ECONOMY

New emphasis on public debt will put Greece in the spotlight

The decision by the European Commission to propose a more rigid application of the Stability and Growth Pact, regarding the level of public debt, especially in times of fast economic growth, creates obvious dangers for Greece. The European Commission has been preparing, as it announced quite some time ago, a «package of proposals» for the European Union’s «economic government.» The proposals will be based on the assumption that the fiscal targets set by the Stability and Growth Pact must be harmonized with the demands of the so-called «Lisbon strategy.» Agreed upon in March 2000, the «Lisbon strategy» called for the EU to become the world’s most competitive and technologically advanced region by 2010. Since then, the EU has been mired in slow growth and the goal appears unattainable. Having got a black eye from France and Germany – both of which have flaunted the Stability and Growth Pact’s rules on budget deficits with impunity – and facing calls to abandon the strict adherence to the deficit targets in times of slow growth, the Commission is shifting its priority to public debt. The pact sets the acceptable level of public debt at 60 percent of a member-state’s gross domestic product (GDP), but calls on those who exceed it to move in the right direction. Greece, with a public debt now second only to Italy’s, and still over 100 percent of its GDP, is a prime target for punishment. It does not have the excuse of slow growth, even if its high growth is contingent on EU inflows and preparations for the Olympics. At over 4 percent annually, it has the fastest growth in the EU – which is why budget deficits also count. Last month it was announced officially that Greece’s budget deficit in 2003 came to at least 3.2 percent of GDP, exceeding the Stability Pact limit of 3 percent. The Commission blames this on the derailment of the 2003 budget, which confirmed the general relaxation of fiscal policy after the end of 1999. This loosening of the reins was covered by a short-lived but effective method of «creative accounting.» Already by mid-2003, Brussels had begun to voice suspicions, setting in motion a series of upward revisions of the budget deficit which are not expected to stop at the current 3.2 percent. «Current figures lead to the conclusion that state spending and, therefore, the budget deficit will have to be revised upward significantly,» the Commission’s May 15 report said. Eurostat, the EU’s statistics service, is focusing on three main areas: military spending, the surplus that social security funds are purported to have, and income from structural funds – where Athens declared income from the Third Community Support Framework that was greater than the money paid out by the Commission. The case of military spending is an example of the poor situation. The Commission said that on the basis of international practice, military procurements are set down as a state expenses the moment the material is delivered. But Greece’s National Statistics Service (NSS), with the excuse that the delivery of arms is a military secret, made the expenses disappear. Now the NSS has promised to wrench the accurate figures from the Defense Ministry and provide accurate figures by the end of this month. If it does not succeed, it will present an estimate on the basis of payments that have been made.