ECONOMY

Gov’t preparing to explain how it will cut deficit below threshold

Finance Ministry officials are reported to be in the midst of intense consultations in view of the European Union’s economy and finance ministers’ council (Ecofin) meeting, planned for November 15-16, which will focus on Greece’s public finances. Economy and Finance Minister Giorgos Alogoskoufis is scheduled to meet on November 5 with Hans Aichel, his German counterpart, and his Dutch counterpart, Gerrit Zalm, who is the current president of Ecofin. On the same day, the Greek government will send a letter to Brussels, describing eight basic measures it plans to take in order to reduce the 2005 public deficit to 2.8 percent of GDP from a projected 5.3 percent in the current year. Alogoskoufis is aiming at persuading his Ecofin partners that Greece’s new stance on public finances means that the government will strive to apply the highest degree of transparency to its effort to restore public finances. The letter, which the Economy Ministry has already prepared, states that, for a start, the 2005 budget will be rid of expenditure equal to 1 percent of the country’s gross domestic product (GDP) that went on Olympic projects in 2004. A further saving of 0.3 percent of GDP will result from cuts in funding for the Public Investment Program, earmarked as the national contribution to the European Union-subsidized Third Community Support Framework (CSFIII) investment program. A 0.1 percent reduction will be achieved through the better absorption of CSFIII funds. The letter explains that the containment of raises in wages and pensions will produce an additional saving of 0.4 percent of GDP and the scaling-down of military equipment orders another 0.2 percent. Further savings of 0.2 percent of GDP will result from interest payments on public debt, and of 0.7 percent from the rescheduling of debt repayments for the Social Security Foundation (IKA), for which the government has been disbursing about 1.35 million euros annually. Nevertheless, Greece is still expected to be treated with suspicion during the Ecofin meeting due to the image which it acquired owing to the accounting practices of the previous PASOK government, whose facts and figures now do not seem to have mirrored reality. This was proven by the recent review of public finances, which is still being criticized vehemently by the opposition. In its autumn forecast for the economy of the European Union and its member states, the Commission on Tuesday cast doubt on the feasibility of the Greek government’s target, embodied in a budget draft unveiled in late September, of bringing the deficit down to 2.8 percent of GDP. «The budgetary plans of the government appear insufficient to bring the nominal deficit below the 3 percent threshold,» and appear to be based on a «rather optimistic macroeconomic scenario,» said the Commission. A more realistic projection is that the deficit will fall to 3.6 percent of GDP. Responding to the Commission’s forecast later, the government said it will stick to its draft budget.