Alpha Bank takes a milder view of Greek fiscal shortcomings than S&P

Alpha Bank analysts said yesterday rating agency Standard and Poor’s report on the Greek economy, released on Tuesday, which suggested the government should take urgent action to correct its fiscal imbalances that were largely made worse by Olympic spending overruns, was unduly strict. The bank’s analysis department said in a statement that spending under the Public Investment Program may continue to rise steadily in the coming years in order to complete projects funded through the European Union-subsidized Third Community Support Framework (CSFIII) investment program. In contrast to projects developed for the Olympics, infrastructure developed under the CSF program is co-funded by the European Union, which means that government spending increases will be matched by other EU inflows into the Public Investment Program, the analysts argue. It is thus expected that the economy will continue on the path of growth, enhanced by public spending increases, with deficits being reduced at the same time due to the increased aggregate subsidies provided by the European Union. A characteristic example of the possibilities available to Greece, which have not been tapped to date, is that while the country could have received 25 billion euros under CSFIII by the end of 2004, the inflows by the end of the year will total less than 8.5 billion euros. The remaining 16.5 billion euros will have to be absorbed between 2005 and 2008, that is an average of 4.1 billion euros on an annual basis – far more than the 2.8 billion of proceeds secured in 2001, the 2.6 billion that came in during 2002, the 1.19 billion for 2003 and the approximately 3.3 billion euros projected to be received during the current year. Improved export outlook Alpha Bank analysts also project that the conclusion of the large majority of infrastructure projects undertaken in Greece under the vast investment program of the period between 1995 and 2004, along with the promotion of the country through the Olympic Games and the expected recovery of the European economy, will bolster exports of Greek goods and services – mainly tourism – and the substitution of imports, leading to a marked improvement in the impact of the external balance on the growth of the Greek economy. «With elections over, the expected rationalization of incomes policy as of 2005 and the smoothing out of the tax system in coming years can lead to a marked improvement in public finances. Additionally, the mid- to long-term dangers that may exist from the demographic problem of an aging population could be limited through the gradual, further restructuring of the social security system,» said the statement. Alpha Bank projects that August inflation will stay stable at the July figure of 2.9 percent, increasing marginally in September to 3.1 percent, while the annual average for 2004 is forecast at 2.9 percent. The gross domestic product is seen rising by 4 percent.

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