ECONOMY

EU once again probing public finances for hidden expenditure

Eurostat, the European Union’s statistics agency, yesterday began yet another investigation into Greece’s public finances, raising the prospect of another upward revision of the country’s deficit and debt. Two years ago, Eurostat had obliged Greece, and five other member states, to include financial transactions such as the floating of share-convertible bonds in the budget as expenditures. As a result, Greece’s supposedly surplus budgets for 2001 and 2002 plunged back into deficit, and the general debt, thought to be about 98 percent of the country’s gross domestic product in 2002, rose to nearly 106 percent. Eurostat officials began yesterday to investigate public financial data at the General Accounting Office. According to sources, they are interested mainly in the way defense spending items are being registered in the budget. Another item of interest to the Eurostat is the so-called «white hole» created by the earnings of public utilities, social security funds and local authorities, and which finds its way into the budget, as well as the 338 so-called «special accounts» of various securities, which function in the opposite way – that is, they help hide expenses. The «white hole» in the 2004 budget is 6.3 billion euros, up from 5.7 billion in both 2002 and 2003. The Economy and Finance Ministry claims that expenditures involved in defense procurement agreements ought not to find their way into the budget immediately because the agreements usually involve future provisions of equipment which may last over a number of years. Eurostat, on the other hand, suspects that the government has used the argument as an excuse to postpone stating the expenditure and amortize it over a number of years. Thus, the actual deficit, and debt, level is understated. On the one hand, the government worries that an upward revision of the deficit for 2003, which it has admitted reaches 2.95 percent of GDP, would breach the 3 percent limit imposed by the European Union’s Stability and Growth Pact. Given that the European Commission has already predicted that this year’s deficit will exceed 3 percent, due to special circumstances – spending on the Athens Olympics – the Commission could, if it finds excess deficit over more than one year, impose spending cuts on the government. On the other hand, the newly elected conservatives would like the opportunity to blame the previous Socialist government for the situation, accusing it of using accounting tricks to hide the real state of the economy. This would also help the present government to avoid making good on its extravagant pre-election promises, although several ministers have recently pledged to honor all of them. Another threat to public finances is the accumulation of debt by public hospitals. Since May 2001, when the Socialist government settled a debt of close to 1.2 billion euros through borrowing, about 2 billion in further debt has accumulated. Sources within the present government accuse the previous government of intentionally underrepresenting hospital expenses in the state budget. Yesterday, Economy and Finance Minister Giorgos Alogoskoufis, Health Minister Nikitas Kaklamanis and Labor Minister Panos Panayiotopoulos discussed the debt and agreed that it will be covered through borrowing. The matter will also be taken up at today’s Inner Cabinet meeting, presided over by Prime Minister Costas Karamanlis. Alogoskoufis said the debt is growing by about 200 million euros per quarter. Opposition sources said they feared that the government could use the issue to increase public hospitals’ charges for social security fund members.