains that this refers to wage costs in the public sector. Thus, «until a medium-term balance or surplus is achieved, (the goal is) to improve the cyclically adjusted deficit by at least 0.5 percent of the GDP each year.» Given the critical situation, however, the government should «be ready to take additional measures in order to avoid exceeding the target deficit» of 3 percent of GDP during 2004. The Commission’s report will not just warn Greece on the deficits. It is also expected to raise, once again but with more urgency, the need for further reform of the social security and pensions system, which, despite the 2002 reform, still faces bankruptcy and collapse which would be fatal to the Greek economy. The report notes that »one of the challenges Greece faces is to ensure the long-term viability of public finances against a background of an aging population, especially in view of the high public debt.» The public debt is an enduring scourge of the economy, as it still exceeds 100 percent of GDP, far from the 60 percent reference rate of the Stability and Growth Pact. On top of these warnings, the Commission report will repeat the Commission’s regular admonitions about low productivity, the result of an education and training system that fails to prepare people for the market, the lack of adequate investment in technology and, above all, the state bureaucracy which stifles entrepreneurship and competitiveness. After last year’s Franco-German coup, whereby the two most important countries of the eurozone bullied the others into not imposing fines for excessive budget deficits, the Stability and Growth Pact, which underpins the euro, is no longer a pact. Besides, it has ensured neither stability nor, certainly, growth. However, its rules still apply to everyone else and the Commission is still obliged to apply its provisions, including the sanctions mechanism. Thus, Greece is in danger of falling under the Commission’s custody if the deficit exceeds 3 percent of GDP this year.

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