A European Central Bank (ECB) team of inspectors is currently visiting the Bank of Greece, trying to establish the real picture of the Greek economy. According to reports, they are trying to sort out the odd combination of high GDP increase rates, amounting to about 4 percent annually, and high deficits, which remained largely hidden until recently. Another contradiction which has not been addressed satisfactorily refers to the relatively low budget deficits reported, followed by disproportionally high increases in public debt. In both cases, if one held true, the other should not be. Yet, in the case of Greece, reported developments seem to challenge all accepted axioms of economic theory. The ECB is deeply concerned about the state of public finances on a pan-European level, since imbalances create many questions about its current monetary policy. The latter has been one of the major elements in European integration but is now being openly challenged by large European countries. Circumstances in many eurozone member countries, mainly in Germany, France and Italy, are considered unfavorable for the implementation of the common monetary policy and the development of interest rates. Most eurozone member countries are facing large deficits, which they have either projected openly or they have tried to conceal, as was the case with Greece until recently. Of course, this small country’s deception will not affect the common monetary policy even at a minimum. Yet, the same cannot be claimed about the deficits of other, larger member countries, which are constantly rising while economic expansion has yet to materialize. Greece’s new government has said it is determined to clear the picture of the country’s public finances. In spite of the recent additional loans of 6 billion euros, which the government obtained under rather opaque procedures, it seems that the Karamanlis government is determined to end the financial chaos left by its predecessor. The change, from being touted as a «strong economy» to an economy of deficits, has led to many questions, especially from abroad, and from people who believed the PASOK government’s official declarations. Economy and Finance Minister Giorgos Alogoskoufis will participate next week in the meeting of his European Union counterparts. Alogoskoufis is well aware that Greece, like the other countries violating the Stability and Development Pact’s fiscal rules, will be subject to the envisaged procedures for excessive deficits. He also knows that he will be instructed to decrease public deficit by a rate of 1 percent of GDP in 2004-2005 in order to become compatible with levels demanded by the Maastricht Treaty. The same challenge, to limit public deficits to 3 percent or lower as a ratio to gross domestic product, is being faced today in several eurozone countries through a number of startling measures, including the sale of public land in Portugal and the setting up of new, public companies in Austria, where the public sector sells and buys back itself. Greece is hoping that the overall, blurry situation in the eurozone will allow for its own recovery at the least possible cost. This is expected to be mirrored by the 2005 budget, which will also work as the first, clear sign of the economic policy direction by the new Greek government.