Ecofin blasts Greece over deficit

The conservative government’s much-publicized audit of public finances, begun mainly as a tactical maneuver in domestic politics aimed at discrediting its Socialist predecessor, has escalated beyond its control, as Economy and Finance Minister Giorgos Alogoskoufis found out in meetings with his European colleagues, beginning with Wednesday’s Eurogroup meeting – comprising the finance ministers of the 12 eurozone members – and ending with today’s Ecofin meeting attended by finance ministers from all 25 EU members. Specifically, the EU ministers endorsed the European Commission’s efforts to look closely into budget data from 1997-99, the three years before Greece’s acceptance into the eurozone, contrary to the wishes of the government, which had confined its audit to the years 2000-2003, by sharply increasing the originally stated deficits. Moreover, the Ecofin cast doubt on Alogoskoufis’s assurances that next year’s budget deficit will fall below 3 percent of Greece’s gross domestic product (GDP), the level deemed appropriate by the EU’s Stability and Growth Pact. «There will be a statement later on by the Ecofin expressing strong concerns over the systematic misreporting of fiscal data by the previous Greek government… The ministers recognize the effort of the current government to restore fiscal transparency,» Alogoskoufis told reporters at Luxembourg yesterday at noon. «Revisions of budgetary data, similar to those that have now been detected in the case of Greece, must not occur again in the Community… Ministers urged Greece to work with the European Commission to clarify outstanding issues on deficit and debt data stretching back to 1997 and to supply all the necessary figures before the next meeting of EU finance ministers in November,» the Ecofin statement said. The Ecofin welcomed Alogoskoufis’s commitment to bringing the budget deficit below 3 percent of GDP. However, the current Ecofin president, Dutch Finance minister Gerrit Zalm, speaking at a press conference after the meeting, declared that «according to the Commission forecasts, Germany, Italy, Portugal and Greece are at risk of getting above 3 percent with unchanged policies.» As expected, Ecofin and Eurogroup ministers did not take sides on the domestic issue of whether the previous Greek government underreported the deficits or the current one has exaggerated them. They simply accepted the figures at face value. Many expressed concern that revisions such as Greece’s risked destabilizing the common currency, the euro, if financial markets lost faith in member states’ accounting methods. «These kind of revisions, similar to the Greek case, should never occur again in the Community because it’s very destructive,» Zalm said. To some members, Greece provided a convenient scapegoat to minimize their own infractions and also to counter the proposal, made on Wednesday by Economic and Monetary Affairs Commissioner Joaquin Almunia, to boost the enforcement powers of Eurostat, the EU’s statistics agency, which, currently, must accept national statistics more or less at face value. «It makes no sense at all that if one country breaks the rules, the others should be made to suffer,» German Finance Minister Hans Eichel said. «If we had broken the rules, we would have accepted the consequences,» he added. Germany, with its consistently high deficits, is one of the most persistent violators of the Stability Pact’s terms, which it imposed on the EU in 1992. But, in alliance with France, the other major offender, it has refused to be sanctioned by the Commission. According to sources, the Commission wants to restate all Greek budget figures from 1997-99 following a new methodology. This is unacceptable to the government, as Alogoskoufis told both Almunia and his Ecofin colleagues. Alogoskoufis was especially adamant about not presenting the capital increase of state-owned corporations as part of the deficit. This, he said, was perfectly legal back then, even if a different accounting method was adopted in 2001. Greece must submit a report to the Commission by November 5, arguing convincingly that its budget target, lowering the deficit to 2.8 percent of GDP, can be achieved with its projected expenditure and revenue figures. This will be an uphill task, especially since it is highly likely that the latest projected deficit for 2004 (5.3 percent of GDP) will be exceeded. In any case, it is skepticism, not praise, that the government will face from EU bodies from now on until it can deliver concrete results.