The government, if necessary, will cut defense spending in order to achieve its goal of reducing the budget deficit to 2.8 percent of Greece’s gross domestic product (GDP) in 2005 from an estimated 5.3 percent in 2004, Economy and Finance Minister Giorgos Alogoskoufis told participants at the annual joint gathering of the International Monetary Fund and the World Bank on Sunday. Alogoskoufis described the scope of the challenge, saying that putting public finances right was the government’s immediate priority. A wide-ranging audit of public finances led to a revision of data on budget deficits and public debt for the years 2000-2004, Alogoskoufis explained, adding that this revision ought to have taken place earlier. As a result, transparency has increased and the country’s fiscal position can be assessed on a more stable basis. Bank of Greece Governor Nicholas Garganas, speaking at the same synod, essentially confirmed Alogoskoufis’s claims of a derailment in public finances after 1999. Alogoskoufis presented the main features of the 2005 budget, emphasizing that pay rises in the public sector will be limited and, in any case, much lower than this year’s 9.5 percent increase, a figure also mentioned by Garganas. There will also be an effort to hold down ministries’ operational costs as well as borrowing by public agencies and enterprises. Revenue from a recently passed measure to allow those individuals and corporations with tax cases pending to settle their cases will also help reduce the deficit, Alogoskoufis told the assembly. The fact that this year also brought heavy spending on preparing for the Olympics, much of it on project budget overruns, will also make a significant difference between the 2004 and 2005 budgets, he added. Alogoskoufis said the government has a strategy to boost growth, employment and social cohesion and help Greece achieve convergence, in real terms, with the economies of its EU partners, even the most advanced ones. Fiscal reform is not the only goal, Alogoskoufis said. Another, equally important goal is to improve the country’s competitiveness. This will be achieved by cutting down on red tape, reducing tax rates and improving the management of taxation. Alogoskoufis predicted a high growth rate for 2005, which will be based on a recovery in the tourism sector and also on a recovery of world trade. He added that domestic demand in Greece remains strong, contrary to what is happening in many other countries, and that will also help boost growth. «The keys to a strong economic performance are fiscal reform, boosting market forces and lifting the obstacles to an efficient distribution of resources,» Alogoskoufis said. Governor’s concerns For his part, Garganas not only noted the failure of the previous government on the fiscal front, but emphasized on the need for social security reform, and not only in Greece but throughout Europe. He also appeared concerned over inflation which, as he said, has long persisted at levels higher than the average eurozone rate. «We are eating from the bread of the future,» he said. Garganas also referred to the adverse effects of high oil prices and the possibility of yet more expensive oil.