ECONOMY

Greece sets out details of return to fiscal propriety

Greece will reduce its budget deficit from a projected 5.3 percent of gross domestic product (GDP) this year to 2.8 percent in 2005 by a combination of seven revenue-boosting and expense-reducing measures, Economy and Finance Minister Giorgos Alogoskoufis notified the European Commission in a letter yesterday. After meeting German counterpart Hans Eichel in Berlin yesterday, Alogoskoufis said he had found a very good climate and understanding for the Greek positions. Greece has recently been widely rebuked in the EU for inconsistent reporting of its public financial data in recent years, after conducting a review which showed fiscal deficits considerably above those planned in its budgets. The issue has been a major bone of contention within Greece, with the present ruling party accusing its predecessor, PASOK, of consistently falsifying and misrepresenting data. Alogoskoufis said that Greece does not expect the imposition of any sanctions, as there is no legal basis for this, and again dismissed suggestions that the country is «under supervision» or a «special regime.» An extensive excerpt from Alogoskoufis’s letter to the Commission follows below: «The Ecofin meeting of July 5 adopted a recommendation, in line with Article 104 (7) of the Treaty, regarding the excessive deficit procedure for Greece. According to this recommendation, the Greek government should deal with the present situation of excessive deficit as soon as possible, and by 2005 at the latest. The Greek authorities were asked to adopt corrective measures, mainly of a structural nature, which amount to up to 1 percent of GDP, cumulatively within 2004 and 2005, and be preferably equally distributed between these two years. They were also asked to ensure that the public debt be adequately reduced and approach the reference point (60 percent of GDP) at a satisfactory pace, in parallel with the correction of serious omissions in fiscal data. In the present letter, I would like to inform you of the measures which the Greek government has adopted in relation to this recommendation.» Revenues «In July, Parliament voted in Law 3259/2004, which provides for the possibility of tax settlements (including outstanding dues to the government, repatriation of capital and unsettled tax items of the self-employed and enterprises). The expected boost to revenues in fiscal 2004 is about 400 million euros (0.20 percent of GDP), while the greatest part of such revenues (about 1,200 million euros, or 0.70 percent of GDP) will be collected during 2005… «The reduction in the deficit by 2.5 percentage points largely concerns the central government deficit (2.1 percent). The measures included in the 2005 draft budget are mainly of a structural nature.» Public expenditure «The largest part of saving on expenses will come from the permanent drop in public project spending, resulting from the completion of the Olympic Games (leading to a reduction from 1.37 percent of GDP to 0.34 percent of GDP). Curbing expenses in the Public Investment Program will additionally contribute a net 0.43 percent reduction in the GDP. «Measures were adopted to ensure a significant slowdown in the rate of increase of nominal current public expenditure from an estimated 11.2 percent in 2004 to 6.0 percent in 2005. These measures include a policy of restrained increases in salaries and pensions, a particularly restrained policy of hirings in the public sector and significant reductions in nominal terms (6.5 percent) in current operating expenses. As a result, the total primary spending of the general government will fall by 0.29 percent of GDP. Interest payments on public debt will be 0.24 percent of GDP lower… We shall have a further saving in the order of 0.40 percent of GDP, which will result from the completion within 2004 of the settlement of outstanding government debts to social insurance funds, as well as from the continuing implementation of structural initiatives in the social insurance sector, which will reduce evasion of contributions.» Surplus «The 2005 draft budget provides for a primary surplus in the order of 2.2 percent of GDP, compared to 0 percent of GDP for 2004. «An important privatization program has also been announced, amounting to 1,600 million euros (about 1 percent of GDP). «According to the draft budget, public debt will reach 109.5 percent of GDP in 2005 (against 112.1 percent in 2004). During the fiscal review, particular attention was paid to factors, beyond net borrowing, which contribute to changes in the debt level. As a result, the recording of data, such as inter-governmental debt and capitalization of interest has been corrected and is now fully harmonized with the decisions of Eurostat. «As regards the recommendation concerning the inadequacy of statistical data, the fiscal review did indeed reveal weaknesses in the Greek statistical system, which have been addressed. Further improvements have been planned….» Greece’s budget deficit was due to be discussed at the next Ecofin meeting, November 15-16, but this has now been postponed to the December meeting, which will also deal with the budget deficits of other EU members that have exceeded the prescribed 3 percent threshold of GDP.