Brussels report makes it easier for the government

Economic observers argue that last week’s revealing European Commission spring report on the Greek economy, which sounded a warning on the fiscal deficit, is an important weapon in the hands of Prime Minister Costas Karamanlis. They see it as giving him added authority to apply an economic policy in the fall without excessive restraints. Circles in Brussels, on the other hand, argue that the report was more designed to pressure the Greek government against relaxing its fiscal policy in 2004 than anything else; that is, that the Commission does not intend to impose on Greece a fine should it exceed the deficit limit set by the Stability and Growth Pact as 3 percent of gross domestic product, for two reasons: First, Germany and France have already exceeded the limit, and second, the Commission has seriously weakened lately, as its term expires in November and several of its members are leaving to assume national ministerial portfolios. According to the Brussels pundits, the Karamanlis government’s economic policy can only become tighter in the fall. It would be a mistake to initiate spending cuts and unpalatable reforms now with the major issues of Cyprus and the Olympic Games as higher priorities. The main problems in the Greek economy, according to the Commission’s report, are high spending absorbed by an extensive public sector and competitiveness. This means that in today’s European and globalized environment the Greek economy is set to start losing ground if it does not adopt significant political decisions and reforms. The Commission forecasts that the growth rate will fall from 4 percent this year to 3.3 percent in 2005. This means a deterioration in terms of incomes, profitability, investment and consumption, which, in turn, will reflect adversely on tax revenues, posing a challenge to the government’s ability to reduce taxes, as promised before the election.

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