Ambitious deficit, debt cuts achievable

Greece’s ambition to cut its swelling public deficit through the rapid expansion of its economy is feasible, analysts said, despite concerns that the government might be too optimistic about the economy’s future rate of growth. Greece, which acknowledged last month that its public deficits had far exceeded declared figures and eurozone limits for several years, said last Wednesday its public deficit would be almost halved from a planned 5.3 percent of output this year to 2.8 percent in 2005. In addition to the removal of costs linked to the Athens Olympics, the government pins much of its hopes to balance its books on buoyant tax revenues from a strong economy growing by 3.9 percent in 2005, up from 3.7 percent this year – despite the end of last August’s Games and a sharp slowdown in public spending. «Growth of 3.6 to 3.7 percent is feasible next year,» said Dimitris Maroulas, deputy head of economic research at Greece’s second-largest bank, Alpha. «Our 0.2 percent difference with the government’s forecast is negligible. We’re practically talking about the same growth rate,» he told AFP. But other analysts are less optimistic. In July, the research department of the National Bank of Greece (NBG), Greece’s largest credit institution, saw the economy growing by a more modest 3.0 to 3.5 percent in 2005. «Growth next year should be at the upper range of this estimate,» a source at the state-controlled bank told AFP Friday. Nevertheless, there are doubts that growth will be strong enough to make a big dent in the deficit. «It will be a success if the public deficit is reduced to 3.5 percent of output in 2005,» a senior Greek official close to the Economy and Finance Ministry told AFP on condition of anonymity. According to the draft budget, the government counts on tax revenues rising by 7.8 percent in 2005. In comparison, state expenditure is expected to increase by 4.8 percent, against 11.5 percent this year. The European Commission will be anxiously watching to see if Athens can achieve its targets. The Commission launched an excessive deficit procedure against Greece in June, after the country’s conservative, incoming government revised upward the country’s public deficit for 2003. But Greece stirred up a full-blown controversy last month when it announced that the country’s public deficit had been far in excess of the eurozone ceiling of 3.0 percent of output as early as 2000 – despite earlier figures that had shown Greece in compliance with the single currency’s rules. The announcement shook the eurozone, throwing doubt on the quality of the statistical data in the zone – even leading to suggestions that Athens could have cheated its way into the euro. The 2005 budget should silence Greece’s critics, Alogoskoufis hopes. «The climate in Brussels will be difficult, but I hope that they (the Commission) will be convinced and we won’t have to take further measures,» the minister said. The government expects the economy to benefit from continuing strong private consumption, higher exports and more tourism receipts. «Private investment and exports, set to grow by 7.9 and 7.5 percent respectively, will propel growth,» the government said in its draft budget. «Private consumption is foreseen to rise significantly by 3.5 percent,» it added. Average Greeks have been on a consumption binge for years, their pockets lined with euros from bank loans, which expanded rapidly after interest rates fell in the run-up to eurozone entry in 2001. «As long as interest rates remain low, this trend should continue,» Maroulas said. Greece also hopes that tourism receipts will pick up. Officials expect this year’s drop in tourist arrivals to be reversed in 2005, as economies in western Europe recover and the country benefits from the image boost it got from successfully staging the Olympics. «Much also depends on whether the government can mobilize European Union funds,» Maroulas added. EU co-funded infrastructure projects across the country have been a major boost for the economy in recent years. Red tape in Greece has tied up much of the funds in the past. The conservatives have pledged to speed up procedures. But the country’s accounting tricks may damage that very prospect. The EU Commission said Wednesday it would study the Greek budget for 2005 before deciding whether to block EU funds for Greece, following revision of past deficit data. «The Commission will have to evaluate this budget and come back with an assessment in November,» spokesman Gerasimos Thomas said.