ECONOMY

Deficit at 3.2 pct — for now

The seemingly ever-adjustable 2003 budget deficit has reached 3.2 percent of Greece’s gross domestic product (GDP), Eurostat, the European Union’s statistics agency announced yesterday. This figure, Eurostat said, is temporary and subject to revision. This is what the newly elected conservative government has said as well. Since its election, it has been conducting a fiscal audit which it expects to have finished by September. Two major items remaining to be examined as part of this audit are defense expenditures and the state of social security fund finances. The previous Socialist government amortized defense spending over several years, arguing that it was not realistic to write down spending immediately on items that begin to be delivered years after they are ordered. Since the new government has decided to opt for the precedent of the Portuguese center-right government and offer «maximum disclosure» of state finances, hoping to create maximum embarrassment for its predecessor, it is likely that defense expenditure will be re-allocated so as to increase the 2003 deficit even more. This would also shift away expenditure items from future budgets, and will worsen still further the country’s public debt. The latter now stands at 103 percent of GDP at the end of 2003, instead of 102.4 percent, as a result of the new liabilities discovered and the downward revision of GDP growth in 2003. The previous government had said public debt would drop to 101.7 percent of GDP in 2003 and forecast it would drop to 98.5 percent for 2004. The previous government had initially forecast that the 2003 budget deficit would be equal to 1.2 percent of GDP, while the European Commission had suggested that it would be closer to 2.4 percent. The government then revised the figure upward to 1.4 percent and, then, to 1.7 percent of GDP, but only after former Economy and Finance Minister Nikos Christodoulakis had passed a law allowing him to transfer VAT receipts from the first two months of 2004 onto the 2003 budget. New Economy and Finance Minister Giorgos Alogoskoufis, faced with escalating costs of Olympics-related projects and a disastrous decline in revenues, partly prompted by the incoming government’s pre-election rhetoric of «harassment» of enterprises by «partisan» ministry inspectors, rescinded Christodoulakis’s act because he would rather burden the previous budget than compromise the 2004 one, which is, in any case, likely to end with a deficit in excess of 3 percent, as well. When the fiscal audit is over, the European Commission will issue Greece with a warning about its excessive deficits and – as Greece is neither France or Germany to tell the Commission to mind its own business – is likely to impose a deficit reduction schedule for the next few years that will certainly entail spending cuts. The General Confederation of Greek Labor (GSEE) reacted strongly yesterday to the prospect of an austerity policy. «If the government is preparing a new period of limitations, austerity and excessive taxation of the workers and pensioners, it will find us fighting on the opposite side,» GSEE said in a statement released yesterday. «The EU cannot serve as an alibi for anti-labor policies.» Alogoskoufis, speaking yesterday at the Economist conference being held in Athens, denied that the fiscal audit was any excuse for the government not to fulfill its pre-election engagements. Prime Minister Costas Karamanlis, speaking at the same conference on Wednesday, said the money to fulfill his party’s pledges would be found from savings and higher growth. «We cannot build on shifting sand. The Greek economy has a lot of potential but also many problems that cannot continue to be hidden. Always, there comes a moment of truth,» Alogoskoufis told the conference in defense of the fiscal audit.