ECONOMY

Papademos dismisses charge of intransparency

BUDAPEST (Reuters) – Controversial revisions to Greece’s budget deficit by EU statistics agency Eurostat should have come as no surprise as the figures were in Greek central bank reports and known to Eurostat, ECB Vice President Lucas Papademos said on Saturday. Papademos, who was Greece’s central bank governor at the time of euro entry in 2001, said the statistical treatment Greece used was well known and accepted. «There was full disclosure in the annual reports of the central bank and in other publications. This information did not appear in appendices or footnotes, it appeared in the main body of the report,» he said at a seminar in Budapest. «No information was hidden, it was clearly available to everybody.» New Eurostat data last week revised the 2000 Greek deficit to 4.1 percent of gross domestic product from a previous estimate of 2.0 percent, pushing the gap over the 3 percent criterion for joining the eurozone. The 2001 and 2002 deficits now stand at 3.7 percent compared with 1.4 percent previously. The 2003 deficit, which had already been revised up in May to 3.2 percent from 1.7 percent, is now shown to be even higher – at 4.6 percent of GDP. In its 2000 report, the Bank of Greece said: «The continuous and systematic efforts to eliminate public sector imbalances led to a gradual decline in the general government deficit, from 13.6 percent in 1993 to 1.8 percent in 1999. «On the basis of the 1999 deficit, Greece satisfied, already from the beginning of 2000, the relevant criterion laid down in the Maastricht Treaty and (as it met the other criteria as well) it succeeded in entering the euro area as from 1 January 2001.» The European Central Bank likewise said in May 2000 that Greece met the Maastricht criteria. For that assessment, the central bank must look at Eurostat’s calculations of country’s budget deficits, which are based upon figures provided by the national government. Papademos said much of the deficit in the earlier years resulted from accounting methodology used for purchases of military equipment. «The way of estimating defense equipment spending on a delivery basis was fully known by Eurostat,» he said. Papademos said, however, that the issue was serious and needed to be investigated. There should be no repeat of these doubts when it came to the next round of eurozone enlargement for mostly ex-communist countries. «Clearly the matter is extremely serious and certainly worrisome both for the country – Greece has to address a very sizable fiscal imbalance and provide further explanation about the quality of data and methodology – and for the credibility of the EU’s fiscal framework,» he said. Need for consistency With 10 mostly East European countries in the queue for the euro, Papademos said it was important that statistics should be consistent. «It is important to ensure that all countries apply consistent methodologies. Without a credible information base, it is very difficult to implement the Union’s fiscal framework,» he said. Commenting on the eurozone economy, Papademos said it is growing more strongly than expected a few months ago, declaring himself more confident although risks from the oil price remain. «I would say that on the whole we have become more confident about the recovery in the euro area than was the case in early spring,» he told a press conference in Budapest. «It cannot be excluded that the pace of growth will be somewhat higher… developments in the first two quarters are signs of this view of upside risk,» he said. He noted, however, that on the downside the main risk remains the high oil price. This is also the main risk to the upside on inflation, as workers seek wage increases, he said. ECB officials have repeatedly warned of the potential danger of «second-round effects» in which companies would raise the price of their goods and services, and workers would demand bigger wage increases to compensate for the higher cost of fuel. Papademos said that although inflation stands above the target level at 2.3 percent, the ECB still expects it will gradually decrease to a level under 2 percent in 2005, which is the ECB target. «We have emphasized the upside risks to price stability, risks that are primarily though not exclusively due to oil prices,» Papademos said. «We have stressed the importance of preventing second-round effects. Up to now, there is no evidence of any significant second-round effect,» Papademos said. «Needless to say, if the ECB’s assessment of the balance of risks to price stability changes, the monetary policy stance would be adjusted to ensure that price stability is maintained over the medium term.» Asked whether there needed to be a new interpretation of the Stability and Growth Pact, which aims to limit government budget deficits, Papademos said there was a case for taking notice of special individual country circumstances, but that should not mean a loosening of the pact. «What is important from my point of view is to ensure that taking into account specific circumstances does not lead to a relaxation of fiscal discipline but leads to a more effective and enforceable interpretation of these rules,» he said. A number of countries, notably Germany and France, have broken the pact’s deficit limit of 3 percent of GDP, or are in danger of doing so.